Q1 2022 Stifel Financial Corp Earnings Call

April 27, 2022

Okay.

Good day and thank you for standing by welcome to the first quarter earnings call 2022 at this time, all participants I noticed an oldie mode.

The speaker's presentation there'll be a question and answer session to ask a question. During this session you will need to press star one on your telephone. Please be advised today's call is being recorded if you require any further assistance. Please press star zero I would've liked you had the conference all parties Speaker today, Mr. Joel Jeffrey head of Investor Relations. Please go on.

Hey.

Thank you operator.

Welcome everyone to Stifel Financial's first quarter financial results Conference call I'm joined on the call today by our chairman and CEO , Ron Kruszewski, our co presidents, Victor Newsy, and <unk> and our CFO , Jim <unk> earlier.

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 Dot Stifel Dot com.

I would note that some of the numbers that we state throughout our presentation are presented on a non-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 a slide presentation for information on forward looking statements and non-GAAP measures.

Mario cast is copyrighted material of Stifel Financial Corp, and may not be duplicated reproduced or rebroadcast without the consent of Stifel Financial Corp.

I'll 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 first quarter results two.

2022 is off to an interesting start to say the least the war in Ukraine surging inflation in the post Covid reopening have resulted in increased volatility higher rates lower equity markets and a fear of a recession in the United States. This contrasts markedly with 2021 when the yield on the 10 year Treasury was.

One 6% oil was $60 a barrel the VIX was 18 and the fed's dot plot forecasted zero rate hikes in 2022 last year, we generated record revenue revenue and earnings per share led by our institutional business and more specifically our investment banking businesses.

Fast forward today, and the environment couldnt be more different 10 year Treasury treasury yields are around two 8% well above $100 a barrel the VIX as of this morning about 30, and the market's forecasting the fed to raise short term rates to two 5% by year end.

One of the objectives of this call is to highlight the diversity and balance of our business model, which has proven over time to generate consistent growth despite ever changing market conditions simply all else being equal rising short term rates are good for most banks and very good for Steve.

As I look to the remainder of 2022, the expected benefits from increases in short term interest rates will be substantial to our net interest income as Jim Merritt will elaborate our net interest income is now expected to increase by 300 to 400 million over 2021, this coupled with the growth in others.

Global wealth management revenues and our fixed income businesses can help to offset the impact of some of our more market sensitive revenue lines in short, we expect 2022 to be another strong year for Stifel.

So with that said, let's look at our first quarter results Stipo recorded our second highest net revenue and EPS for a first quarter, which is no small feat considering the difficult market environment, especially for our equities business much like our forecast for the full year.

Gives me.

2022, our results from the first quarter illustrate why it's important to have a diversified business model that can provide ballots.

Illustrate global wealth management revenue increased 8% to a record $682 million as our fee based revenue and net interest income had record quarters on the other hand, our institutional revenue declined 15% to $431 million. Yeah. We are also balanced within our institutional business as the <unk>.

Strength of our advisory and fixed income revenues helped offset a roughly 80% decline in industry wide equity issuance taken together Stifel first quarter revenue totaled $1, one 2 billion only slightly down from the prior year. This underscores the balance of our businesses.

The next slide contains more detail on our quarterly results as I said, our revenues were down modestly. However, our bottom line benefited from our variable expense model that resulted in pre tax margins of 22% and return on tangible common equity of 24%.

A measure of our profitability as compared to the same period last year is to compare pretax pre provision income so let's compare our pretax pre provision income of $250 million was up 5%, excluding the impact of our credit provisions, which I would note are related to loan growth.

Our earnings per share would have increased by 10.

Per share this quarter.

Driving this improvement in operating margin our compensation ratio declined from the first quarter of last year to 59, 5% as our operating leverage continues to improve Additionally, our operating expense ratio was 18, 1% and excluding the investment banking growth ups totaled.

<unk> 17, 7%, which was just above our full year guidance taken together, our EPS of $1 49 represented our sixth best quarterly result, and second strongest first quarter.

Moving on to our operating segments, starting with global wealth management.

Our record net revenue increased 8% and was driven by the addition of productive financial advisors as well as the growth in our balance sheet, coupled with improving net interest margin asset management revenue was up 7% sequentially and 23% from last year, when we discussed our 2022 outlet.

Back in January we projected that the market would be down in the first quarter and I guess, we were proven right as the S&P 500 finished the quarter off about 5%.

However, the impact of the decline in equity valuation was partially offset by continued strong inflows as our fee based assets ended the quarter at 158 billion and total client assets were $421 billion.

On the next slide we highlight our strong recruiting activity client asset growth and an increased loan portfolio for the quarter. We added 39 advisors with total trailing 12 month production of $18 million. This includes 16 recruits with trailing 12 month production of $18 million the remaining advisers.

Were added through Stifel training program as well as the advisors that achieved minimal productivity standards, although market volatility was bit of a headwind in terms of overall recruiting we continue to see extremely strong interest in our platform and we anticipate increased conditions as the year goes on the.

The consistency of our revenue continues to benefit from our growth in fee based revenue and net interest income. This resulted in nearly 75% of wealth management revenue coming from recurring sources during the quarter.

Lastly, we grew our loan portfolio by $1 $1 billion during the quarter up 6% sequentially and if you annualize our first quarter. It would represent a 25% increase in loan balances from the end of 2021, our growth was driven by both commercial and consumer lending the.

Growth was spread across a number of verticals as we continue to invest in people and capabilities across multiple commercial lending challenges channels.

Including bonded venture banking sponsor finance CRE and broadly syndicated lending.

Our consumer growth continued to be the result of increases in our retained mortgage portfolio and while we anticipate that the second quarter will be strong. We also expect higher interest rates will moderate the pace of growth in our retained mortgage book in the second half of the year.

The increase in our loan portfolio portfolio helped drive the 13% sequential increase in net interest income as Jim will discuss our projections for net interest income our strong and highlight the asset sensitivity of our balance sheet.

Moving onto our institutional group, let me start by saying that at Stifel. We view this segment of our institutional segment as a growth business, albeit with some cyclicality as you can see from the chart on the bottom of the slide we have consistently grown our institutional revenue through 2021.

Our five and 10 year compound annual growth rate were 18, and 15% respectively. Despite some minor down years, while our first quarter net revenue of $431 million was down 15% versus last years record first quarter. We are still on track to generate the second highest.

Institutional revenue in our history, our advisory and transactional revenue increased year over year, but the decline in underwriting activity resulted in lower net revenue.

Our institutional business generated pre tax margin of 22, 4%, reflecting the operating leverage in this business.

Moving onto the components of the institutional group, our fixed income business generated net revenue of $161 million up $15 million or 10% from last year, helping to offset the fact that our equities business was down $140 million or 62% and came in at $86 million.

As I've done in the past I will speak to our transactional revenue on this slide and lead the capital raising discussion for the next one.

In terms of the trading businesses, combining equity and fixed income we had the second strongest quarter in our history as record fixed income revenue offset declines in our equity business fixed income trading revenues.

A record $122 million up 24% driven primarily by the addition of Vining Sparks and increased overall activity in our rates business equity trading revenue was down 29% remember that last year's first quarter benefited from strong global volumes tied to increased <unk>.

Retail activity and strong issuance markets. In addition, the S&P 500 was up 6% in the first quarter of 2021 compared to a 5% decline in 2022, which impacted our trading gains.

On slide seven we look at our investment banking business for the quarter, we posted revenue of $255 million, which was down 25% as our record has record first quarter advisory revenue was more than offset by the weakest equity underwriting market, we've seen in some time.

We continue to be pleased with the strength of our advisory business is our revenue of $181 million was up 40%. Our advisory business is diverse across business segments as K VW, a proxy for financials posted a record quarter. While we also got strong contributions from industrial consumer.

Technology as well as our Miller backed by our restructuring practice, we continue to see strength in public backlogs and we're also benefiting from the investments we've made in our ability to do private transactions overall, while timing can always impact deal closings, we feel very good about the outlook for our advisory business.

In terms of underwriting despite our 62% decline in equity underwriting according to our internal calculations stipo gain market share. This was again a result of the investments we've made in the business our fixed income underwriting business posted $40 million of revenue a decline of 17% from <unk>.

Last year, but again, our market share in the municipal finance business in terms of number of transactions increased to 15, 8% from 12, 9% and helped to partially offset the impact of greater than 20% decline in industry wide activity.

Overall, we experienced the cyclicality of our institutional business this quarter as primarily a transactional business. This is to be expected from time to time as market conditions can be volatile. However, the diversity of our revenues within the institutional business mitigated that volatility.

We've demonstrated our ability to consistently grow this business over the past 10 years, and we anticipate that to continue to continue to grow as markets stabilize in the coming periods and with that let me turn the call over to our CFO chip Merritt. Thanks.

Thanks, Ron and good morning, everyone.

I'll start by addressing net interest income.

<unk> came in above our guidance at $156 million, which is up 13% sequentially.

The growth was driven by an 8% increase in our interest earning assets as we could continue to grow our loan portfolio and from an increase in bank NIM to 244 basis points.

We benefited from the recent rate increase in March we anticipate the majority of the impact from this rate hike to occur in the second quarter.

With that said, assuming we see 250 basis point rate hikes in the second quarter. We would project net interest income in the second quarter in a range of $190 million to $200 million.

And our bank NIM of 285 to 295 basis points.

As you recall, our full year guidance for NII was in a range of $650 to $750 million.

This was based on balance sheet growth of 4% to $6 billion zero to three increases in the fed funds rate beginning in March well after one quarter's results and market expectations for significantly more rate increases our initial guidance appears to be conservative.

Given our current asset composition total balance sheet growth a $4 billion for the year in.

An additional 100 basis points of rate hikes are expected in the second quarter and a 50% deposit beta the low end of our guidance range will increase to $800 million.

When we model and the impact of an incremental eight rate hikes $6 billion of asset growth and a 25% deposit beta this would drive the high end of our NII range for the year to $900 million.

Moving on to the next slide to highlight the bank's loan and investment portfolios.

We ended the quarter with total net loans of $17 8 billion, which is up approximately $1 1 billion from the prior quarter.

Our commercial portfolio increased by $430 million with particular strength in the industrial and financial sectors.

On the consumer side, our mortgage portfolio increased by $500 million.

Securities based loan portfolio was up modestly as recruiting remains strong.

Moving to the investment portfolio.

It'll investments decreased by $220 million sequentially as a result of lower agency MBS and CLO holdings.

That said, we are beginning to see increased opportunities and close given the increased rate environment and current yields.

Turning to credit metrics.

The loan loss provision totaled $8 $2 million due to the aforementioned loan growth and the allowance to total loans ratio remained at 75 basis points.

Our nonperforming assets as a percentage of total assets remained at seven basis points, indicating continued strength in our credit metrics.

Moving on to capital and liquidity are risk based and leverage capital ratios declined to 18, 6% and 11, 3% respectively.

A modest decreases in our capital ratios were the result of loan growth and the seasonal impact on equity from stock based compensation.

During the first quarter through the net settlement of vested shares we repurchased $87 million of shares from employees.

Our book value and tangible book value per share experienced slight declines as our quarterly earnings were offset by the aforementioned impact of stock based compensation as well as the impact of an unrealized loss recorded in accumulated other comprehensive income.

This unrealized loss was due to relatively modest size positions in our agency MBS and corporate Bond holdings.

Given our plans to continue to grow our loan portfolio. We received a number of questions about our baked funding capabilities.

As you can see we've added a chart to illustrate the funding that is not only utilized by the bank currently but also available to our bank.

Quarter end Stifel Bancorp was utilizing $22 2 billion of deposits from the sweep program with an additional $5 5 billion of available that is currently swept to third party banks.

Through deposit generation efforts outside of the Sweet program. The bank has grown $2 billion of other direct commercial and retail deposits from clients over just the past few years.

These deposits primarily generated through our fund and venture banking groups as well as through other retail deposit programs.

Further our PSEG clients hold an additional $6 2 billion in money fund balances and the bank has access to other secured borrowing facilities totaling $4 5 billion.

Lastly, I wanted to highlight that our recent doubling of our annual dividend from <unk> 60 per share to $1 20 per share resulted in a 20% payout ratio in the quarter.

On the next time, we go through expenses, our comp to revenue ratio of 59, 5% was down 140 basis points from last year, but above the high end of our full year guidance as.

As we stated in the past, we typically accrue compensation expense conservatively earlier in the year.

In the presentation final comment on our updated comp ratio guidance.

Non compensation operating expenses, excluding the credit loss provision and expenses related to investment banking transactions totaled approximately $197 million.

It presented 17, 7% of our net revenue.

The effective tax rate during the quarter came in at 23, 6% and we expect the second quarter effective rate to be between 25 and 26%.

Finally, our average fully diluted share count was in line with our guidance.

Absent any assumption for additional share repurchases and assuming a stable stock price, we would expect the second quarter fully diluted share count to be $118 3 million shares.

And with that I will turn the call back over to Rod.

Thanks, Jim So.

So far in 2022, we're off to a strong start as we generated record wealth management institutional fixed income revenue that drove our second strongest first quarter in our history that said, it's also fair to say that the market environment has not been exactly what we had initially projected in 2022 is shaping up to be very different.

2021. This is why we have consistently emphasized the importance of the diversification of our business model you can see from the top of the slide we have a long track record of consistent growth through various market conditions much as much of which is due to the diversity of our revenue line.

As such we believe that we are well positioned to weather the market volatility and potential economic headwinds that could emerge in 2022 as such we are maintaining our full year revenue guidance of four 9% to $5 2 billion.

Looking at our global wealth management segment revenues will be driven by a number of factors that include increased net interest income continued strength in recruiting and solid asset management revenue in terms of net interest income as Jim mentioned earlier, we've raised our guidance to account for increased increase for increases in the fed funds rate.

The lower end of our guidance is based on rates only increasing 100 basis points as we believe the federal reserve may be limited in how much. They can increase rates. If the economy begins to slow that said our revised low end of our guidance is still $50 million above the high end of our prior guidance.

The revised high end would represent an 80% increase in NII from 2021, the increase in our guidance underscores the meaningful asset sensitivity in our business, which I believe has been underappreciated by the market. Our institutional group revenues are more volatile and our results from the first quarter illustrates.

How they can be impacted by changes in the market.

That said, we continue to believe that 2022 will be a solid year for institutional groups. Our investment banking revenues should improve as we expect consistent contributions from our advisory practice as our pipelines are robust and improvement from our capital raising business from the low levels in the first quarter addition.

Wally transactional revenue should increase due to seasonal improvements in volume as well as increased trading gains.

Lastly, we lowered our guidance for our compensation compensation ratio to 56% to 58% primarily due to the additional revenue from NII, while we try to be conservative in how we accrue compensation early in the year, we anticipate that the additional expected revenue from this relatively low <unk>.

Satori revenue source will allow us to enhance our already increasing operating leverage and.

So in conclusion, we do not expect 2022 to resemble 2021, especially considering the war in Ukraine, and the increase of inflation, the latter of which requires a tightening of monetary policy and a reduction of fiscal stimulus.

With respect to inflation its emergence reflects too much money created through the combination of Vas federal spending and easy monetary policy chasing too few goods U S economists Milton Friedman to simply observe that inflation can only be produced by a more rapid increase in the quantity of money and.

And output.

It is safe to say that the increase in broad U S. M. Two money supply in 2020 to 2021 to a growth rate that peaked at over four times the rate that existed during the pre COVID-19 years laid the foundation for inflation in 2022 with.

With respect to the current war in Ukraine above all it's a humana humanitarian tragedy and our thoughts are with the people of Ukraine, regardless of a diplomatic solution is hard to imagine that these events do not impact the world order the global economy free trade and the position of the U S dollar in that hierarchy.

Taken together these factors introduced significant uncertainty and as a result more inherent risks.

That said as Stifel has demonstrated for over 25 years. We are a company that is both well positioned and capable of adapting to changing environments. The balance of our business model augmented by acquisitions create continued opportunities for growth and gives us confidence in our ability to generate strong results.

With that operator, please open the line for questions.

As a reminder to ask a question you will need to press star one on your telephone to reach all your question press the pound key again, if he would like to ask a question Press Star then the number one on your telephone keypad. Please standby will be Gabor. Good luck, Andy Ross Sir.

The first question comes from the line of Steven <unk> from Wolfe Research. Your line is open.

Hi, Good morning, Ron Good morning, Jim.

Morning fees all morning.

Wanted to start off with I would say, maybe a hot topic at the moment cash sorting last cycle, you had very low deposit betas on the first 100 bps of hikes that ran pretty significantly and you even started to raise some Cds as cash sorting headwinds started to manifest. This time it does feel admittedly different just because.

You're coming into a cycle with better organic growth you noted, there's a larger pool of available funding of roughly 16 billion, but wanted to get a sense as to how much of that 16 billion can be readily sweat to Stifel bank to support growth and how do you see cash sorting impacting cash balances and is there a credible pay.

<unk> case for growing sustainably from here even beyond 2022.

A lot of questions in that Steve.

I would consider a heavy to partner.

Kevin too far.

First of all when we have and will continue to source deposits through recruiting I mean, we've done it consistently as we've grown AUM.

Talked about our AUM targets in the way we can grow.

Both through.

Organic recruiting and acquisition and.

<unk>.

When I look at it we're going to continue to build our funding base. We've also instead of just looking at retail we've been building funding through our commercial.

Build outs to and fund banking in <unk> and you've seen that so I believe we have adequate funding. We're talking this year about $4 billion to $6 billion.

Of growth.

Ross.

If you take that.

Into next year, we have funding.

To easily do that.

So I think that was the first part and.

I'll, let Jim jump in here, a little bit I think youre talking a little bit about deposit base.

From a cash sorting perspective, I think one thing that's different this time around maybe theres a couple of things, we're starting from a higher yield on our asset base. So we can be more competitive on the deposit beta and still make an acceptable return that said, we've also put in some deposit programs to deal with more rate sensitive deposits to hold onto more of that.

Cash that's sourced searching for higher yielding deposit and so I think those factors put us in a vastly different position and then when you think about some of the guidance we put out on our net interest income.

We're talking about on a low and a 50% deposit beta which is significantly higher than what we experienced in the last cycle. So even though there are those types of deposit beta as these are the types of NII and net interest margin that we can produce and I think.

It's kind of inherent the beginning of your question you talked about how things are a little bit different this time.

Yeah.

Thanks for that color, Jim and maybe just one on the fee guidance certainly more conservative fee guidance I don't think its taking anyone by surprise given the tougher backdrop for the market sensitive businesses I was hoping you could provide just some granularity on what you're assuming for equity markets for full year 'twenty two as we think about that mark to market of the guidance.

And just speak to your outlook for the advisory and ECM businesses over the next few quarters.

The macro is challenging and immediately but you also cited a record backlog in advisory.

Which should convert at least over the next couple of quarters from here.

Yes look I'll take a few our advisory business and all of the.

Sure.

The things that drive that business.

We are still in place Okay, we see.

Yes.

The environment.

Something we need to monitor but the overall.

Environment is in place and so we're optimistic.

About our advisory business. So that said, we had a good first quarter as well.

<unk> of $180 million as it respects to the fee based I think our base case was we had expected a decline in the first quarter and then Jim what was the.

In terms of asset management.

Low mid single digit increases in the S&P 500 through the end of the year and so that's the basis on which we.

That we were forecasting asset management so.

And this recent pullback isn't isn't in the top.

As recent so.

Fair enough and if I could just squeezing one more just on the organic growth outlook. Despite the volatility in the quarter certainly nice to see the advisor ads and even a large client win for the nation independent platform.

Hoping you could disclose the level of organic growth that you saw in the quarter.

Recognizing it was a challenging recruitment backdrops and over the long term what do you see as a sustainable level of organic growth and whether that contribution from the independent channel while still early we're in.

That could help buoy the long term algorithm.

Our organic growth Youre talking about.

Assets are advisors.

Assets.

Yes, no I would say obviously the first quarter is probably a little bit more challenging in terms of net new assets is probably low mid single digits, but I still think the dynamics for growth there.

Mirror more of that six or seven or 8% that we've experienced historically over kind of multiple operating cycles and I think thats, what we guide to yeah.

Look our recruiting is is historically I mean years long.

First of all the independent channel is has green shoots we said, we're approaching the business a little bit different.

What we're what we're looking at in terms of recruiting and into that channel, but it certainly.

Something that that we are optimistic about in terms of augmenting our historical employee channel recruiting.

Very helpful color. Thanks, so much for taking my questions.

Yeah.

The next question comes from the line of Kevin Ryan Your line is open.

Hey, Devin Devin Ryan to get that suggest that when how are you guys.

I don't know if your middle name I think Kevin Kevin Ryan.

Exactly yeah.

I think Stephen asked all the questions with those three partners there, but let me.

What we try to do.

To take a different route so.

I wanted to dig in a little bit about the bank growth and appreciate the capacity there and you guys have got a lot of success can you, maybe just parse that a little bit more around.

The kind of competitive dynamics, obviously as rates are going up.

Theres more interest.

And.

Other firms obviously.

Expanding our bank capacity as well and Jim you mentioned CLO.

Obviously, you guys put in the market a long time, I'm curious kind of what youre seeing there what type of yields how attractive that is as well. So just kind of a high level on competitive dynamics in the bank and then where youre looking.

Yes look first of all.

We've not seen.

The rapid increase in money supply that we saw last year, 25% and M two and that that factor.

Makes me believe that as much as people want to say theres going to be a lot of demand for deposits.

That would argue against that.

The unknown factor here a little bit.

And as we've also not seen a scenario where the fed shrinking its balance sheet.

The tune that.

<unk> talked about.

And on that that could be a factor that goes.

The other way but.

The world Awash in liquidity those deposits all over the place.

I think it's.

I am not sure how much different it will be this time, yes, and maybe pivoting a little bit back specific to the categories of growth I think the reason that we feel confident in our ability to grow is that we've diversified into a number of different lending channels and Ron kind of spoke to that.

Whether it's residential lending securities based upon banking venture private banking CRE theres been a number of teams in people and capabilities. We've invested in over the last few years that are really helping us diversify that growth and then the comment about the CLO portfolio. That's just additional capacity there we're seeing.

Clothes, yielding in the $2 60 range.

And so that's another attractive floating rate asset as we continue to see rates rise that we would happily add as part of our kind of overall asset mix.

And I just wanted to say is it goes to funding we're going to continue to grow we will grow our funding sources.

We've shown our funding, but if you look at Florida, six 1 billion in growth do it again $4 6 billion.

I don't see us constrained by funding, while we're growing our balance sheet, 15% a year.

That's kind of what I think are sometimes under appreciated also Devon has.

Our ability to organically generate loans and the deposit funding for that.

We've grown the bank I think 30%.

A year for the last five years, and we're going to continue to grow the bank.

And the building blocks to do that both to generate loan demand.

And fund are in place.

Okay, great. Thanks for all that color and then maybe to round out from Stephen's question earlier on the institutional side you hit on.

The advisory outlook in ECM to some degree I'm curious.

It's been a bit of a pretty healthy backdrop for fixed income.

And as rates go up.

Just maybe talk a bit about clinic locations on.

Appreciate your rate outlook isn't will go into some some new high level, but what the implications are on either fixed income capital raising or the fixed income brokerage business, particularly obviously not yet buying sparks in there as well. So just some of the puts and takes as we transition a bit maybe in that business as well.

Yes, I think.

<unk> I'll comment both fixed income and equity fixed income trading.

We look forward.

So as I've said, some seasonal factors and the additions that we put in we see that business.

As part of the positive and improving from the first quarter.

To give a sense.

<unk>.

The public finance business is its also been challenged by just what's been happening in the high yield market and public finance.

That.

That's a market that's been under some stress.

Overall, we think that public finance is relatively flat to last year, which was a very good year.

But also up from the first quarter.

Our advisory on the equity side, it's very very good backdrop back log in as I said the factors.

The.

He has a lot of PE firms have a lot of firepower.

And that's going to that'll help the advisory business.

And we will benefit from that.

Capital markets first quarter was that.

And that was 80% decline in equity and equity linked issuance.

And the volatility that we're seeing in the market and I, what I mentioned the mix, that's going to certainly impact new issue, but the volatility also will help our trading businesses.

So.

Overall, I am trying to paint a picture of improvement.

Our institutional business.

As we sit here today going forward.

Great I appreciate it Ron Thanks, Jim as well I appreciate it.

Thanks.

The next question comes from the line of Alex <unk> with Goldman Sachs. Your line is open.

Hey, guys good morning.

I'm going to probably.

Probably add to the multi potters is on top of the multi partners. So we'll keep talking about the bank for a second so I guess I was hoping maybe you could frame.

Out of the $28 billion of customer cash that you guys have right now is there a way to frame sort of a stress level in terms of what sort of truly operational right. So things that are set aside to pay fees for.

Some kind of exhaust cash in the accounts versus something that could ultimately chase higher yields.

Given the fact that money market fund yields here will yield a pretty attractive alternative shortly so.

So that's kind of the first party and then on the deposit beta side of things I just want to make sure that we're talking to $25 to 50% is really kind of the average over the course of 2022, so potentially we could be entering 2023 and north of 50% deposit beta is that potentially the message.

Maybe I'll take the first one first and so in terms of operational cash obviously, we're not in a regulatory regime will reclassify those cash balances in the manner that youre talking about thats significantly larger bank classification to get there, but I will say the vast majority of that cash in the sweep program.

Is operational in nature. The average balances are relatively small there.

As millions plus clients in that group and so theres a lot of money movement going back and forth, but what youll see over time is there is a lot of consistency in that balance and so.

I think the bigger item to focus on there is just the continued growth in the overall program based upon the continued success in recruiting and Thats going to continue to drive that balance higher and we're going to have access to the vast majority of the cash available held by clients second item on the beta again. This was just for pure.

Lesser purposes, we were talking about a 50% beta for the full cycle on the low end, so that $800 million NII guide includes a 50% beta. The 900, we were talking about 25% were just trying to frame up where that what the impact of the beta could be on the overall NII guide, but at the end of the day, we're going to be.

And we're going to we're going to be moving with the market and we're going to be competitive in our deposits and we will see where the actual betas end up going.

Yes.

I would I would just add that based on.

Any.

Within any range of debate.

The impact on our NII, which I think you've actually modeled pretty well Alex is insignificant.

Yeah makes sense thanks, guys.

Q1 2022 Stifel Financial Corp Earnings Call

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