Q4 2023 Stifel Financial Corp Earnings Call

Operator: Good day and welcome to the Stifel Financial Fourth Quarter Financial Results Conference Call. As a reminder, today's call is being recorded.

Joel Jeffrey: At this time, I'd like to turn the call over to Mr. Joel Jeffrey, head of investor relations at Stifel Financial. Please go ahead.

Joel Jeffrey: Thank you operator. I'd like to welcome everyone to Stifel Financial Fourth Quarter in full year 2023 conference call. I'm joined on the call today by our chairman and CEO, Ron Kruszewski. Our co-presidents, Victor Nisi and Jim Zemlach. And our CFO Jim Marischen.

Joel Jeffrey: 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 stayed throughout our presentation are presented on a non-gap basis, and I would refer to our reconciliation of gap to non-gap, as disclosures 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-gap measures. This audio cast is cooperated material by Stifel Financial and may not be duplicated, reproduced or re-broadcast without the consent of Stifel Financial.

Ronald Kruszewski: I will now turn the call over to our chairman and CEO, Ron Kruszewski. Thanks Joel, to our guests, good morning, and thank you for taking the time to listen to our fourth quarter and full year 2023 conference call. Let's begin by discussing our year in 2023, whereby Stifel generated strong results in an operating environment that was less than ideal. The benefits of our diversified business model enabled us to successfully navigate market conditions that included increased geopolitical risks, tightening of financial conditions, primarily due to significant increases in short-term rates and quantitative tightening by the federal reserve, both implemented to grow inflation.

Ronald Kruszewski: And the failure of three major banks in the United States led by record results in global wealth management, which produced its 21st consecutive year of record net revenue driven by record asset management revenue and net interest income. Stifel overall generated net revenue of approximately 4.4 billion.

Ronald Kruszewski: This was essentially in line with 2022 despite a significant industry wide slowdown in investment banking activity. As we'll discuss later, these results are directly correlated to our consistent reinvestment in our business, our focus on servicing our clients, as well as our strategy of deploying our substantial excess capital and ways that generate strong risk of justice returns. Taken together, we generated operating pre-tax margins and returns on tangible common equity of approximately 19%, excluding the impact of the non-recurring legal charge in the third quarter. With respect to capital deployment, we typically deploy the excess capital we generated each year in 2023 was no different. Last year, we generated 630 million of excess capital and deployed it as follows.

Ronald Kruszewski: The repurchase of 7.2 million shares totaling approximately 440 million, 211 million in common and preferred dividends, and a modest amount of balance sheet and acquisition activity. Underscoring our confidence in improving market conditions, I'm happy to announce that our board has authorized a 17% increase in our annual dividend on common shares from $1.44 to $1.68 per share. On slide two, we look back at the growth of our business since 2015 and 2019.

Ronald Kruszewski: Despite constantly changing market conditions, investment we've made in our business results in substantial growth, net interest income is up more than 760% since 2015 as a strategy to grow our balance sheet enables people to capitalize on the increase in short-term interest rates over the past two years. Importantly, we've achieved this growth without taking excessive interest or credit risk.

Ronald Kruszewski: Additionally, the investments we've made in recruiting on both the wealth management and institutional segments have led both segments to more than double revenue over the past eight years. The operating leverage from these investments resulted in earnings per share increasing 270% over this time frame. The comparison of 2023 to 2019 is also important as it illustrates the benefits we've seen from recent acquisitions recruiting and balance sheet growth. Total revenue is up 30% in the past four years as wealth management growth of 40% more than offset relatively flat institutional revenue, which should not be lost here as the potential upside we see in our institutional business.

Ronald Kruszewski: Specifically, the average number of investment banking manager director has increased by 33% since 2019, but our advisory revenue was relatively flat due to the market conditions. If our production per MD returns to historical levels, we would experience substantial growth from both our top and bottom lines. Looking at our quarterly results, we had a strong rebound from the third quarter. Net revenue of nearly 1.15 billion was our third highest quarterly revenue as a combination of a pickup and institutional revenue and continued strong wealth management revenue drove this improvement.

Ronald Kruszewski: Given the flexibility of our operating model, we were able to maintain our compensation ratio at 58% and generated $1.50 of EPS, which was a 27% sequential quarterly increase in operating EPS, which excludes the significant one-time legal reserve taken in the third quarter. Moving on to slide four, we look at the variance table to consensus estimates.

Ronald Kruszewski: Total net revenue beat the street by 60 million as each of our primary revenue lines surpassed expectations. Transaction revenue came in 30 million above the street on stronger fixed income revenue as our rates business has begun to rebound from the weakness tied to bank failures, higher rates and an inverted yield curve. Investment banking came in 21 million above expectations driven by higher advisory and fixed income capital markets, primarily public finance. Total expenses were higher than forecast, but much of that was reflected in compensation expense due to higher revenue in the quarter as the cooperation remained consistent at 58% and was in line with street consensus. Non-comp expenses were 10 million higher than expectations as a result of higher occupancy costs and higher legal expenses that was partially offset by a lower loan loss provision.

Ronald Kruszewski: Corporation. Before I turn the call over to Jim to go through our quarterly results, I wanted to talk about our wealth management business. While much of the discussion of our near-term upside is focused on our institutional business, I want to emphasize that our global wealth segment has been the long-term growth engine of our firm and is a cornerstone of stifel success. As stated previously, our wealth management segment has posted 21 consecutive years of record revenue. As our focus on recruiting, serving our clients, respecting the entrepreneurial spirit of our advisors and growing client assets has been fundamental to our success. Slide 8 illustrates these points.

Ronald Kruszewski: Since 2014, global wealth management revenue has increased to 150 percent while the percentage of recurring revenue has increased from 44 percent to 78 percent. Again, this level of growth has been the result of our strategy to recruit high-quality advisors and provide them with extraordinary level of service. In this effort, we have continually invested in resources, support, and technology to reduce bureaucracy and enable our advisors to thrive. Our recruiting efforts have been one of the key elements of our growth efforts.

Ronald Kruszewski: Since the end of 2018, we've added more than 700 financial advisors with cumulative trailing 12 production of approximately 435 million. We continue to see increased momentum in our recruiting efforts as the number of advisors we added to our platform increased by nearly 30 percent in 23 as compared to 2022. So, while we see significant upside in revenue and margins as our institutional segment gets back to historical norms, our long-term growth and success has been and continues to be driven by our wealth management franchise.

James Marischen: And with that, let me turn the call over to Jim Marish to discuss our most recent quarter results. Thanks, Ron, and good morning, everyone.

James Marischen: Looking at the details of our fourth quarter results on slide 6, a quarterly net revenue of 1.15 billion was up 2 percent year-on-year. The increase was driven by stronger client facilitation, trading, and underwriting revenue that was partially offset by lower net interest income and advisory revenue. Our EPS was up 150 percent sequentially due to higher revenues as well as lower non-cop operating expenses which Ron addressed earlier. Moving on to our segment results. Global wealth management revenue was $766 million. Our pre-text margins were 39 percent.

James Marischen: For the full year, record net revenue of 3.05 billion was up 8 percent from 2022. This was driven by record asset management revenue and net interest income as well as strong transactional revenues. Primary driver overgrowth has been our ability to recruit advisors and increase our client assets. During the quarter, we added a total of 40 advisors.

James Marischen: This included 13 experienced advisors with trailing 12-month production of more than $8.1 million. We ended the quarter with fee-based assets of $165 billion and total client assets of $444 billion. William.

James Marischen: The sequential increases were due to higher equity markets and organic growth as net new assets grew in the mid-single digits. Moving on to slide eight, where we highlight the solid trends of the bank, net interest income of $273 million was in the lower half of our guidance, as bank name was impacted by higher deposit costs, larger average cash balances, and the movement of sweep deposits back into third-party banks. The movement of cash back into the sweep program resulted in a few million dollars being recognized in asset management revenue rather than NII, but this is simply changing the geography of where the revenue is recognized on the income statement.

James Marischen: While we are not ready to say cash sorting is behind us, outflows from sweep accounts were essentially flat in the quarter as compared to outflows of more than 3.6 billion just two quarters earlier. I also know that the sweep program now has 2.1 billion in balances with third-party banks. That said, we typically see some cash outflows early in the year given the timing of tax payments. In terms of our expectations for the first quarter, we project net interest income to be in a range of $250 to $260 million.

James Marischen: Our credit metrics and reserve profile remain strong. Non-forming asset ratio stands at only 15 basis points. Our credit loss provision totaled $2.3 million to the quarter, and our consolidated allowance to total loans ratio with 86 basis points. During the quarter, our jobs were primarily tied to an individual CNI credit that was fully reserved for previously. I would also note that we saw an approximate $800 million reduction in CNI balances during the quarter.

James Marischen: As we opportunistically sold certain broadly syndicated loan exposure, as we continue to focus balance sheet allocations to portfolio that also provide other deposit or fee income opportunities. Lastly, our balance sheet continues to be well capitalized. Here, when the leverage capital decreased 30 basis points sequentially to 10.5%. I'd also like to highlight the improvement in unrealized losses in the bond portfolio. To put numbers to this and reflecting on the rally and the 10-year treasury bond and tightening of credit spreads, our unrealized losses declined by $127 million or nearly 40% during the quarter.

James Marischen: On the next slide, I'll discuss our institutional group, which had its strongest quarter in a year and a half. Total revenue from the segment was $350 million, $359 million in the fourth quarter, which represented a 40% sequential increase, as both investment banking and our transactional business at strong quarters. Firmwide investment banking revenue totaled $206 million, as both capital raising and advisory revenue experience significant increases from the third quarter. Advisory revenue was $129 million, which was up 33% sequentially, as we had solid results in our industrials, healthcare, and technology verticals. I highlight that although we benefited from year-end seasonality, the quarter was again negatively impacted by continued delays in closing. Billings.

James Marischen: We continue to expect these deals to close, the timing remains uncertain. However, our pipelines remain strong, and we are seeing momentum begin to build in our activity levels, but the timing of the sustained rebound in the business remains very much market dependent. Equity revenues totaled $89 million in the quarter, which was our strongest quarter since the fourth quarter of 2021. Equity transactional revenue totaled $57 million of 20 20% from the prior quarter represented our highest quarterly revenue in two years. We continue to gain transaction, I'm sorry, we continue to gain traction or electronic offerings as a strong engagement with our high touch trading and that's in class research.

James Marischen: Fixed income generated net revenue of $142 million and increased a 50 million from the third quarter. Much of the increase was driven by the $35 million increase in transactional revenue. We are starting to see the rates market open up as banks are beginning to trade their investment portfolios, given the more dovish, fat outlook and more stable deposits.

James Marischen: Underwriting revenues increased 60% sequentially as we continue to be a leader in the municipal underwriting business, as activity increased and we continue to be ranked number one in the number of negotiated transactions as our market share was nearly 15% in 2023. On the next slide, we go through expenses, our comp to revenue ratio in the fourth quarter was 58%, which was in line with our forecast. Non-compensation operating expenses, excluding the credit loss provision and expenses related to investment banking transactions totaled approximately $249 million.

James Marischen: Our non-comp up X as a percentage of revenue was 21.8%. The effective tax rate during the quarter came in at 21.6%. The lower tax rate was primarily due to the impact of the increase in our share price related access tax benefit on stock based compensation.

James Marischen: Before I turn the call back over to Ron, let me discuss our capital position. In the third quarter, we were purchased more than 2.3 million shares. We have nearly 12 million remaining on our authorization. We have approximately 170 million of excess capital based on a 10% tier one leverage target. Additionally, we continue to generate substantial amounts of excess cash as illustrated by our 2023 net income of $530 million. We remain focused, generating strong risk adjusted returns when deploying capital and we've done this during reinvesting in the business, making acquisitions as well as through share purchases and our recently increased dividend. Abstaining the assumption for additional share purchases and assuming a stable stock price, we'd expect the first quarter to literally share count to be 110 million shares.

Ronald Kruszewski: With that, let me turn the call back over to Ron. Thanks, Jim.

Ronald Kruszewski: Let me conclude by discussing our outlook for 2024 in terms of the current street estimate. The current consensus estimates for net revenue for 2024 is 4.7 billion, which is up about 320 million from 2023. The primary driver of the increase is the expectation that our wealth management institutional revenue will increase by a combined 400 million, which will be more than offset the roughly 80 million expected decline in net interest income. As you can see from the table, we are guiding to total net revenue of $4.55 to $4.9 billion in 2024. This includes our expectation that net interest income will be in the range of $1.1 billion. Overall, we believe that the pressure on net interest margin can be offset by an increase in interest bearing assets.

Ronald Kruszewski: Simply considering the multiple factors impacting the banking industry, we see the current period as an opportunity to make great loans. While we anticipate an improvement in our operating revenue, particularly institutional, we remain conservative given the recent industry wide weakness in investment banking. Considering this, we expect our compensation ratio will be in the range of 56-58% and that non-operating non-cop and that operating non-cop will be 19-21%.

Ronald Kruszewski: I've heard the term transition year applied to 2024 and I believe that's a relatively accurate description of the environment. We don't believe that 2024 will be a, quote, normalized operating environment as there remains uncertainty regarding the number of rate cuts that the federal reserve will make, the timing of the pickup in investment banking revenue, the presidential elections, and how the equity markets will react to these changes. Personally, I believe that the street estimate of 11% EPS growth for the S&P 500 in 5-6 rate cuts is optimistic.

Ronald Kruszewski: We believe that earnings will grow for the S&P of 6% and approximately 2-3 rate cuts is more realistic, but I wouldn't be upset with the consensus that would likely have a meaningful positive effect on our operating results. Lastly, while I'm not giving guidance beyond 2024, I did want to touch on how we are looking at the next few years. I must say that while we are cautiously optimistic for 2024, we see the potential for significant exit velocity into 2025.

Ronald Kruszewski: Last quarter, we discussed the potential results of 5 billion in revenue and $8 in earnings per share in a more normalized market environment. For 2025 be such a year, it's certainly possible if the markets cooperate as we don't believe that reaching these numbers would require significant outperformance in any of our businesses. What we need is the return to historical productivity levels and banking, continued growth and wealth management, and some future balance sheet growth.

Ronald Kruszewski: The bottom line is that as the operating environment improves, Steeple is well positioned to continue our legacy of profitable growth, which we believe will continue to drive shareholder value. This is consistent with our strategy of continuing to build our market leading wealth management franchise with an achievable goal of one trillion of client assets, while also being a premier middle market investment bank. With that operator, please open the line for questions. Thank you.

Operator: If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment.

Operator: Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity. Opportunity to signal for questions.

Devin Ryan: We'll take our first question from Devin Ryan with JMP Securities. Great. Good morning, Ron and Jim. How are you? Morning, Evan.

Ronald Kruszewski: Great by the way. I just want to go good. We want to start just on deposit data and assuming interest rates do move on at least to the current forward curve. How you guys are thinking about kind of the movement over the first and second hundred basis points. And I guess the question is obviously we know smart rate is over half of the cash tax money market. So that should be one for one. And so really kind of what are you expecting just for the sweep deposit piece of the equation. Thanks.

James Marischen: Well, I think I think, you know, the half of our approximately are in smart rate and that is highly correlated to effective Fed funds. I think, you know, the question on deposit betas on the way down. It'll be driven by competitive factors just as they were sort of on the way up. Jim, I don't know if you want to.

James Marischen: No, I mean, the correlation effective Fed funds is essentially because of the competition, the competitions are money market mutual funds and treasury bonds and those that by its nature is tied to the short end of the curve. And so you'll see near a hundred percent beta on the way down on the first couple of cuts and probably beyond that. Yeah, for smart rate.

Ronald Kruszewski: I think, Devin, I think you're trying to get to what will happen with sweep balances, which is more, you know, transactional balances versus savings balances. And, you know, we expect them to decline. I'm not sure that I would be comfortable giving you a deposit beta on those balances. But it would be modest like it was modest on the way up. It was modest both ways, actually. Yeah, okay, that's fair. You figured out who you guys would sit there.

Devin Ryan: And then I guess on the financial advisor evolution of the firm, I get this question fair amount. Independent contractors is still very small, you know, less than 5% of overall financial advisor headcount.

Ronald Kruszewski: And I just love getting thoughts around what you think that looks like, you know, maybe five years from now, you know, how much of a objective of the firm is it to grow independent relative to employee if it is at all. And if it is kind of some of the steps you're taking to either drive that growth, whether it's organic or inorganic or just make the platform more compelling for independence as well as employees. Thanks.

Ronald Kruszewski: Yeah, I think the answer to your question, it would be, you know, what you finished that with, which is, you know, we would like to provide an opportunity and a compelling platform for independence. To, you know, utilize simply our platform, our technology and our capabilities. There is no particular focus on, you know, growing the independent channel relative to the employee channel.

Alexander Blostein: There just hasn't been, we will deal with that, you know, as as for applying demand, you know, sort of dictates, we have the platform and it's it's a good alternative. You know what you'll see though is our focus has been historically and this is nothing against the independent channel I just want to say our focus over the years has been on the employee channel and that's simply because we're we are a diversified firm with with a lot of capabilities that that you know the employee model it's more it's more it's been tailored over the last 25 years to the employee model so you know I can see both growing I'm frankly indifferent the way we look at the business yeah okay I appreciate it I'll leave it there thanks guys we'll take our next question from Alex Blostein with Goldman Sachs hey thanks guys good morning first question around NNA I heard you talk about a mid-tingle budget and an a-rate for the quarter can you talk a little bit of broader kind of what it's been for the year and what's been the contribution from same-star sales new a favor recruiting and maybe your outlook for organic growth in that business for 24 I would say the results we sell in the fourth quarter were consistent with what we sell over the full year the net new asset number was relatively consistent in the mid single digits you know across each of the quarters in 2023 I think it's a you know it's a fairly even mix between existing advisors and recruiting I wouldn't say either side is particularly driving the addition of net new assets there and I think it's fairly balanced.

Alexander Blostein: And I you know look I think I don't have in front of me Alex the same store sales and you know certainly the last you know half of the year helped the overall slow business in the in the wealth management sector. If you ask me just to look forward though I would say generally speaking that I would expect the increase in in same store sales to be higher in 2024 than it was in 2023 you know we got off to a rocky start in 2023 and you know with the equity markets where they are today in our outlook I see some relatively good performance. So over 23 for 24 versus 23 versus 22 I guess that's helpful.

Ronald Kruszewski: My second question just wanted to dig into the interplay on capital management as well as you look out into next year so it sounded like your appetite for a long growth perhaps was a little bit better as you look out versus maybe what we've seen over the course of 2023. So maybe just to extend on that a little bit and just tease out what that means for share repurchases for 2024 as well.

Ronald Kruszewski: Well we have first of all we've been repositioning the balance sheet all right as we as we have you know adapted to a new environment where you know deposits aren't just free flowing all over the place. And and you know trying to keep an eye on various sectors and credit considerations of loans you'll see as Jim mentioned we sold nearly you know three quarters of billion dollars in in in syndicated, broadly syndicated loans, which, you know, were really put on almost as just a spread lending type strategy.

Ronald Kruszewski: And we're, we've been tend to deploy that much more focused to more of a relationship type, you know, relationship, you know, deposits, other, other opportunities that we can provide for the firm. And with all that said, we really haven't had a diminishing loan demand. We've just muted it.

Ronald Kruszewski: So, I see today, this is a good time to be in the lending business. And so, you know, that's, that's what, that's just what I would say relative to before. And, and, and we see now, and as it relates to stock repurchases in the, in the interplay on that, you know, we'll, we'll grow from relatively flat to $2 billion. If we're up $2 billion, that's, you know, call it $200 million of capital plus our dividend leaves ample room for additional share repurchases, ample.

Ronald Kruszewski: The other thing I'd add to that is the additional liquidity we have available today to fund some of that loan growth. You'll see we have over $2 billion and third party sweep banks. And on top of that, we added another $336 million in venture deposits. And so, you know, Ron made the comment, the capacity and our ability to generate loans in the investments we've made across fund and venture and our continued ability to service our clients with securities based lending and mortgage is fairly significant. And now there's a little bit more liquidity supporting that growth as we look forward. Got it. Very helpful. Thank you guys.

Alexander Blostein: Thanks, Alice.

Bill Katz: We will take our next question from Bill Katz with TD Cohen. Okay. Thank you very much.

Ronald Kruszewski: I appreciate the financial guidance and looks like there's some margin opportunity as we look ahead into 24 and probably again into 25. Just looking through some of the supplement disclose you have which is terrific. So thank you for that and looking at the incremental margin in the institutional group. If I did the math correctly, it looks like there's about a 55% incremental margin in the fourth quarter. And just as you look out into 24 and again into 25 into that sort of aspirational sort of normalization of eight bucks, how should we think about the incremental margin maybe for the for stifle overall in this specifically to the institutional group along that path.

Ronald Kruszewski: Yeah, I think that you know our margins will will improve obviously is the you can almost start with the institutional side of the business. We, as you can see, we essentially broke even on on revenues of about a billion 1.3 billion.

James Marischen: You know and contrast that with 2021, which we may always look back and say that was a really phenomenal year, but that said, you know, it was a 2.2 billion and and profitability of 400 million plus. So with with you can almost draw a line between the 1.3 and 2.2 billion and see the leverage and earnings that we would expect and that will drive our margin. Regions, you know, best laid plans of mice and men, but if we, but if the markets cooperate, you know, we'll see margins that can get back into the mid 20s, as good as we see our growth and wealth management continuing.

James Marischen: You know, the offset being that we offset a lot of the weakness and the institutional business by growing NII to up to almost a billion. Two, as you can see in our guidance, you know, we would expect some modest declines in net interest income being more than offset by the potential that you're referring to in our institutional business and maybe more a little bit more color on the consolidated level. If you back off the legal accruals from the third quarter, year to date, we're a little over 19% pretext margins today.

James Marischen: And that's including the fact that we were essentially breakeven on the institutional side in 2023. So you think about back to previous size, Ron talked about 2021, you know, kind of the mid 20% range. We have a higher starting point today given some of the base, the NII that Ron talked about. So you have some potential for incremental margin as the market recovers and normalizes. And if you were to catch kind of a good market, if you will, it could go higher from what we saw in the previous cycle. Okay, that's helpful.

James Marischen: And just as a follow up, not to get too far in the weeds, but as one of you could expand a little bit on the legal charge in the quarter and maybe Ron, you have a pretty good view of this. How you see the regulatory landscape in 24, you know, obviously a lot of moving parts, including a election year, but anything to be mindful on in terms of the alloc here.

James Marischen: Yeah, I'll let Jim talk about legal and then I'll answer your question. The legal charges we were talking about, the accrual was in the third quarter. There was a $67 million accrual that was booked last quarter.

Ronald Kruszewski: It was not something that occurred in the fourth quarter. Yeah, and what I said in my prepared remarks was we, the fourth quarter had, I think, a 27% increase if we sort of excluded that legal charge. I was just trying to point we had a pretty good quarter and we're saying that now, or just that was to illustrate that. You know, the regulatory environment, I'm not sure that really is changing. I feel that as a maybe as I headwind for the industry, you know, the level of regulatory resolutions seems to be markedly higher than what it's been in the past.

Ronald Kruszewski: But you know, we'll see as this plays out hard, hard to predict that, but certainly the off channel communications was a significant factor for not only Steve, but frankly everyone that's been dealing with that. All right, thanks for the clarification. Thank you.

Stephen Tobak: We'll take our next question from Stephen Tobak with, at Wolf Research. Good morning, Ron. Good morning, Jim. Good morning, Steven.

Stephen Tobak: So I wanted to start off just unpacking some of the assumptions underpinning the 24 fee guidance. Didn't catch if you had, and so I'm sorry if I missed this, if you alluded to the equity market appreciation that you're assuming in the coming year. And specifically for Fick brokerage, is this 100 million, Jim, a reasonable jumping off point given the tailwind from both deepening that you cited in the repair remarks. So specific to fixed income, I think the conversations we're having with the people that run that business is they continue to see increased levels of activities. Obviously with the Fed's change in stance, the unwinding of some of the unrealized losses on bank balance sheets, you know, going forward, you'll probably see banks use and rely on HTM on a lesser basis.

James Marischen: You're starting to see that on thought, you're starting to see more activity and we do anticipate that to continue. We do feel like at this point, we're being a little bit conservative, but it's a reasonable jumping off point to look at what happened in the fourth quarter and maybe discount of that a little bit, but we are seeing some very positive trends across the fixed income area. And I would add that, you know, as we, as I think we talked about in previous calls, and we've made some meaningful hires in that space, both in the SBA and in the Jenny space, which, you know, deals with the origination and provides product to many of our end buyers.

James Marischen: And so that wasn't, that's just getting ramped up. And that's a, you know, not less than material opportunity for us with the hires we've made there. So I think that just underscores that I think it has a reasonable jumping off place. That's right. And the equity market appreciation that you guys are assuming. Or for ask the man's piece.

James Marischen: Yeah, I mean, I think we just took some of our internal expectations, some of our internal kind of, I forget what the exact percentage increase in market appreciation is, but I can follow up on that. Okay, great. And just on the non-comp implied guidance, I know that you have the legal charge, so there was a fair amount of noise this past year. But just looking at the core non-comp trends, ex legal, those have been growing roughly at about a high single digit Kager since 19, the 24 non-comp guide actually implies a bit of contraction from what we can tell.

James Marischen: So just want to understand what's driving the better expense control in the coming year, at least relative to recent history. Well, we're talking about percentage of net revenue. And so first of all, there's always some noise in our fourth quarter. As always, if you look, you'll always see that is historically higher.

James Marischen: I mean, we just, we really push a cutoff on all of our expenses to make sure that they're, you know, that they're ran. And if you go back over years, you'll see that the fourth quarter tends to be above trend for the year. And there's leverage in the model. So while I expect non-comp, expense to win, of the increase. As we raise revenues, that's for the leverage in the model. That's why we see our margins getting into the mid-20s because of that percentage will come down as revenue's rebound.

James Marischen: Okay, so the expectation those of the dollars will at least increase in non-coms, but the ratio will improve with some of the operating leverage. Yeah, and if you look specifically at the fourth quarter, there's some seasonality in there. When you think about the fourth quarter, you typically see elevated levels of travel entertainment as well as some statement related expenses. We also had some third party legal expenses that were somewhat elevated in the fourth quarter.

James Marischen: Those are lumpy, those are hard to predict and you think about those in a normalized run rate when you're comparing kind of the results in the fourth quarter, normalizing some of those things on an annual basis. In addition to the revenue increases that Ron talked about is really what's getting you to the levels in our guidance range. Really helpful, Collar. Thanks so much for taking my questions.

Christopher Allen: We'll take our next question from Chris Allen with City. Yeah, morning, guys.

Ronald Kruszewski: Maybe we can just dig in a little bit on the investment banking pipeline. Just one of you, if you're seeing the improvement across all verticals or specific verticals. Maybe give us some color just whether you're interested.

Ronald Kruszewski: If you're starting to see any signals that bank activity specifically is picking up, I mean, obviously you're starting to see some activity on the things to come trading side. What if that's filtering through on the banking side? Well, for sure, I mean the engagement in the tone and practically some deals getting done is definitely improving. I cautious, Chris, just because we've been talking about improvements in green shoots and all of that for quite a while here.

Ronald Kruszewski: So, you know, I just see the tone being much better. We asked about where is certainly health care, industrials, fig and tax with kind of broad base when we look at our pipelines. I just want to make a more generalized comment here, which is we've been through pretty much a recession in this business with equity capital raising down like 70% over almost whatever time frame you want to compare it to as it relates to 2021 and M&A down 50%. And that environment is not going to continue.

Ronald Kruszewski: So, I definitely see improved business. I don't want to try to comment as to how steep the curve of the improvement will be, but certainly as we start the year, we're seeing improved engagement and our pipelines and our engagements are improving. And simply, there's a lot to do. There's been a lot of strategic and financial considerations and decisions that have been delayed in the face of inflation at 8% in the Fed rising 500 basis points very quickly.

Ronald Kruszewski: That certainly puts a damper on the timing of activity. And now as we see that stabilizing, and in fact, you know, the consensus is that that's going to go down, you're going to see improved activity, just I think that's pretty clear because those are for me.

Brennan Hawken: We will take our next question from Brennan Hawken with UPS. Good morning, thanks for taking my questions.

Ronald Kruszewski: It was a pretty nice growth in the third party bank balances. So curious whether or not that was driven by client actions, you know, such as seeking out of excess FDIC, or was this more like an asset decision where you guys sold the loan and didn't see long growth. So allocated to capture the yield. You know, you know, I think there's a red and listen looking at some of the street comments on this.

Ronald Kruszewski: I'd like to take a moment just to clarify how we look at that. All right. I view third party bank, sweet balances to be part and parcel part of a sweet program. All right.

Ronald Kruszewski: We control the, if you will, the valve on what we want to do. So if we, it's just where we're allocating our deposit. So that, that is just deposits that we're choosing now, not to have on the balance sheet of Stifel. There, there, if you will, diverted to third party banks. No one's making that decision other than us is the best way to say that.

Brennan Hawken: And we could turn around and bring those back on balance sheet as needed or or increase it. So you need to look at, in my opinion, you have to look at sweep deposits and third party combined. And the decision to push some of that sweep, some of those sweep dollars back was based upon some of the loan sales we talked about on the prepared remarks, as well as just, you know, general elevated cash balances the bank.

Brennan Hawken: So again, the revenue associated with that just moves in the income statement is showing up in asset management revenues rather than NII, but you're getting a similar return in either location. Yep. Thanks for clarifying that. Appreciate it.

Ronald Kruszewski: And then Ron, you made reference to some of the hires that you all have made in the bond trading business. And I know you guys have referenced recruiting through much of the past year, but we noticed that the institutional and these were actually down a bit, not by much, just by one, but would have thought that that would have been growing just given the focus, right? So, so, you know, what drove that to be, you know, sort of flatish and with some movement under the surface that maybe we can't appreciate just by looking at the number in and of itself.

Ronald Kruszewski: Yeah, I mean, let's get a bit up one. Okay. And then I would, you've had the same question.

Ronald Kruszewski: It's a down one. I think that we see since 2019, we see, you know, our MDs are up some, but what do we say 33% okay. And most of those MDs that there's been is in banking in terms of leveling it out. And you know, look, we have a lot of capability here. I think that our viewpoint is that we're not quickly going back to 2021 levels. And we not only want market share, we want to make money.

Ronald Kruszewski: And so, you know, we're balancing those. You can, it becomes, you know, it's a big strategic decision to really hire into what you think is going to be a very, you know, very robust market. And if that doesn't happen, that causes other problems.

Ronald Kruszewski: So we're being balanced as we always are, but we have very capable bankers, very capable services, and we are well positioned as we sit here today for rather significant improvement in the market. Everyone will do well, including our shareholders. We need to drop the activity down in DPS. Thanks, Ron. And for the record, you know, the symbol wasn't what matters plus or minus. It was, you know, the flatish that I was trying.

Ronald Kruszewski: I know, I know. But, you know, look, I wanted to say that just, yeah, but go back to the other question also. Remember, we see this on the wealth management side. And I think this drives activity in a lot of our clients that have invested in alternatives. In the private equity, you know, our, you know, private equity needs to return money to limited partners. Okay.

Ronald Kruszewski: They want to raise new funds, but you also need to have realizations and return capital. And that's been on pause a little bit. So, as, you know, I can see a lot of things that are requiring some transactions to get done so that private equity can sort of recycle the capital back. You can't sit there on these investments. You can't sit there on these investments for 15 years.

Ronald Kruszewski: And so we definitely have to see a lot of discussions around the broad topic of returning capital of the limited. You know, on that, Ron, since you mentioned that, I'd love to throw in another question here. Have you, we've seen the volumes pick up on the announcements, but it's mostly been on the strategic side. You know, when you look at your backlog, are you starting to see financial sponsors getting more active and preparing to monetize as well?

Ronald Kruszewski: Or was that more a prospective expectation, you know, just based upon some of the dynamics that you laid out? [inaudible] No, no, no, no, no, I, again, you're as, you know, as markets as interest rates go up and then, you know, the spread widens between bid offer, you know, expectations and M&A, not just strategic, but, but, but the ability to have realizations and private equity, you know, one of one of the drivers is returning capital. Well, it's hard, it's hard to raise a new fund when you haven't, you know, consummated your last one.

Ronald Kruszewski: And so that is driving bid offer, expectations tighter. And there's a lot of discussion going on on this. And that's, again, just speaking to the overall tone in that market, which is an improved market environment. And in that, and, frankly, across the markets. So, you know, absent any, absent any, you know, external shock to the system.

Operator: That's why we see improvement here. Thanks for that color. We do not have any further questions in the queue. Well, very good.

Ronald Kruszewski: I want to thank everyone for taking the time to listen to our results. Look forward to talking to you about what I believe will be an improving environment in 2024 as we go through the year. And into 2025.

Operator: So thank you, everyone, for your time. And we look forward to communicating again next quarter. Have a good day. This concludes today's call. Thank you for your participation. You may now disconnect.

Good day and welcome to the Stifel Financial fourth quarter Financial results Conference call. As a reminder, today's call is being recorded at this time I'd like to turn the call over to Mr. Joel Jeffrey head of Investor Relations at Stifel Financial. Please go ahead.

Joel Jeffrey: Thank you operator, I'd like to welcome everyone to Stifel Financial's fourth quarter and full year 2023 conference call I'm joined on the call today by our chairman and CEO Ron Kruszewski.

Speaker Change: Co presidents, Victor Niecy, and gyms that Mike and our CFO Jim Morrison.

Speaker Change: Earlier. This morning, we issued an earnings release and posted a slide deck in the financial supplement to our website, which can be found on the investor Relations page at Www Dot Stifel Dot com.

Speaker Change: I would note that some of the numbers that we stay throughout our presentation are presented on a non-GAAP basis, and I would refer to our reconciliation of GAAP to non-GAAP disclosures in our press release.

Speaker Change: 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.

Speaker Change: Oh cast is copyrighted material by Stifel financial and May not be duplicated reproduced or rebroadcast without the consent of Stifel financial I will now turn the call over to our chairman and CEO Ron Kruszewski.

Ronald James Kruszewski: Thanks, Joel to our guests good morning, and thank you for taking the time to listen to our fourth quarter and full year 2023 conference call.

Ronald James Kruszewski: Let's begin by discussing our year end 2023, whereby Stifel generated strong results in an operating environment that was less than ideal the benefits of our diversified business model enabled us to successfully navigate market conditions that included increased geopolitical risks tightening of financial conditions, primarily due to cigna.

Ronald James Kruszewski: Increases in short term rates and quantitative tightening by the federal reserve, both implemented to corral inflation and the failure of three major banks in the United States.

Ronald James Kruszewski: Led by record results in global wealth management, which produced its 21st consecutive year of record net revenue driven by record asset management revenue and net interest income Stifel. Overall generated net revenue of approximately 4.4 billion. This was essentially in line with 2022 despite a.

Ronald James Kruszewski: Industry wide slowdown in investment banking activity.

Ronald James Kruszewski: As we'll discuss later these results are directly correlated to our consistent reinvestment in our business our focus on servicing our clients as well as our strategy of deploying our substantial excess capital in ways that generate strong risk adjusted returns.

Ronald James Kruszewski: Taken together, we generated operating pre tax margins and returns on tangible common equity of approximately 19% excluding the impact of the nonrecurring legal charge in the third quarter.

Ronald James Kruszewski: With respect to capital deployment, we typically deploy the excess capital we generate each year and 2023 was no different.

Ronald James Kruszewski: Last year, we generated $630 million of excess capital and deployed it as follows the repurchase of seven 2 million shares totaling approximately $440 million.

Ronald James Kruszewski: $211 million in common and preferred dividends and a modest amount of balance sheet and acquisition activity.

Ronald James Kruszewski: Underscoring our confidence in improving market conditions I'm happy to announce that our board has authorized a 17% increase in our annual dividend on common shares from $1 44 to $1 68 per share.

Ronald James Kruszewski: On slide two we look back at the growth of our business since 2015 and 2019.

Ronald James Kruszewski: Spike constantly changing market conditions. The investments we've made in our business results and substantial growth net interest income was up more than 760% since 2015 as a strategy to grow our balance sheet enabled stifel to capitalize on the increase in short term interest rates over the past two years.

Importantly, we've achieved this growth without taking excess at interest or credit risk.

Ronald James Kruszewski: Additionally, the investments we've made in recruiting them, both the wealth management and institutional segments.

Ronald James Kruszewski: Both segments to more than double revenue over the past eight years, the operating leverage from these investments resulted in earnings per share increasing 270% over this timeframe.

Ronald James Kruszewski: The comparison of 2023 to 2019 is also important as it illustrates the benefits we've seen from recent acquisitions recruiting and balance sheet growth total revenue was up 30% in the past four years as wealth management growth of 40% more than offset relatively flat institutional revenue.

Ronald James Kruszewski: We should not be lost here is the potential upside we see in our institutional business specifically the average number of investment banking managing directors has increased by 33% since 2019, but our advisory revenue was relatively flat due to the market conditions.

Ronald James Kruszewski: Our production per M. D returns to historical levels, we would have experienced substantial growth for both our top and bottom lines.

Ronald James Kruszewski: Looking at our quarterly results, we had a strong rebound from the third quarter net revenue of nearly 1.15 billion was our third highest quarterly revenue is a combination of a pickup in institutional revenue and continued strong wealth management revenue drove this improvement.

Ronald James Kruszewski: Given the flexibility of our operating model, we were able to maintain our compensation ratio at 58% and generate $1.50 of EPS, which was a 27% sequential quarterly increase in operating EPS, which excludes the significant one time legal reserve taken in the third quarter.

Ronald James Kruszewski: Moving on to slide four we look at the various the variance table to consensus estimates.

Ronald James Kruszewski: Total net revenue beat the street by $60 million as each of our primary revenue lines surpassed expectations transactional revenue came in $30 million above the street on stronger fixed income revenue as our rates business has begun to rebound from the weakness tied to bank failures higher rates and an inverted yield curve investment banking.

Ronald James Kruszewski: Came in $21 million above expectations, driven by higher advisory and fixed income capital markets, primarily public finance.

Ronald James Kruszewski: Total expenses were higher than forecast, but much of that was reflected in compensation expense due to higher revenue in the quarter as our comp ratio remained consistent at 58% and was in line with street consensus non.

Ronald James Kruszewski: Non comp expenses were $10 million higher than expectations as a result of higher occupancy costs and higher legal expenses that was partially offset by alone lower loan loss provision.

Ronald James Kruszewski: Before I turn the call over to Jim to go through our quarterly results I wanted to talk about our wealth management business, while much of the discussion of our near term upside is focused on our institutional business I want to emphasize that our global wealth segment has been the long term growth engine of our firm and as a cornerstone of Stifel success.

Jim Morrison: As stated previously our wealth management segment has posted 21 consecutive years of record revenue as our focus on recruiting servings, serving our clients.

Jim Morrison: Especially in the entrepreneurial spirit of our advisors and growing client assets has been fundamental to our success.

Jim Morrison: Slide eight illustrates these points.

Jim Morrison: Since 2014 global wealth management revenues increased to 150% while the percentage of recurring revenue has increased from 44% to 78% again. This level of growth has been a result of our strategy to recruit high quality advisers and provide them with extraordinary level of service and.

This effort, we have continually invested in resources support and technology to reduce bureaucracy and enable our advisers to thrive.

Jim Morrison: Our recruiting efforts have been one of the key elements of our growth efforts since the end of 2018, we've added more than 700 financial advisors with cumulative trailing 12 production of approximately $435 million. We continue to see increased momentum in our recruiting efforts as the number of advisers, we added to our platform increased by nearly 30.

Jim Morrison: <unk>.

Jim Morrison: And 23 as compared to 22 2022.

Jim Morrison: So while we see significant upside in revenue and margins as our institutional segment gets back to historical norms. Our long term growth <unk> growth and success has been and continues to be driven by our wealth management franchise and with that let me turn the call over to Jim marriage to discuss our most recent quarter results.

Jim Morrison: Thanks, Ron and good morning, everyone.

Looking at the details of our fourth quarter results on slide six our quarterly net revenue of 1.15 billion was up 2% year on year.

Jim Morrison: The increase was driven by stronger client facilitation trading and underwriting revenue that was partially offset by lower net interest income and advisory revenue.

Jim Morrison: Our EPS was up 150% sequentially due to higher revenues as well as lower non comp operating expenses, which Ron addressed earlier.

Jim Morrison: Moving on to our segment results Global wealth management revenue was $766 million and a pre tax margins were 39% for.

Jim Morrison: For the full year record net revenue of 3.05 billion was up 8% from 'twenty to 'twenty two.

Jim Morrison: Driven by record asset management revenue and net interest income as well as strong transactional revenues.

Jim Morrison: Primary driver of our growth has been our ability to recruit advisors and increase our client assets.

Jim Morrison: During the quarter, we added a total of 40 advisors.

Jim Morrison: This included 13 experienced advisors with trailing 12 month production more than $8 $1 million.

Jim Morrison: We ended the quarter with fee based assets of $165 billion in total client assets of 444 billion.

Jim Morrison: The sequential increases were due to higher equity markets and organic growth is net new assets grew in the mid single digits.

Jim Morrison: Moving on to slide eight where we highlight the solid trends at the bank.

Jim Morrison: Net interest income of $273 million was in the lower half of our guidance is based NIM was impacted by higher deposit costs larger average cash balances and the movement of sweep deposits back into third party banks.

Jim Morrison: The movement of cash back into the sweep program resulted in a few million dollars being recognized in asset management revenue rather than NII. This is simply changing the geography of where the revenue was recognized on the income statement.

Jim Morrison: While we are not ready to say cash sorting is behind us outflows from sweep accounts were essentially flat in the quarter as compared to outflows of more than $3 $6 billion, just two quarters earlier.

Jim Morrison: I'd also note that the sweep program now has $2 1 billion in balances with third party banks.

Jim Morrison: That said, we typically see some cash outflows early in the year, given the timing of tax payments.

Jim Morrison: In terms of our expectations for the first quarter. We project net interest income to be in a range of $250 million to $260 million.

Jim Morrison: Our credit metrics and reserve profile remains strong.

Jim Morrison: Non performing asset ratio stands at only 15 basis points.

Jim Morrison: Our credit loss provision totaled $2 3 million for the quarter and our.

Jim Morrison: Consolidated allowance to total loans ratio was 86 basis points.

Jim Morrison: During the quarter charge offs were primarily tied to an individual's C&I credit that was fully reserved for previously.

I would also note that we saw an approximate $800 million reduction in C&I balances during the quarter as we opportunistically sold certain broadly syndicated loan exposure as we continue to focus balance sheet allocations to perfect.

Jim Morrison: Two portfolios that also provide other deposit fee income opportunities.

Jim Morrison: Lastly, our balance sheet continues to be well capitalized tier one leverage capital decreased 30 basis points sequentially to 10, 5% I'd also like to highlight the improvement in unrealized losses in the bond portfolio.

Jim Morrison: Numbers to this and reflecting the rally in the 10 year Treasury bond and tightening of credit spreads are unrealized losses.

Declined by $127 million or nearly 40% during the quarter.

Jim Morrison: On the next slide I will discuss our institutional group, which had its strongest quarter in a year and a half.

Jim Morrison: Total revenue from this segment was 350 $359 million in the fourth quarter, which represented a 40% sequential increase is both investment banking and our transactional business had strong quarters.

Jim Morrison: Firm wide investment banking revenue totaled $206 million is both capital raising and advisory revenue experienced significant increases from the third quarter.

Jim Morrison: Advisory revenue was $129 million, which was up 33% sequentially.

Jim Morrison: Had solid results in our industrials health care and technology verticals.

Jim Morrison: To highlight that although we benefited from year end seasonality the quarter was again negatively impacted by continued delays in closings.

Jim Morrison: We continue to expect these deals to close the timing remains uncertain. However, our pipelines remain strong and we're seeing momentum begin to build and our activity levels, but the timing of the sustained rebound in the business or the <unk>.

Jim Morrison: <unk> is very much market dependent.

Jim Morrison: Equity revenues totaled $89 million in the quarter, which was our strongest quarter since the fourth quarter of 2021.

Jim Morrison: Equity transactional revenue totaled $57 million up 20, 20% from the prior quarter and represented our highest quarterly revenue in two years.

Jim Morrison: We continue to gain transaction I'm, sorry, we continue to gain traction in our electronic offerings and see strong engagement with our high touch trading and best in class research.

Jim Morrison: Fixed income generated net revenue of $142 million, an increase of $50 million from the third quarter.

Jim Morrison: Much of the increase was driven by the $35 million increase in transactional revenue.

Jim Morrison: We are starting to see the rates market open up as banks are beginning to trade their investment portfolios, given the more dovish fed outlook and more stable deposits.

Jim Morrison: Underwriting revenues increased 60% sequentially as we continue to be a leader in the municipal underwriting business as activity increased and we continue to be ranked number one and the number of negotiated transactions as our market share was nearly 15% in 2023.

Jim Morrison: Next slide we go through expenses, our comp to revenue ratio in the fourth quarter was 58%, which was in line with our forecast.

Jim Morrison: Non compensation operating expenses, excluding the credit loss provision and expenses related to investment banking transactions totaled approximately $249 million.

Jim Morrison: Our non comp opex as a percentage of revenue was 21, 8%.

Jim Morrison: The effective tax rate during the quarter came in at 21.6%.

Jim Morrison: The lower tax rate was primarily due to the impact of the increase in our share price related to excess tax benefits on stock based compensation.

Jim Morrison: Before I turn the call back over to Ron Let me discuss our capital position.

Ronald James Kruszewski: In the third quarter, we repurchased more than $2 3 million shares we have nearly $12 million remaining on our authorization.

Ronald James Kruszewski: Approximately $170 million of excess capital based on a 10% tier one leverage target.

Operator: Good day and welcome to the Stiefel Financial fourth quarter financial results conference call. As a reminder, today's call is being recorded. At this time, I'd like to turn the call over to Mr. Joel Jeffrey, Head of Investor Relations at Stiefel Financial. Please go ahead.

Ronald James Kruszewski: Additionally, we continue to generate substantial amounts of excess cash.

Ronald James Kruszewski: Illustrated by our 2023 net income of $530 million.

Ronald James Kruszewski: We remained focused generating strong risk adjusted returns when deploying capital.

Ronald James Kruszewski: We've done this through reinvesting in the business, making acquisitions as well as through share repurchases and our recently increased dividend.

Joel Jeffrey: I'd like to welcome everyone to Steeple Financial's fourth quarter and full year 2023 conference call. I'm joined on the call today by our chairman and CEO, Ron Kruszewski, our co-presidents Victor Nisi and Jim Zimlak, and our CFO, Jim Marischen. 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.stiefel.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 disclosures 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. This audio cast is copyrighted material by Stiefel Financial and may not be duplicated, reproduced, or rebroadcast without the consent of the audience. I will now turn the call over to our chairman and CEO, Ron Kruszewski. Thanks, Joel.

Ronald James Kruszewski: Absent any assumption for additional share repurchases and assuming a stable stock price, we'd expect the first quarter fully diluted share count to be 110 million shares.

Ronald James Kruszewski: That let me turn the call back over to Rod.

Rod: Thanks, Jim let.

Rod: Let me conclude by discussing our outlook for 2024 in terms of the current street estimate the current consensus estimates for net revenue for 2024 is $4 7 billion, which is up about $320 million from 2023 the <unk>.

Rod: Primary driver of the increase is the expectation that our wealth management and institutional revenue will increase by a combined 400 million, which will be more which were more than offset the roughly $80 million expected decline in net interest income.

Rod: As you can see from the table, we are guiding to total net revenue.

Rod: Oh for five 5% to $4 9 billion. In 2024. This includes our expectation that net interest income will be in the range of one to $1 1 billion. Overall, we believe that the pressure on net interest margin can be offset by an increase in interest bearing assets.

To our guests, good morning, and thank you for taking the time to listen to our fourth quarter and full year 2023 conference call. Let's begin by discussing our year in 2023, where Stiefel generated strong results in an operating environment that was less than ideal. The benefits of our diversified business model enabled us to successfully navigate market conditions that included increased geopolitical risks, tightening of financial conditions, primarily due to significant increases in short-term rates and quantitative tightening by the Federal Reserve, both implemented to corral inflation, and the failure of three major banks in the United States. Led by record results in Global Wealth Management, which produced its 21st consecutive year of record net revenue, driven by record asset management revenue and net interest income, Stiepel overall generated net revenue of approximately $4.4 billion.

Rod: Simply considering the multiple factors impacting the banking industry, we see the current period as an opportunity to make great long well.

Rod: We anticipate an improvement in our operating revenue, particularly in institutional we remain conservative given the recent industry wide weakness.

Rod: In investment banking considering this we expect our compensation ratio will be in the range of 56% to 58% and that nonoperating non cap and that operating non comp will be 19% to 21%.

Rod: I've heard the term transition year apply to 2024 and I believe that's a relatively accurate description of the environment.

This was essentially in line with 2022, despite a significant industry-wide slowdown in investment banking activity. As we'll discuss later, these results are directly correlated to our consistent reinvestment in our business, our focus on servicing our clients, as well as our strategy of deploying our substantial excess capital in ways that generate strong risk-adjusted returns. Taken together, we generated operating pre-tax margins and returns on tangible common equity of approximately 19 percent, excluding the impact of the non-recurring legal charge in the third quarter. With respect to capital deployment, we typically deploy the excess capital we generate each year, and 2023 was no different. Last year, we generated $630 million of excess capital and deployed it as follows.

Rod: We don't believe that 2024 will be a quote normalized operating environment as there remains uncertainty regarding the number of rate cuts at the federal reserve will make the timing of the pickup in investment banking revenue the presidential elections, and how the equity markets will react to these changes personally I believe that the.

Rod: <unk> estimate of 11% EPS growth for the S&P 505 to six rate cuts is optimistic we believe that earnings will grow for the S&P of 6% and approximately two to three rate cuts is more realistic, but I wouldnt be upset with the consensus would likely have a meaningful posit.

Rod: The effect on our operating results.

Rod: Lastly, while I'm not giving guidance beyond 2024, I did want to touch on how we are looking at the next few years I must say that while we while we are cautiously optimistic for 2024, we see the potential for significant exit velocity into 2025 last quarter, we discussed the potential results of 5 billion.

The repurchase of 7.2 million shares, totaling approximately $440 million, $211 million in common and preferred dividends, and a modest amount of balance sheet and acquisition activity. Underscoring our confidence in improving market conditions, I'm happy to announce that our board has authorized a 17% increase in our annual dividend on common shares from $1.44 to $1.68 per share. On slide two, we look back at the growth of our business since 2015 and 2019. Despite constantly changing market conditions, the investments we've made in our business result in substantial growth. Net interest income is up more than 760% since 2015 as a strategy to grow our balance sheet enables Stifel to capitalize on the increase in short-term interest rates over the past two years. Importantly, we've achieved this growth without taking excessive interest or credit. Additionally, the investments we've made in recruiting in both the wealth management and institutional segments have led both segments to more than double revenue over the past eight years. The operating leverage from these investments resulted in earnings per share increasing 270 percent over this time frame.

Rod: And in revenue and $8 in earnings per share in a more normalized market environments for.

Rod: For 2025 be such a year, it's certainly possible if the markets cooperate as we don't believe that reaching these numbers would require significant outperformance in any of our businesses. What we need is the return to historical productivity levels in banking continued growth in wealth management, and some future balance sheet growth.

Rod: The bottom line is that the operating a buyer as that as the operating environment improves Stifel is well positioned to continue our legacy of profitable growth, which we believe will continue to drive shareholder value. This is consistent with our strategy of continuing to build our market, leading wealth management franchise with an achievable goal of one <unk>.

Rod: And of client assets, while also being a premier middle market investment Bank.

Rod: And with that operator, please open the line for questions.

Speaker Change: Thank you if you would like to ask a.

Speaker Change: Question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.

The comparison of 2023 to 2019 is also important as it illustrates the benefits we've seen from recent acquisitions, recruiting, and balance sheet growth. Total revenue is up 30% in the past four years as wealth management growth of 40% more than offsets relatively flat institutional revenue. What should not be lost here is the potential upside we see in our institutional business. Specifically, the average number of investment banking managers and directors has increased by 33% since 2019, but our advisory revenue was relatively flat due to market conditions. If our production per MD returns to historical levels, we would experience substantial growth for both our top and bottom lines.

Speaker Change: Press Star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.

Speaker Change: Well take our first question from Devin Ryan with JMP Securities.

Devin Ryan: Great Good morning, Ron and Jim how are you.

Speaker Change: Good morning, Kevin.

Speaker Change: Great by the way I just want to.

Speaker Change: Got it got it.

Speaker Change: To start just on deposit betas.

Speaker Change: Assuming interest rates do move on at least with the current forward curve.

Speaker Change: Are you guys are thinking about kind of the movement over the first and second 100 basis points and I guess the question is obviously, we know smart rate as over half of the cash ex money markets are so that should be one for one into really kind of what are you expecting just for them.

Looking at our quarterly results, we had a strong rebound from the third quarter. Net revenue of nearly $1.15 billion was our third highest quarterly revenue as a combination of a pickup in institutional revenue and continued strong wealth management revenue drove this improvement. Given the flexibility of our operating model, we were able to maintain our compensation ratio at 58% and generate $1.50 of EPS, which was a 27% sequential quarterly increase in operating EPS, which excludes the significant one-time legal reserve taken in the third quarter. Moving on to slide four, we look at the variance table to the consensus assessment.

Speaker Change: Sweep deposit piece of the equation. Thanks.

Speaker Change: Well I think I think you know half of our approximately.

Speaker Change: Our in our.

Speaker Change: And smart rate and that that is highly correlated to effective fed funds.

Speaker Change: I think the question on deposit betas on the way down and it would be driven by competitive factors.

Speaker Change: Just says as they were sort of on the way up.

Speaker Change: Jim I don't know if you want to know the correlation effective fed funds is essentially because of the competition in the competitions, our money market mutual funds in treasury bonds and those so thats by by its nature is tied to the short end of the curve and so youll see near 100% beta on the way down on the first couple of cuts and probably beyond that for.

Total net revenue beat the streak by $60 million as each of our primary revenue lines surpassed expectations. Transactional revenue came in $30 million above the street on stronger fixed income revenue as our rates business has begun to rebound from the weakness tied to bank failures, higher rates, and an inverted yield curve. Investment banking came in $21 million above expectations driven by higher advisory and fixed income capital markets, primarily public finance. Total expenses were higher than forecast, but much of that was reflected in compensation expense due to higher revenue in the quarter as the comp ratio remained consistent at 58% and was in line with street consensus. Non-comp expenses were $10 million higher than expectations as a result of higher occupancy costs and higher legal expenses, which was partially offset by a lower loan loss provision.

Speaker Change: For smart rate I think Devin I think you're trying to get to what what will happen with sweep balances, which is more transactional balances versus savings balances and we expect them to decline I am not sure that I would be comfortable giving you a deposit beta on those balances, but it would be modest.

Speaker Change: Like it was modest in the way it was modest both ways actually.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: You figure it out and see what you guys would say there and then.

Speaker Change: I guess on the financial adviser.

Speaker Change: Evolution of the firm I get this question a fair amount of independent contractors still.

Speaker Change: Uh huh.

Speaker Change: Very small less than 5% of overall financial advisor head count and I, just love to get your thoughts right around what you think that looks like.

Speaker Change: Maybe five years from now how much of a objective of the firm is it to grow independent relative to employee if it is at all and if it is kind of some of the steps you're taking to either drive that growth, whether it's organic or inorganic or just.

Before I turn the call over to Jim to go through our quarterly results, I wanted to talk about our Wealth Management Bill. While much of the discussion of our near-term upside is focused on our institutional business, I want to emphasize that our global wealth segment has been the long-term growth engine of our firm and is a cornerstone of our default success. As stated previously, our wealth management segment has posted 21 consecutive years of record revenue as our focus on recruiting, serving, and growing our clients has been fundamental to our success. Slide 8 illustrates these points.

Make the platform more compelling for independents as well as employees.

Speaker Change: Yes, I think to answer your question it would be.

Speaker Change: You know what you finished that with which is we would like to provide an opportunity and a compelling platform for independence.

Speaker Change: To utilize simply our platform, our technology and our capabilities.

Speaker Change: There is no particular focus on growing the independent channel relative to the employee channel there just hasn't been.

Since 2014, global wealth management revenue has increased 150%, while the percentage of recurring revenue has increased from 44% to 78%. Again, this level of growth has been the result of our strategy to recruit high-quality advisors and provide them with an extraordinary level of service. In this effort, we have continually invested in resources, support, and technology to reduce bureaucracy and enable our advisors to thrive.

Speaker Change: We will deal with that.

Speaker Change: That.

Speaker Change: As supply and demand you know sort of dictate we have the platform and its.

Speaker Change: It's a good alternative.

Speaker Change: What you'll see though is as our focus has been historically and this is nothing against the independent channel I just wanted to say our focus over the years has been on the employee channel and that's simply because we are a diversified.

Speaker Change: Firm with a lot of capabilities that that you know the employee model. It's more it's more it's been tailored over the last 25 years. So the employee model. So.

Our recruiting efforts have been one of the key elements of our growth efforts. Since the end of 2018, we've added more than 700 financial advisors, with cumulative trailing twelve production of approximately $435 million. We continue to see increased momentum in our recruiting efforts as the number of advisors we added to our platform increased by nearly 30% in 2023 as compared to 2022. Thus, while we see significant upside in revenue and margins as our institutional segment gets back to historical norms, our long-term growth and success have been and continues to be driven by our wealth management franchise. With that, let me turn the call over to Jim Marischen to discuss our most recent quarter results. Thanks, Ron, and good morning, everyone.

Speaker Change: I can see both growing.

Speaker Change: I'm I'm frankly indifferent the way we look at the business.

Speaker Change: Yeah, Okay I appreciate it I'll leave it there thanks guys.

Speaker Change: We'll take our next question from Alex <unk> with Goldman Sachs.

Alex: Hey, Thanks, guys good morning.

Alex: First question around M&A I heard you talk about a mid single digit and in a rate for the quarter can you talk a little bit of a broader kind of what it's been for the year and what's been the contribution from same store sales in your favor recruiting and maybe your outlook for organic growth in that business for 24.

Alex: I would say the results we saw in the fourth quarter were consistent with what we saw over the full year. The net new asset number was relatively consistent in the mid single digits.

Look into the details of our fourth quarter results on slide 6. Quarterly net revenue of $1.15 billion was up 2% year on year. The increase was driven by stronger client facilitation, trading, and underwriting revenue that was partially offset by lower net interest income and advisory revenue. Our EPS was up 150% sequentially due to higher revenues, as well as lower non-cop operating expenses, which Ron addressed earlier. Moving on to our segment results. Global Wealth Management revenue was $766 million, and our pre-tax margins were 39%.

Alex: Across each of the quarters in 2023.

Alex: It's a fairly even mix between existing advisors and recruiting.

Alex: I wouldn't say either side is particularly driving the addition of net new assets, there and I think it's fairly balanced.

Alex: And I you know look I think I don't have in front of me Alex.

Same store sales and certainly the last.

Alex: Half of the year helped.

The overall flow of business and in the in the wealth management sector.

Alex: If you ask me just to look forward, though I would say generally speaking that I would expect the increase in same store sales to be higher in 2024 than it was in 2023, we got off to a rocky start in 2023 and with the equity markets, where they are today.

For the full year, record net revenue of $3.05 billion was up 8% from 2022. This was driven by record asset management revenue and net interest income, as well as strong transactional revenue. A primary driver of our growth has been our ability to recruit advisors and increase our client assets. During the quarter, we added a total of 40 advisors.

Alex: And in our outlook.

Speaker Change: I see.

Speaker Change: Some.

Speaker Change: Relatively good performance over 23% for 24 versus 23 versus 22.

This included 13 experienced advisors with trailing 12-month production of more than $8.1 million. We ended the quarter with fee-based assets of $165 billion and total client assets of $444 billion. So what sequential increases were due to higher equity markets and organic growth as net new assets grew in the mid-single digits? Moving on to slide eight, where we highlight the solid trends at the bank. Net interest income of $273 million was in the lower half of our guidance. The bank's NIM was impacted by higher deposit costs, larger average cash balances, and the movement of sweep deposits back into third-party banks.

Speaker Change: Got you that's helpful.

Speaker Change: My second question just wanted to dig into the interplay on capital management as well as Youll account into next year. So it sounded like your appetite for loan growth, perhaps there was a little bit better.

Speaker Change: Look out versus maybe what we've seen over the course of 2023, so maybe just expand on that a little bit and just tease out what that means for share repurchases for 2024 as well.

Speaker Change: Well, we have first of all we've been repositioning the balance sheet alright, as we as we have you know.

Speaker Change: Adapted to a new environment, where you know.

Speaker Change: Deposits aren't just free flowing all over the place and and and you know trying to keep an eye on various sectors and credit considerations of loans Youll see as Jim mentioned, we sold nearly three quarters of $1 billion and.

The movement of cash back into the SWEEP program resulted in a few million dollars being recognized in asset management revenue rather than NII, but this is simply changing the geography of where the revenue is recognized on the income statement. While we are not ready to say cash sorting is behind us, outflows from sweep accounts were essentially flat in the quarter, as compared to outflows of more than $3.6 billion just two quarters earlier.

Speaker Change: In syndicated broadly syndicated loans, which you know were really put on almost as just a spread lending type strategy.

Speaker Change: And where we intend to deploy that are much more focused too.

Speaker Change: More of a relationship type you.

Speaker Change: You know relationship.

Speaker Change: Other other opportunities that we can provide for the firm.

Speaker Change: And with all that said, we really haven't had a diminishing loan demand we've just muted it so.

I'd also note that the SWE program now has $2.1 billion in balances with third-party banks. That said, we typically see some cash outflows early in the year, given the timing of tax. As for our expectations for the first quarter, we project net interest income to be in a range of $250 to $260 million. Our credit metrics and reserve profile remain strong, and our non-performing asset ratio stands at only 15 basis points. Our credit loss provision totaled $2.3 million for the quarter, and our consolidated allowance to total loans ratio was 86 basis points.

Speaker Change: I see today.

Speaker Change: This is a good time to be in.

Speaker Change: In the lending business.

Speaker Change: So.

Speaker Change: What.

Speaker Change: What I would say relative to before and and and we see now and as it relates to stock repurchases in the in the interplay on that.

Speaker Change: We'll grow from relatively flat to $2 billion, if we're up $2 billion, that's call it $200 million of capital.

Speaker Change: Our dividend leaves ample room for additional share repurchases ample.

Speaker Change: The other thing I'd add to that is the additional liquidity we have available today to fund some of that loan growth you will see we have over $2 billion in third party sweep banks and on top of that we added another $336 million in venture deposits and so Ron made the comment the capacity and our ability to generate loans and the investments we have.

During the quarter, charge-offs were primarily tied to an individual C&I credit that was fully reserved for previous. I would also note that we saw an approximate $800 million reduction in C&I balances during the quarter as we opportunistically sold certain broadly syndicated loan exposure as we continue to focus balance sheet allocations to portfolios that also provide other deposit or fee income opportunities. Lastly, our balance sheet continues to be well capitalized. Tier 1 leverage capital decreased 30 basis points sequentially to 10.5%.

Speaker Change: Made across fund an adventure and our continued ability to service our clients with securities based lending and mortgage is fairly significant and now theres a little bit more liquidity supporting that growth as we look forward.

Speaker Change: Got it very helpful. Thank you guys.

Speaker Change: Thanks, Alex.

We will take our next question from Bill Katz with TD Cowen.

I'd also like to highlight the improvement in unrealized losses in the bond portfolio. To put numbers to this, and reflecting the rally in the 10-year Treasury bond and tightening of credit spreads, our unrealized losses declined by $127 million or nearly 40% during the quarter. On the next slide, I'll discuss our institutional group, which had its strongest quarter in a year and a half. Total revenue from the segment was $359 million in the fourth quarter, which represented a 40% sequential increase. This represents both investment banking and our transactional business at StrongQuarters. Firm-wide investment banking revenue totaled $206 million as both capital raising and advisory revenue experienced significant increases from the third quarter. Advisory revenue was $129 million, which was up 33% sequentially, as we had solid results in our industrials, health care, and technology verticals. I highlight that although we benefited from year-end seasonality, the quarter was again negatively impacted by continued delays and closings.

Bill Katz: Okay. Thank you very much I appreciate the financial guidance and it looks like there is some margin opportunity as we look ahead into 'twenty four and probably again, it's 25, just looking through some of the supplement disclosed you have which is terrific. So thank you for that and looking at the incremental margin in the institutional group.

Bill Katz: If I did the math correctly it looks like there's about a 55% incremental margin in the fourth quarter and just as you look out into 'twenty, four and again to 25 into that sort of aspirational sort of normalization of a box how should we be thinking about the incremental margin maybe flip the for Stifel. Overall, and then specifically to the institutional group along that.

Bill Katz: Pat.

Bill Katz: Okay.

Pat: Yes, I think that are you know our margins well will improve obviously as the you can almost start with the institutional side of the business. We as you can see we essentially.

Pat: Broke even.

Pat: One on revenues of about 1 billion, one 3 billion.

Pat: And contrast that with 2021, which we may always look back and saying that was a really phenomenal year, but that said you know the.

Pat: $2 2 billion in profitability of 400 million plus so.

Pat: You can almost draw a line between the one three and $2 2 billion and see the leverage in earnings that we would expect and that will drive our margins.

We continue to expect these deals to close, but the timing remains uncertain. However, our pipelines remain strong, and we are seeing momentum begin to build in our activity levels, but the timing of a sustained rebound in the business remains very much market-dependent. Equity revenues totaled $89 million in the quarter, which was our strongest quarter since the fourth quarter of 2021. Equity Transactional revenue totaled $57 million, up 20% from the prior quarter, and represented our highest quarterly revenue in two years. We continue to gain traction in our electronic offerings and see strong engagement with our high-touch trading and best-in-class resources. Fixed income generated net revenue of $142 million and increased to $50 million from the third quarter.

Pat: You know the best laid plans of mice and men, but if we but if the markets cooperate.

Pat: We'll see margins that can get back into the mid twenties.

Pat: Yes.

Pat: See our growth in wealth management, continuing the offset being that we offset a lot of the weakness in the institutional business by growing NII.

Pat: Two up to almost 1 billion too.

Pat: As you can see in our guidance we would expect.

Pat: Some modest declines in net interest income being more than offset by the potential that you're referring to in our institutional business and maybe a little bit more color on the consolidated level. If you back off the legal accruals from the third quarter.

Much of the increase was driven by the $35 million increase in transactional revenue. We are starting to see the rates market open up as banks are beginning to trade their investment portfolios given the more dovish Fed outlook and more stable deposits. Underwriting revenues increased 60% sequentially as we continue to be a leader in the municipal underwriting business, as activity increased, and we continue to be ranked number one in the number of negotiated transactions as our market share was nearly 15% in 2023. On the next slide, we go through expenses. Our comp-to-revenue ratio in the fourth quarter was 58%, which was in line with our forecast. Non-compensation operating expenses, excluding the credit loss provision and expenses related to investment banking transactions, totaled approximately $249 million. Our non-comp X as a percentage of revenue was 21.8%. The effective tax rate during the quarter came in at 21.6%.

Year to date, we're a little over 19% pretax margins today and Thats, including the fact that we were essentially breakeven on the institutional side in 2023. So you think about back to previous high as Ron talked about 2020 one.

Pat: The mid 20% range, we have a higher starting point today, given some of the base. The NII that Ron talked about so you have some potential for incremental margin as the market recovers and normalizes and if you were already catch kind of.

Pat: A good market if you will it could go higher from what we saw in the previous cycle.

Speaker Change: Okay. That's helpful and just as a follow up.

Speaker Change: Not to get too far in the weeds, but I was wondering if you could expand a little bit on the legal charge in the quarter and maybe Ron just zoom out you have a pretty good view of this how you sort of see the regulatory landscape in 'twenty four and you know obviously, a lot of moving parts, including election year, but anything to be mindful on in terms of the outlook here.

Ronald James Kruszewski: Yes, I'll, let Jim talk about legal and then I'll answer your question, yes, the legal charges, we were talking about.

Ronald James Kruszewski: <unk> was in the third quarter, there was a $67 million accrual.

The lower tax rate was primarily due to the impact of the increase in our share price and related excess tax benefit on stock-based compensation. Before I turn the call back over to Ron, let me discuss our capital position. In the third quarter, we repurchased more than 2.3 million shares.

Ronald James Kruszewski: That was booked last quarter. It was not something that occurred in the fourth quarter, but what I said in my prepared remarks was we.

Ronald James Kruszewski: The fourth quarter would have I think a 27% increase if we sort of excluded that legal charge I'm just trying to point, we had a pretty good quarter, and we're saying that out Oh.

We have nearly 12 million remaining on our authorization. Additionally, we have approximately $170 million of excess capital based on a 10% Tier 1 leverage target. Additionally, we continue to generate substantial amounts of excess cash, as illustrated by our 2023 net income of $530 million. We remain focused on generating strong risk-adjusted returns when deploying capital, and we've done this through reinvesting in the business, making acquisitions, as well as through share repurchases and our recently increased dividends. Absent any assumption for additional share purchases and assuming a stable stock price, we'd expect the first quarter fully diluted share count to be 110 million shares. And with that, I'll turn the call back over to Rob.

Ronald James Kruszewski: Just that was Taylor straight that.

Ronald James Kruszewski:

Ronald James Kruszewski: The regulatory environment.

Ronald James Kruszewski: Not sure that really is changing.

Ronald James Kruszewski: Feel that.

Ronald James Kruszewski: As a maybe as a headwind for the industry.

Ronald James Kruszewski: The level of of regulatory.

Ronald James Kruszewski: Resolutions.

Ronald James Kruszewski: It seems to be markedly higher.

Ronald James Kruszewski: But it's been in the past.

Ronald James Kruszewski: But.

Ronald James Kruszewski: We'll see.

Ronald James Kruszewski: As this plays out hard hard to predict that but certainly the off channel communications was a significant factor for Nellix Stifel, but frankly, everyone that I've been dealing with that.

Speaker Change: Alright, thanks for the clarification. Thank you.

Thanks, Jim. Let me conclude by discussing our outlook for 2024 in terms of the current street asset. The current consensus estimates for net revenue for 2024 are $4.7 billion, which is up about $320 million from 2023. The primary driver of the increase is the expectation that our wealth management and institutional revenue will increase by a combined $400 million, which will more than offset the roughly $80 million expected decline in net interest income. As you can see from the table, we are guiding to total net revenue of $4.55 billion to $4.9 billion in 2024. This includes our expectation that net interest income will be in the range of $1 billion to $1.1 billion. Overall, we believe that the pressure on the net interest margin can be offset by an increase in interest-bearing assets.

Speaker Change: We will take our next question from Steven Tabak with Wolfe Research.

Steven Chubak: Hey, good morning, Ron Good morning, Jim.

Steven: Good morning, Steven.

Speaker Change: So I wanted to start off just unpacking some of the assumptions underpinning the 24 fee guidance didn't catch if you had and so I'm sorry, if I missed this if you alluded to the equity market appreciation that you're assuming in the coming year and specifically for FIC brokerage.

Speaker Change: <unk> is this 100 million gym, a reasonable jumping off point given the tailwind from both Steepening that you cited in the prepared remarks.

Speaker Change: So specific to fixed income I think the conversations we're having with the people that run that business as they continue to see increased levels of activities, obviously with the feds change in stance.

Speaker Change: The unwinding of some of the unrealized losses on bank balance sheets.

Speaker Change: Going forward Youll, probably see banks use and rely on HTM on a lesser basis, you're starting to see that until all youre starting to see more activity and we do anticipate that to continue we do feel like at this point, we're being a little bit conservative, but it's a reasonable jumping off point to look at what happened in the fourth quarter and maybe discount of that a little.

Simply, considering the multiple factors impacting the banking industry, we see the current period as an opportunity to make great loans. While we anticipate an improvement in our operating revenue, particularly in institutional banking, we remain conservative given the recent industry-wide weakness in investment banking. Considering this, we expect our compensation ratio will be in the range of 56% to 58% and that non-operating non-comp will be 19% to 21%. I've heard the term transition year applied to 2024, and I believe that's a relatively accurate description of the environment.

Speaker Change: But we are seeing some very positive trends across the fixed income area and I would add that as we.

Speaker Change: As I think we talked about in previous calls and we've made some meaning.

Speaker Change: Meaningful hires in that space.

Speaker Change: And the SBA and the journey space, which.

Speaker Change: Deals with the origination and provides product to many of our end buyers and so that that wasn't that's just getting ramped up and that's a.

Speaker Change: Not less and material opportunity for us with.

Speaker Change: With the hires we've made there so I think that just underscores what I think it is a reasonable jumping off place.

That's right in the equity market appreciation that you guys are assuming.

We don't believe that 2024 will be a, quote, normalized operating environment, as there remains uncertainty regarding the number of rate cuts that the Federal Reserve will make, the timing of the pickup in investment banking revenue, the presidential elections, and how the equity markets will react to these changes. Personally, I believe that the street estimate of 11% EPS growth for the S&P 500 over five to six rate cuts is optimistic. We believe that earnings will grow by 6% and that approximately 2 to 3 rate cuts are more realistic.

Speaker Change: Alright for asset management fees.

Speaker Change: Yes, I mean, I think we just took some of our internal expectations.

Speaker Change: Our internal kind of I forget what the exact.

Speaker Change: Percentage increase and market appreciation is but I can follow up on that.

Speaker Change: Okay, great and just on the the non com.

Speaker Change: Implied guidance I know that you had the legal charge. So there was a fair amount of noise. This past year, but just looking at the core non comp trends.

Speaker Change: On the.

Speaker Change: Ex legal those have been growing roughly at about a high single digit CAGR. Since 19, the 24 non comp guide actually implies a bit of contraction from what we can tell so just wanted to understand what's driving the better expense control in the coming year or at least relative to recent history.

But I wouldn't be upset with the consensus that it would likely have a meaningful positive effect on our operating results. Lastly, while I'm not giving guidance beyond 2024, I did want to touch on how we are looking at the next few years. I must say that while we are cautiously optimistic about 2024, we see the potential for significant exit velocity into 2025. Last quarter, we discussed the potential results of $5 billion in revenue and $8 in earnings per share in a more normalized market environment. Could 2025 be such a year?

Speaker Change: Well, we're talking about percentage of net revenue right and so first of all Theres always some noise in our fourth quarter is always if you look you'll always see that is historically.

Speaker Change: Higher I mean, we just we really push a cut off on all of our expenses to make sure that they're that they ran in Europe. If you go back over years, you'll see that the fourth quarter tends to be.

Speaker Change: Above trend for the year.

Speaker Change: And there is leverage in the model so while I expect non comp.

Speaker Change: Expense to increase.

Speaker Change: As we raise revenues, that's where the leverage in the model. That's why we see our margins getting into the mid twenties.

Operator: It's certainly possible if the markets cooperate, as we don't believe that reaching these numbers would require significant outperformance in any of our businesses. What we need is a return to historical productivity levels in banking, continued growth in wealth management, and some future balance sheet growth. The bottom line is that as the operating environment improves, Stifel is well positioned to continue its legacy of profitable growth, which we believe will continue to drive shareholder value. This is consistent with our strategy of continuing to build our market-leading wealth management franchise with an achievable goal of $1 trillion of client assets, while also being a premier middle-market investment bank. With that said, Operator, please open the line for questions. Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

Speaker Change: Cause.

Speaker Change: That percentage will come down.

Speaker Change: Revenues rebound.

Speaker Change: Okay. So the expectation, though is that the dollars while at least increase in non comps, but the ratio will improve with some of the operating leverage.

And if you look specifically at the fourth quarter. There is some seasonality in there when you think about the fourth quarter you typically see.

Speaker Change: Elevated levels of travel entertainment as well as some statement related expenses. We also had some third party legal expenses that were somewhat elevated in the fourth quarter. Those are lumpy those are hard to predict and you think about those in a normalized run rate. When you are comparing kind of the results in the fourth quarter.

Speaker Change: Normalizing some of those things on an annual basis.

Speaker Change: Addition to the revenue increases that Ron talked about is really whats getting you to the levels in our in our guidance range.

Speaker Change: Really helpful color. Thanks, so much for taking my questions.

Speaker Change: Yes.

Operator: Again, press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to ask a question. Thank you. Thank you. Thank you. We'll take our first question from Devin Ryan with JMP Security. Good morning, Ron and Jim. How are you?

Speaker Change: We will take our next question from Chris Allen with Citi.

Chris Allen: Yes, good morning, guys.

Chris Allen: Maybe you can just speak a little bit on the investment banking pipeline I'm, just wondering if youre seeing the.

Chris Allen: The improvement across all verticals or specific verticals, maybe give us some color just whether you're starting to see.

Good morning, everyone. Great, by the way. Okay. We want to start just on deposit betas and, you know, assuming interest rates do move on. B. D. B. E. I. T. O. P. S. F. O. F. O. V. W. E. V. O. P. I. T. O. P. I. T. O. V. O. Movement over the first and second.

Chris Allen: Any signals that bank activity, specifically is picking up.

Chris Allen: Obviously, you're starting to see some activity in the fixed income trading side I wonder if that's filtering through it on the banking side.

Speaker Change: Well for sure I mean.

Speaker Change: The engagement and the town and it frankly, some deals getting done is definitely.

I guess the question is, obviously, we know the smart rate is over half of the cash x money market, so really kind of what do you... Well, I think, you know, half of our money is in the smart rate, and that is highly correlated to effective Fed funds. I think, you know, the question of deposit betas on the way down is going to be driven by competitive factors, just as they were sort of on the way up. Jim, I don't know if you want to... No, I mean, the correlation to effective Fed funds is essentially because of the competition. The competition is money market mutual funds and treasury bonds, and by its nature, it's tied to the short end of the curve. And so you'll see near 100% beta on the way down on the first couple cuts and probably beyond that. Yeah, for a smart rate.

Speaker Change: Improving I'm cautious.

Speaker Change: <unk>, just because we've been talking about improvements and green shoots and all of that for quite a while here. So.

Speaker Change: The.

Speaker Change: I just I just see the tone being much better you asked about where is certainly.

Speaker Change: Health care industrials.

Speaker Change: Fair again tax so it's kind of broad based when we when we look at our pipeline.

I just want to make a more generalized comments here, which is we've been through.

Speaker Change: Pretty much a recession and in this business with.

Speaker Change: Equity capital raising down like 70% over almost whatever timeframe you want to compare it to.

Speaker Change: As it relates to 2021, and M&A down, 50% and that environment is not going to continue so we.

Speaker Change: I definitely see improved business I don't want to try to comment as to how steep the curve of improvement will be but certainly as we start the year we're seeing.

I think, Devin, I think you're trying to get to what will happen with sweep balances, which are more, you know, transactional balances versus savings balances. And you know, we expect them to decline. I'm not sure that I would be comfortable giving you a deposit beta on those balances, but it would be modest, like it was modest on the way up. It was modest in both ways, actually. Okay, that's fair, and then there's the financial advisor. I get this question a fair amount.

Speaker Change: Improved engagement.

Speaker Change: Our pipelines and our engagements are improving and simply there is a lot to do theres been a lot of strategic and financial considerations and decisions that have been delayed in the face of.

Speaker Change: Inflation at 8% and the fed raising 500 basis points very quickly that certainly puts a damper on the timing of activity and now as we see that stabilizing and in fact.

Independent contractors are still... very small, you know, less than 5% of overall financial. And I'd just love to get your thoughts rolling around. I think that looks like maybe five years from now. How much of a objective of the firm is it to grow? Relative, if it is at all, and if it is, kind of some of the steps that make the platform more compelling. Yeah, I think to answer your question, it would be, you know, what you finished that with, which is, you know, we would like to provide an opportunity and a compelling platform for independents to, you know, utilize. Simply our platform, our technology, and our capability. There is no particular focus on, you know, growing the independent channel relative to the employee channel. There just hasn't been enough.

Speaker Change: The consensus is that that's going to go down youre going to see improved activity.

Speaker Change: Just I think that's pretty clear.

Speaker Change: Thanks, guys those are for me.

Speaker Change: We will take our next question from Brennan Hawken with UBS.

Brennan Hawken: Good morning, Thanks for taking my questions.

Brennan Hawken: Just curious.

Brennan Hawken: Pretty nice growth in the third party bank balances, so curious whether or not that was.

Brennan Hawken: By client actions, such as seeking out of excess FDIC or was this more like an asset decision.

Brennan Hawken: You guys.

Brennan Hawken: So the loan and didn't see loan growth so allocated to capture that yield.

Brennan Hawken: You know you know.

Brennan Hawken: I think there is as I read listen looking at some of the <unk>.

Brennan Hawken: <unk> comments on that so I'd love to take a moment just to clarify how we look at that right I I view third party bank sweep balances to be part and parcel part of our sweep program Alright, we control.

We will deal with that, you know, as... We have the platform, and it's a good alternative. I mean, what you'll see, though, is our focus has historically, and this is nothing against the independent channel; I just want to say, our focus over the years has been on the employee channel. And that's simply because we are a diversified firm with a lot of capabilities, and the employee model has been tailored over the last 25 years to the employee model. So, you know, I can see both of them growing. I'm frankly indifferent to the way we look.

Brennan Hawken: The if you will the valve on what we want to do so if we it's just where we're allocating our deposits.

So that that is just deposits that we're choosing now not to have on the balance sheet of Stifel. They're there. If you will divert it to third party banks don't want to making that decision other than us.

Okay, appreciate it. I'll leave it there. We'll take our next question from Alex Blostein with Goldman Sachs. Hey, thanks, guys. Good morning. First question around NNA.

Brennan Hawken: Is the best way to say that and we could turn around and bring those back on balance sheet as needed or increase it. So you need to look at in my opinion, you have to look at sweep deposits and third party combined.

I heard you talk about a mid single-digit NNA rate for the quarter. Can you talk a little bit about what it's been for the year and what's been the contribution from samester sales, new FAA recruiting, and maybe your outlook for organic growth in that business for the next 20 years? I would say the results we saw in the fourth quarter were consistent with what we saw over the full year; the net new asset number was relatively consistent in the mid single digits across each of the quarters in 2023. I think it's a fairly even mix between existing advisors and recruiting. I wouldn't say either side is particularly driving the addition of net new assets there, and I think it's fairly balanced.

Brennan Hawken: And the decision to push some of that sweep some of those dollars back was based upon some of the loan sales we talked about on the prepared remarks as well as just general elevated cash balances at the banks. So again the revenue associated with that just moves on the income statement, it's showing up in asset management revenues, rather than NII, but youre getting.

Brennan Hawken: A similar return in either location.

Speaker Change: Yep, Thanks for clarifying that I appreciate it.

And then.

Speaker Change: Ron you made reference to some of the hires that you've made in the bond trading business and I know you guys have referenced recruiting through much of the past year, but we noticed that the institutional Mds.

Speaker Change: We're actually down a bit now.

Speaker Change: By March one, but would have thought that that would've been growing just given the focus right. So so what drove that to be sort of flattish.

And I, you know, look, I think I don't have in front of me, Alex, the same store sales and, you know, certainly the last, you know, half of the year helps, the overall flow business in the wealth management sector. If you ask me just to look forward, though, I would say, generally speaking, that I would expect the increase in same-store sales to be higher in 2024 than it was in 2023. We got off to a rocky start in 2023, and with the equity markets where they are today and our outlook, I see some relatively good performance over 23 for 24 versus 23 versus 24. I gotcha; that's helpful.

Speaker Change: And was there some movement under the surface that maybe like we can't appreciate just by looking at the number in and of itself.

Speaker Change: Yes, I mean.

Look you would've been up one okay, and then would you have had the same question.

Speaker Change: It's down one I think that we see since 2019, we see.

Speaker Change: Our Mds are up some but what do we say 33%.

Speaker Change: <unk>.

Speaker Change: And.

Speaker Change: Most of those <unk> that there has been.

Speaker Change: In banking in terms of leveling it out and you know look we have a lot of capability here I think that our viewpoint is that we're not quickly going back to 2021 levels and.

My second question just wanted to dig into the interplay on capital management as well as you look out into next year. So it sounded like your appetite for long-term growth perhaps was a little bit better as you look out versus maybe what we've seen over the course of 2023. So maybe just to expand on that a little bit and just tease out what that means for share repurchases for 2024 as well. Well, first of all, we've been repositioning the balance sheet, all right, as we have, you know, adapted to a new environment where, you know, Petersen is. We hope you will join us for the first of many webinars andoder this week and report on syndicated, broadly syndicated loans, which, you know, were really put on almost as just a spread lending type strategy, and we intend to deploy that much more focused on more of a relationship type, you know, relationship, you know, deposits, other opportunities that we can provide for the firm. And with all that said, we really haven't had So I see today that this is a good time to be in the lending business.

Speaker Change: We not only want market share, we want to make money and so we're balancing so.

Speaker Change: You can it becomes.

Speaker Change: The big strategic decision to really hire into what you think is going to be a very.

Speaker Change: Very robust market.

Speaker Change: That doesn't happen that causes other problems. So we're being balanced as we always are but we have very capable bankers very capable.

Speaker Change: Services, and we are well positioned as we sit here today for rather significant improvement in the market.

Speaker Change: Everyone will do well, including our shareholders.

Speaker Change: Need to drop this activity down in EPS.

Speaker Change: Alright, thanks, Ron and for the record.

Speaker Change: [laughter] didn't they symbol wasn't what matters plus or minus it was flattish.

Speaker Change: No.

Speaker Change: Yes look I wanted to thanks.

Speaker Change: Yeah, but to go back to the other question also remember now we see this on the wealth management side and I think that's drives activity and a lot of our clients that have invested in alternatives and.

And so, you know, that's what I would say relative to before. And we see now, as it relates to stock repurchases and the interplay between that, we'll grow from relatively flat to $2 billion. If we're up $2 billion, that's, call it $200 million of capital plus our dividend leaves ample room for additional share repurchase. Amp.

Speaker Change: In the private equity.

Speaker Change: Our private.

Speaker Change: Private equity needs to return money to limited partners, Okay. They want to raise new funds, but you'd also need to have realizations and returned capital and that's been on pause a little bit so.

Speaker Change: As I can see a lot of things that are requiring some transactions to get done so that private equity can sort of recycle the capital back you can't sit there on these investments for 15 years.

The other thing I'd add to that is the additional liquidity we have available today to fund some of that loan growth. You'll see we have over $2 billion in third-party sweep banks, and on top of that, we added another $336 million in venture deposits. And so, you know, Ron made the comment, the capacity and our ability to generate loans in the investments we've made across fund and venture and our continued ability to service our clients with securities-based lending and mortgage is fairly significant, and now there's a little bit more liquidity supporting that growth as we look forward. I got it.

Speaker Change: And so we definitely have to see a lot of discussions around the broad topic of returning capital to limited.

Speaker Change: On that Ron since you mentioned that I'd love to throw in another question here I.

Speaker Change: Have you we've seen the volumes pick up on the announcements.

Speaker Change: On the strategic side.

Speaker Change: When you look at your backlog are you starting to see financial sponsors getting more active in preparing to monetize as well or was that more a prospective expectation just based upon some of the dynamics that you laid out or like are you seeing the early signs are leading indicators of the activity pick up.

Very helpful. Thank you, guys. Shalit.

Operator: We will take our next question from Bill Katz. Okay. Thank you very much.

Speaker Change: Definitely.

So, I appreciate the financial guidance and looks like there's some margin opportunity as we look ahead into 24 and probably again into 25. So, just looking through some of the supplement disclosures you have, which is terrific. So, thank you for that.

Speaker Change: Great. Thanks, Rob if I can expand that if you want me to [laughter] I'd Love I'd Love to if you don't Mark no.

Speaker Change: No no.

Speaker Change: Again.

Speaker Change: You are yes.

Speaker Change: As you know as markets as interest rates go up and then.

Speaker Change: The spread widens between bid offer expectations in M&A, not just strategic but but but the ability to have realizations in private equity.

And looking at the incremental margin in the institutional group, if I did the math right, it looks like there's about a 55% incremental margin in the fourth quarter. And just as you look out into 24 and again to 25 into that sort of aspirational sort of normalization of eight bucks, how should we be thinking about the incremental margin maybe for CFO overall and then specifically for the institutional group along that path? Yeah, I think that, you know, our margins will will improve, obviously, as the institutional side of the business, we, as you can see, we essentially broke even on revenues of about a billion and 1.3 billion, you know, and contrast that with 2021, which we may always look back on and say that was a really phenomenal year. But that said, 2.2 billion, and profitability of $400 million plus.

Speaker Change: One of one of the drivers is returning capital it's hard it's hard to raise a new fund when you haven't.

Speaker Change: Consummated your last one and.

Speaker Change: So that is driving bid offer expectations tighter and there is a lot of discussions going on on this and that's again just speaking to the overall tone in that market, which is an improved market environment.

Speaker Change: In that and frankly across the markets. So.

Speaker Change: Absent any absent any.

Speaker Change: Journal shock to the system, that's why we see improvement here.

Speaker Change: Great Thanks for that color.

Speaker Change: Okay.

Speaker Change: We do not have any further questions in the queue.

Speaker Change: Well very good I want to thank everyone for taking the time.

So you can almost draw a line between the $1.3 and $2.2 billion and see the leverage and earnings that we would expect, and that will drive our margins, the best laid plans of mice and men, but if we, but if the markets cooperate, you know, we'll see margins that can get back into the mid 20s. As we see our growth and wealth management continuing, the offset being that we offset a lot of the weakness in the institutional business by growing NII up to almost a billion dollars. As you can see in our guidance, we would expect some modest declines in net interest income to be more than offset by the potential that you're referring to. And maybe a little bit more color on the consolidated level; if you back off the legal accruals from the third quarter, year-to-date, we're a little over 19% pre-tax margins today. And that's including the fact that we were essentially break-even on the institutional side in 2023.

Speaker Change: Two.

Speaker Change: To listen to our results look forward to talking to you about what I believe will be an improving environment in 2024.

Speaker Change: As we go through the year and into 2025. So thank you everyone for your time and we look forward to communicating again next quarter have a good day.

Speaker Change: This concludes today's call. Thank you for your participation you may now disconnect.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Right.

Speaker Change: [music].

Speaker Change:

So you think back to previous slides, Ron talked about 2021, kind of the mid-20% range. We have a higher starting point today, given some of the base, the NII that Ron talked about. So we have some potential for incremental margin as the market recovers and normalizes. And if you were to catch kind of a good market, if you will, it could go higher from what we saw in the previous cycle. Okay, that's helpful. And just as a follow-up, not to get too far in the weeds, but I was wondering if you could expand a little bit on the legal charge for the quarter, and maybe, Ron, to zoom out, you have a pretty good view of this, how you sort of see the regulatory landscape in 24, you know, obviously a lot of moving parts, including election year, but anything to be mindful of in terms Yeah, I'll let Jim talk about the legal aspects, and then I'll...

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Yeah.

The legal charges we were talking about; the accrual was in the third quarter. There was a $67 million accrual that was booked last quarter. It was not something that occurred in the fourth quarter.

Yeah, what I said in my prepared remarks was the fourth quarter had, I think, a 27% increase if we sort of excluded that legal charge. I was just trying to point out that we had a pretty good quarter, and we're seeing that. Just that was to illustrate that.

You know, the regulatory environment, I'm not sure that really is changing. I feel that as a, maybe as a headwind for the industry. You know, the... Revolution, seems to be markedly higher than what it's been in the past, but we'll see how that plays out. Hard to predict that, but certainly the off-channel... was a significant factor. Not only Steeple, but frankly everyone.

Alright, thanks for the clarification. Thank you. We'll take our next question. Bach.

Operator: Good morning, Ron. Good morning. Good morning, Steven.

So I wanted to start off just unpacking some of the assumptions underpinning the 24 fee guidance. I'm sorry if I missed this, but you alluded to the equity market appreciation that you're assuming in the coming year, and specifically for FIC brokerage. Is this $100 million, Jim, a reasonable jumping-off point, given the tailwinds from bull steepening that you cited in the prepared report? So, specific to fixed income, I think the conversations we're having with the people that run that business are that they continue to see increased levels of activity. Obviously, with the Fed's change in stance, the unwinding of some of the unrealized losses on bank balance sheets, you know, going forward, you'll probably see banks use and rely on HTM on a lesser basis. You're starting to see that on Thaw.

You're starting to see more activity, and we do anticipate that to continue. We do feel like, at this point, we're being a little bit conservative, but it's a reasonable jumping off point to look at what happened in the fourth quarter and maybe discount that a little bit, but we are seeing some very positive trends across the fixed income area. And I would add that, you know, as I think we talked about in previous calls, and we've made some meaningful hires. Phaes Oh to the US.

Jennings deals with origination and provides product to many of our end buyers. And so that's just getting ramped up, and that's a not less-than-material opportunity with the hires we've made there. So, I think that just underscores that I think, Trayton, and the equity market appreciation that you guys are... I think we just exceeded some of our internal expectations. I forget what the exact percentage increase in market appreciation is, but I can follow up on that. Great.

And just on the non-comp implied guidance, I know that you have the legal charge. So there was a fair amount of noise this past year. But just looking at the core non-comp trend, Xlegal.

Those have been growing roughly at about a high single-digit CAGR since 19. The 24 non-comp guide actually implies a bit of contraction from what we can tell, so just want to understand what's driving the better expense control in the coming year, at least relatively. Well, we're talking about a percentage of net revenue, okay? And so, first of all, there's always some noise in our, you know, our fourth. As always, if you look, you'll always see that it is historically higher.

I mean, we just, we really push a cut off on all of our expenses to there, you know, that they're in and you'll, if you go back over the years, you'll see that the fourth quarter tends to be above trend for the year. And you know, there's leverage in the model. So while I expect non-comp expenses,

As we raise revenues, that's where the leverage in the model comes from, that's why we see our margin getting into the mid-20s because that percentage will come down as revenues go up. Okay, so the expectation, though, is that the dollars will at least increase. Noggin.

Yeah. And if you look specifically at the fourth quarter, there's some seasonality in there. When you think about the fourth quarter, you typically see elevated levels of travel entertainment as well as some statement-related expenses. We also had some third-party legal expenses that were somewhat elevated in the fourth quarter. Those are lumpy.

Those are hard to predict. And when you think about those at a normalized run rate when you're comparing kind of the results in the fourth quarter, normalizing some of those things on an annual basis, in addition to the revenue increases that Ron talked about, is really what's getting you to the levels in our guidance range. Really helpful caller. Thanks so much.

Operator: We'll take our next question from Chris Allen. Yeah, morning, guys. Maybe just to get a little bit on the investment, I just wonder if you're seeing improvement across all verticals or specific verticals. Maybe give us some color, just whether you're starting to see any signals that bank activity specifically is picking up. I mean, obviously, you're starting to see some activity on the fixed income trading side. I wonder if that's filtering through at all on the banking side. Well, for sure.

I mean, the engagement and the tone and, frankly, some deals getting done are definitely improving. You know, I'm cautious, Chris, just because, you know, we've been talking about improvements and green shoots and all of that for quite a while here, but I just, I just see the tone being much better. Yes, about where it's certainly healthcare, industrials, FIG, and tech. So it's kind of a broad base when we look at our pipelines. And you know, I just want to make a more generalized comment here, which is that we've been through pretty much a recession in this business with equity and capital raising down like 70% over, you know, almost whatever time frame you want to compare it to as it relates to 2021, and M&A down 50%. And that environment is not going to continue.

So we definitely see improved business. I don't want to try to comment as to how steep the curve of improvement will be, but certainly, as we start the year, we're seeing improved engagement, our pipelines and our engagements are improving, and simply there's a lot to do. There's been a lot of strategic and financial considerations and decisions that have been delayed in the face of, you know, inflation at 8% and the Fed rising 500 basis points very quickly. That certainly puts a damper on the timing of activity, and now as we see that stabilizing, and, in fact, the consensus is that that's going to go down, you're going to see improved activity. I think that's pretty clear. Thanks, guys. Those are for you. We will take our next question from Brennan Hawken. What's the maximum CO2 you can tolerate? Visit snowatlasa.at. Good morning.

Operator: Thanks for taking my question. I'm curious, it was a pretty nice growth. So, curious whether or not that was driven by client action, speaking out. Dicey, or was this more like an ass?

Weary. Gross. So, allocated to... You know, I think there's, as I've read and listened, looking at some of the streets' comments on this, I'd like to take a moment just to clarify how we look at that, all right? I view third-party bank suite balances to be part and parcel of our suite program, all right? We control the, if you will, the valve on what we want to do, so it's just where we're allocating our deposits. So that is just deposits that we are choosing now not to have on the balance sheet of STIFL. They're, if you will, diverted to third-party banks. No one's making that decision other than us is the best way to say that, and we could turn around and bring those back on the balance sheet as needed or increase them.

So you need to look at, in my opinion, you have to look at suite deposits and third-party combined. Yeah, and the decision to push some of that sweep, some of those sweep dollars back was based upon some of the loan sales we talked about in the prepared remarks, as well as just, you know, general elevated cash balances of the bank. So again, the revenue associated with that just moves to the income statement; it's showing up in asset management revenues rather than NII, but you're getting a similar return in either location.

Thanks for clarifying that. I appreciate it. And then, Ron, you made reference to some of the hires that you all have made in bond trading. I know you guys have been talking about recruiting through much of the past year, but we noticed that the institutional MDs were actually down a bit, not by much, but we would have thought that they would have been growing just given the focus right Now on the current cooperation with Google development ideals connected with Mountain View. So you know what drove that to be sort of flat ish and whether there was some movement under the surface that maybe I pressed at... Just about any kind of people that you appreciate. Just by listening.

Yeah, I mean... Look, it could have been an up one, okay, and then I would have you've had the same question, uh, it's a down one. I think that since 2019, we see, uh, you know, our MDs are up some, but what did we say 33? Okay, um, and most of those MDs that there's been are in banking in terms of leveling it out. And, you know, look, we have a lot of capability here. I think that our viewpoint is that we're not quickly going back to 2021 levels. And we do not only want market share; we want to make money.

And so, you know, we're balancing those. You can, it becomes, you know, it's a big strategic decision to really hire into what you think is going to be a very, you know, very robust market. And if that doesn't happen, that causes other problems.

So we're being balanced, as we always are. But we have very capable bankers, and very capable services. And we are well positioned, as we sit here today, for rather significant improvements in the market. Everyone will do well, including our shareholders. We need to drop this activity down at EPS. Thanks, Ron, and for the record. The symbol wasn't what matters, boss.

Operator: I know, I know, but it's, you know, look, one of the things that just, yeah, but go back to the other question also, remember, and we see this on the wealth management side, and I think this drives activity, and a lot of our clients that have invested in alternatives in the private equity, you know, our, you know, private equity needs to return money to limited partners, okay, they want to raise new funds, but you also need to have realizations and return capital, and that's been on pause a little bit, so, as, you know, I can see a lot of things that are requiring some transactions to get done so that private equity can sort of recycle the capital back, you can't sit there on these investments for 15 years, and so we definitely have to see a lot of discussions around the broad topic of returning capital to limited partners. You know, on that, Ron, since you mentioned that, I'd love to throw in another question here. Like, have you... We've seen the volumes pick up on the announcers.

It's mostly been on the strategic side. When you look at your backlog, are you starting to see financial sponsors getting more active and preparing to monetize as well, or was that more a prospective expectation based upon some of the, are you seeing the early signs?

Definitely. Thanks for all the comments. As markets, as interest rates go up, and the spread widens between bid-offer expectations and M&A, not just strategic, but the ability to have realizations and private equity, one of the drivers is returning capital. It's hard to raise a new fund when you haven't consummated your last one.

That is driving bid-offer expectations tighter, and there's a lot of discussions going on about this. And that's, again, just speaking to the overall tone in that market, which is an improved market environment in that and, frankly, across the markets. So absent any external shock to the system, that's why we see improvement here.

Operator: Thank you for that color. I do not have any further questions. Well, very good. I want to thank everyone for taking the time to listen to our results. I look forward to talking to you about what I believe will be an improving environment in 2024 as we go through the year and into 2025. So thank you, everyone, for your time, and we look forward to communicating again next quarter. Have a good day. This concludes today's call. Thank you for your participation. You may now disconnect. Music, Steven Chubak, James Marischen, Conor Fitzgerald, Joel Jeffrey, Steven Chubak, Conor Fitzgerald