Q2 2024 Stifel Financial Corp Earnings Call

Good day and walk on to the Stifel Financial second quarter Financial results Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Joel Jeffrey head of Investor Relations. Please go ahead.

Operator: Good day, and welcome to the Stifel Financial second quarter financial results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Joel Jeffrey, Head of Investor Relations. Please go ahead.

Operator: Good day and welcome to the Stifel Financial second quarter financial results conference call. Today's conference is being recorded.

Joel Jeffrey: At this time, I would like to turn the conference over to Joel Jeffrey, Head of Investor Relations. Please go ahead.

Joel Michael Jeffrey: Thank you operator, I'd like to welcome everyone to Stifel Financial's second quarter 2024 conference call I'm joined on the call today by our chairman and CEO, Ron Kruszewski co presence, Victor and easy and Jim's demand and our CFO J merrigan.

Joel Michael Jeffrey: Thank you, operator. I'd like to welcome everyone to Stifel Financial's second quarter 2024 conference. I'm joined on the call today by our chairman and CEO, Ron Kruszewski, our co-presidents Victor Nisi and Jim Semlak, 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.stifel.com. I would note that some of the numbers that we state throughout our presentation are presented on a non-GAAP basis, and I would refer to our reconciliation of GAAP to non-GAAP as disclosed in our press release.

Joel Jeffrey: Thank you, operator. I'd like to welcome everyone to Stifel Financial second quarter 2024 conference call. I'm joined on a call today by our Chairman and CEO, Ron Krzewski, our Co-President Victor Niesian, Jim Zemwak, and our CFO, Jim Marischen.

Joel Jeffrey: Earlier this morning, we issued an earnings release and posted a slide deck of financial supplements to our website, which can be found on the Investor Relations page at www.evil.com. I would note that some of the numbers that we stated throughout our presentation are presented on a non-GAAP basis, and I would refer to our reconciliation of GAAP and non-GAAP as disclosed in our press release. I would also remind listeners to refer to our earnings release, financial supplement, and our slide presentation for information on forward-looking statements and non-GAAP measures.

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

Note that some of the numbers that we state throughout our presentation and are presented on a non-GAAP basis, and I would refer to our reconciliation of GAAP to non-GAAP.

Disclosed in our press release.

Joel Michael Jeffrey: 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 audiocast is copyrighted material of 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, Ronald Kruszewski. Thanks, Joel. Good morning.

I'd also remind listeners to refer to our earnings release financial supplement our slide presentation for information on forward looking statements and non-GAAP measures.

Operator: This audio cast is copyrighted material, Stifel Financial, and may not be duplicated, reproduced, or rebroadcast without the consent of Stifel Financial.

Speaker Change: Catholic copyrighted material Stifel financial and may not be duplicated reproduced or rebroadcast without the consent of Stifel Financial Corp.

Ron Krzewski: I will now turn the call over to our Chairman and CEO, Ron Krzewski. Ron? Thanks, Joel. Good morning. Thanks to everyone for taking the time to listen to our second quarter 2024 earnings conference call.

Now I'll turn the call over to our chairman and CEO Ron Kruszewski.

Ronald James Kruszewski: Thanks to everyone for taking the time to listen to our second quarter 2024 earnings conference. I am pleased to be with my part, morning in New York and look forward to seeing them as well. Stifel's strong results in the second quarter reflected our operating leverage as market conditions improved, particularly in our institution. People's second quarter net revenue totaled $1.22 billion, up 16% from 2023, and represents the second best quarter in three years. All revenue line items showed improvement, except for a predicted decline in net interest. Commissions and principal transactions increased 24% as a result of stronger client activity levels in both wealth management and earnings, investment Record asset management revenue was up 19%, reflecting organic growth. However, net interest income declined $40 million, or $14 billion.

Ronald James Kruszewski: Thanks, Joe Good morning, Thanks to everyone for taking the time to listen to our second quarter 2024 earnings Conference call I'm pleased to be with my partners here. This morning in New York and look for.

Ron Krzewski: Please to be with my partners here this morning in New York and forward to seeing them as well. Stifel strong results in the second quarter reflected our operating leverage as market conditions improve, particularly in our institutional investment. People's second quarter net revenue total 1.22 billion, up 16% from 2023, and represents the second best quarter in our history. All revenue items show improvement, except for our predicted decline in that interest income. Admissions and principal transactions increase 24% to the results of stronger client activity levels in both management and our institutional growth. That's my banking increase 40% as advisory revenue was up 50% and capital raising roles of 29%.

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Seeing them as well.

Speaker Change: People strong results in the second quarter reflected our operating leverage as market conditions improve particularly in our institutional business.

Speaker Change: Second quarter net revenue totaled $1, two 2 billion up 16% from 2023 and represents the second best quarter in our history. All revenue items line items showed improvement except for our predicted decline in net interest income.

Speaker Change: Emissions in principle transactions increased 24% as a result of stronger client activity levels in both wealth management and our institutional group that's.

Speaker Change: Investment banking increased 40% advisory revenue was up 50% and capital raising rose 29%.

Ron Krzewski: Record-assent management revenue was up 19%, reflecting organic growth at market appreciation. The interest income declined 40 million, or 14%. However, although an AI decrees, both quarterly and the first, both quarterly and the first half of the year, the declines were within our guide. The efficiency of our diversified business model was illustrated by our second quarter pre-tax margin of 21%, operating earnings per share of $1.60, which was a 33% increase from the inequity of 22%. We generated record-first half net revenue of nearly 2.4 billion and increased of 10% as improving institutional revenue more than offset predicted decline in an AI.

Speaker Change: Record asset management revenue was up 19%, reflecting organic growth and market appreciation.

Speaker Change: Net interest income declined $40 million or 14%, however, although NII decreased both quarterly and the first.

Ronald James Kruszewski: However, although NII decreased both quarterly in the first quarter and in the first half of the year, the declines were within our guidance. The efficiency of our diversified business model is illustrated by our second quarter pre-tax margin of 21%, operating earnings per share of $1.60, which was a 33% increase from the prior year, as well as an annualized return on tangible common stock. We generated record first half net revenue of nearly $2.4 billion, an increase of 10%.

Speaker Change: Both quarterly and in the first half of the year the declines were within our guidance.

Speaker Change: The efficiency of our diversified business model as illustrated by our second quarter pre tax margin of 21% operating earnings per share of $1 60, which was a 33% increase from the prior year as well as an annualized return on tangible common equity of 22%.

Speaker Change: We generated record first half net revenue of nearly $2 4 billion, an increase of 10% is improving institutional revenue more than offset the predicted decline in NII.

Ronald James Kruszewski: Proving Institutional Revenue More Than Offset Predicted. [inaudible] Our consistent growth and significant cash generation also give us increased financial flexibility. This is highlighted by our recent retirement of $500 million. (Inaudible) We raised $500 million 10 years ago to support our bankroll strategy. However, our bank is now of the size and scale that it can more than fund its own growth, and therefore, in the current rate environment, we felt that retiring the debt made sense. Retiring these notes not only reduces our long-term liability but also eliminates 21 million.

Speaker Change: Our consistent growth and significant cash generation also gives us increased financial flexibility. This is highlighted by our recent retirement of $500 million in senior notes.

Ron Krzewski: Our consistent growth and significant cash generation also gives us increased financial flexibility. This is highlighted by our recent retirement of 500 million in senior notes. We raised the 510 years ago to support our bankroll strategy. However, our bank is now the size and scale that it can more than fund its own growth, and therefore, in the current rate environment, we felt that retiring the debt may be. Science financial. The retirement of these notes not only reduces our long-term liability, but also eliminates 21 million annual interest stocks. While comparison to the prior year of our informative, we also like to review our results next to street consensus estimate, which we do apply to.

Speaker Change: Raised a $500 million 10 years ago to support our bank growth strategy. However, our bank is now the size and scale that it can more than fund its own growth and therefore in the current rate environment, we thought that retiring the debt makes sense financially.

Speaker Change: The retirement of these notes not only reduces our long term liability, but also eliminate $21 million in annual interest.

Speaker Change: While comparisons to the prior year, our informative we all.

Ronald James Kruszewski: While comparisons of the prior year are informative, we'd also like to review our results next to the street consensus, which we do apply. Our EPS of $1.60 was $0.06 higher than the street estimate as net revenue came in above expectation. Looking at the specific line items that drove our earnings, the first transactional revenue came in 14 million above expectations, primarily driven by investment banking. Investment banking came in $10 million above consensus on strong revised estimates. I'd also note that underwriting revenue was stronger than consensus in the environment for capital. The only revenue item that we fell short of three estimates was net interest income.

Speaker Change: I'd like to review our results next to street consensus estimate, which we do on slide two.

Ronald James Kruszewski: Our EPS of $1.60 was six cents higher than the street estimate, and net revenue came in above expectations by $34 million. Looking at the specific line items that drove our earnings, be, first, transactional revenue came in, 14 million above expectations, primarily driven to fix income. That's when banking came in 10 million above consensus and stronger advisory revenue. I'd also note that underwriting revenue was stronger than consensus, as the environment for capital raising has improved. The only revenue item that we felt short of street estimates was net interest income. However, NIH still came within our guidance range.

Speaker Change: Our EPS of $1 60 was 6% higher than the street estimate of net revenue came in above expectations by $34 million.

Speaker Change: Looking at the specific line items that drove our earnings beat first transactional revenue came in $40 million above expectations, primarily driven fixed income investment banking came in $10 million above consensus and stronger advisory revenue.

Speaker Change: Also note that underwriting revenue was stronger than consensus that the environment for capital raising has approved it.

Speaker Change: The only revenue item that we fell short of estimates was net interest income. However, NII Dell came within our guidance range. We stated on last quarter's Florida that we believe that NII may have hit a low point.

Ronald James Kruszewski: However, NII still came within our guidance. We stated last quarter in Florida that we believe that I may have hit a low, and the modest incremental decline in the second quarter was the result of higher net interest margin, which I note is positive. But this was more than offset by a slight decline in interest-earning assets. On the expense side, we were essentially in line with the street, as our compensation ratio was 58%. Same as consented, while non-comp operating expenses totaled $260,000. 1 million and above.

Ronald James Kruszewski: We stated on last quarter's quarter that we believe that I may have hit a low point, and the modest incremental decline in the second quarter was the result of higher net interest margin, which I noticed positive, but this was more than offset by a slight decline in interest earning assets. I may spend side; we were essentially in line with the street as our compensation ratio was 58%, same as consensus, while non-comp operating expenses total 260 million, 1 million above consensus. We've used by three in recent earnings announcements to illustrate the benefits of our complementary businesses in various markets.

Speaker Change: And the modest incremental decline in the second quarter was the result of higher net interest margin, which I'd note is positive, but this was more than offset by a slight decline in interest earning assets.

Speaker Change: The expense side, we were essentially in line with the street as our compensation ratio was 58% stainless consensus while non comp operating expenses totaled $260 million 1 billion above consensus.

Speaker Change: We have your slide three in recent earnings announcements to illustrate the benefits of our complementary businesses in various market.

Ronald James Kruszewski: We've used slide three in recent earnings announcements to illustrate the benefits of our complementary and various Marks. Over the past five years, we've been able to offset much of the volatility of our institutional business with the stability of our fee-based business and our increased net income. Looking at the most recent three quarters, you can see the rebound in institutional pre-tax income that now has helped counter the decline in net interest income.

Ron Krzewski: Over the past five years, we've been able to offset much of the volatility of our institutional business with the stability of our fee-based businesses and our increased net interest income. Looking at the most recent three quarters, you can see the rebound in institutional pretext income that now has helped counter the decline in net interest income. Putting this into context on the first half of the year, our pretext income is up to 58 million. As the improvement in institutional margins in growth and PCG revenues has more than offset the 85 million decline in NII. As we look forward, expected continued improvement in wealth management and institutional revenue.

Speaker Change: Over the past five years, we've been able to offset much of the volatility of our institutional business with the stability of our fee based businesses and our increased net interest income looking at the most recent three quarters you can see the rebound in institutional pre tax income that now has helped to counter the decline in net interest income.

Ronald James Kruszewski: Putting this into context, in the first half of the year, our pre-tax income is up $58 million as the improvement in institutional margins and growth in PCG revenues has more than offset the $85 million decline in NII. As we look forward, the expected continued improvement in wealth management and institutional revenue will help. Additionally, stable net interest income achieved by higher interest-earning assets should offset incremental cash sorting and result in higher pre-tax margins and return on tangible common. I know there are a lot of questions on sweet cash and advisory accounts for all.

Speaker Change: Putting this into context in the first half of the year. Our pre tax income is up 58 million as the improvement in institutional margins and growth in PCB revenues have more than offset the $85 million decline in NII as we look forward. We expected continued improvement in wealth management and institutional revenue.

Ron Krzewski: Will help additionally stable net interest income achieved by higher interest earning assets should offset incremental cash sorting and result in higher pretext margins and return on tangible common equity.

Speaker Change: Additionally, stable net interest income achieved by higher interest, earning assets should offset incremental cash sorting and result in higher pre tax margins and return on tangible common equity.

Jim: I know there are a lot of questions on sweep cash in advisory accounts for all firms, while Jim will address some of the specific specifics on how we view. This at Stifel. Let me just state that people anticipated and prepared for this rate cycle. Both on the asset side of our balance sheet as well as offering clients options for savings accounts primarily are.

Ron Krzewski: I know there are a lot of questions on sweet cash and advisory accounts for all firms. Well, Jim will address some of the specific specifics on how we view this as Steeple. Let me just say the steeple anticipated and prepared for this re-cycle both on the asset side of our balance sheet as well as offering client options for savings account. Primarily, our smart rate. That's such would you not see a material impact relating to this matter and to underscore this point. We are not changing our NII guidance for the remainder of this year.

Ronald James Kruszewski: While Jim will address some of the specifics on how we view this at Stifel, let me just state that Stifel anticipated and prepared for this rate cycle, both on the asset side of our balance sheet, as well as offering clients options for savings, primarily through smart. As such, we do not see a material impact relating to this matter.

Speaker Change: Smart right.

Speaker Change: As such we do not see a material impact relating to this matter and to underscore. This point, we are not changing our NII guidance for the remainder of this year.

Ronald James Kruszewski: And to underscore this point, we are not changing our NII guidance for the remainder of this year. Before I turn the call over to Jim to discuss our financial results, I want to talk a little bit more about the long-term success of our Global Wealth Management business. As I mentioned earlier, for the second consecutive year, Stifel was ranked number one in the employee segment of the J.D. Power U.S. Financial Advisors study. In addition to ranking first overall, Stifel is also ranked number one in three of six categories. Leadership and Culture, Products and Marketing, and Operations.

Ron Krzewski: Before I turn the call over to Jim to discuss our financial results, I want to talk a little bit more about the long-term success of our global well management business. As I mentioned earlier, for the second consecutive year, Steeple was ranked number one in the employee segment of the JD Power UF Financial Advisor status. Spection study. In addition to ranking first overall, Stifel is also ranked number one in three of six categories: Leadership and Culture, Products and Marketing, and Operational Support. The results of this survey further proves our core values of respecting our advisors and continually improving the advisor experience, which in turn leads to better client experience.

Speaker Change: Before I turn the call over to Jim to discuss our financial results I want to talk a little bit more about the long term success of our global wealth management business.

Speaker Change: As I mentioned earlier for the second consecutive year Stifel was ranked number one in the employee segment of the J D power U S financial advisor satisfaction study.

Speaker Change: In addition to ranking first overall Stifel is also ranked number one in three to six category leadership and culture product and marketing and operational support.

Ronald James Kruszewski: The result of this survey further proves our core values of respecting our advisors and continually improving the advisor experience, which in turn leads to better clients. Focusing on these values enables us to continually attract and retain high-quality advisors to our platform, provide exceptional client service, and has been a foundation for our history. [inaudible] With that, our CFO, Jim Marischen, will discuss our most recent court decisions. Thanks, Ron. Good morning

Speaker Change: The results of this survey further proves our core values of respecting our advisors and continually improving the advisor experience, which in turn leads to better client experience.

Ronald James Kruszewski: Focusing on these values is nable to people to continually attract and retain high quality advisors to our platform, provide exceptional client service, and has been a foundation to our history of strong revenue growth.

Speaker Change: Focusing on these values enables people to continually attract and retain high quality advisers to our platform provide exceptional client service and has been a foundation to our history of strong revenue growth.

Jim Marischen: With that, our CFO, Jim Marischen, will discuss our most recent quarter results. Thanks Ron, good morning everyone. Looking at details of our second quarter results in slide five, a quarterly net revenue of over 1.2 billion was up 16% year on year. To the first half of the year, revenue of 2.38 billion was up 10%. The increase was driven by stronger client facilitation, advisory, trading, and underwriting revenue, and was partially offset by lower net interest income. Our EPS in the second quarter was up 33% from the prior year and up 19% year to date. Higher revenues and a lower share count more than offset modest expense growth.

Speaker Change: That our CFO, Jim Harrison, who will discuss our most recent quarter results.

James M. Marischen: Thanks, Ron and good morning, everyone.

James M. Marischen: Look at the details of our second quarter results on slide five. Our quarterly net revenue of over $1.2 billion was up 16% year on year. For the first half of the year, revenue of $2.38 billion was up 10%.

James M. Marischen: Looking at the details of our second quarter results on slide five our quarterly net revenue of over $1 2 billion was up 16% year on year.

James M. Marischen: So the first half of the year revenue of $2 three 8 billion was up 10%.

James M. Marischen: The increase was driven by stronger client facilitation, advisory, trading, and underwriting revenue. It was partially offset by lower net interest. Our EPS in the second quarter was up 33% from the prior year and up 19% year-to-date. Higher revenues and a lower share count more than offset modest expense growth. Moving on to our segment results, global wealth management revenue was a record $801 million, and our pre-tax margins were more than 37% on record asset management revenue and strong growth in transactional revenue. We continue to add new advisors to our platform. During the quarter, we added a total of 42 new advisors.

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

Our EPS in the second quarter was up 33% from the prior year and up 19% year to date.

James M. Marischen: Higher revenues and a lower share count more than offset modest expense growth.

James M. Marischen: Moving on to our segment results Global wealth management revenue was a record $801 million and a pre tax margins were more than 37% on record asset management revenue and strong growth in transactional revenue.

James M. Marischen: Moving on to our segment results, global wealth management revenue was a record $801 million. In our pretext, margins were more than 37% on record asset management revenue and strong growth in transactional revenue. We continue to add new advisors to our platform. During the quarter, we added a total of 42 advisors; this included 14 experienced advisors with trailing 12-month production of 12.2 million. We ended the quarter with record fee base assets and total client assets of 180 billion, 474 billion respectively. The sequential increases were due to higher equity markets and organic growth, as our net new assets grew in the low single digits.

James M. Marischen: We continue to add new advisers to our platform.

James M. Marischen: In the quarter, we added a total of 42 advisors. This included 14 experienced advisors with trailing 12 month production of $12 2 million.

James M. Marischen: This included 14 experienced advisors with trailing 12-month production of $12.2 million. We ended the quarter with record fee-based assets and total client assets of $180 billion and $474 billion, respectively. The sequential increases were due to higher equity markets and organic growth, as our net new assets grew in the low single digits. We highlight our longer-term growth drivers for our wealth management business on slide seven. We continue to be on track for our 22nd consecutive year of record revenue in our global wealth management business as our recurring revenues continue to comprise the vast majority of this segment's revenue. Our recruiting continues to be solid as our commitment to the highest level of service for our advisors is once again recognized by J.D. Power!

We ended the quarter with record fee based assets and total client assets of 180 billion 474 billion respectively.

James M. Marischen: The sequential increases were due to higher equity markets and organic growth as our net new assets grew in the low single digits.

James M. Marischen: We highlight our longer term growth drivers for our wealth management business on slide seven.

Jim Marischen: We highlight our longer-term growth drivers for our wealth management business on slide seven. We continue to be on track for our 22nd consecutive year, record revenue. Our global wealth management business, as our recurring revenues continue to comprise the vast majority of this segment's revenue. Our recruiting continues to be solid as our commitment to the highest level of service for advisors is once again recognized by J.D. Power.

James M. Marischen: We continue to be on track for our 20 <unk> consecutive year record revenue, our global with global wealth management business is our recurring revenues continue to comprise the vast majority of this segments revenue.

James M. Marischen: Our recruiting continues to be solid as our commitment to the highest level of service for our advisors was once again recognized by J D power.

Jim Marischen: From the next slide, I'll discuss our institutional group, with improvement in market conditions that began towards the end of 2020 free continued. Total revenue for this segment was 391 million in the quarter, a 41% year-on-year, and year-to-date revenue of 742 million was up 22%, led by strong increases in capital raising and transactional revenue. For a wide investment banking revenue total 233 million, while both capital raising and advisory revenue increased sequentially and year-on-year. As expected, underwriting revenue continues to lead the rebound in investment banking. Equity underwriting, a 48 million, was up 19% from the first quarter and 59% over the same period in 2023 as healthcare and financials were strong contribute.

James M. Marischen: On the next slide I will discuss our institutional group with improvement in market conditions that began towards the end of 2023 continue.

James M. Marischen: On the next slide, I'll discuss our institutional group, where the improvement in market conditions that began towards the end of 2023 continues. Total revenue for the segment was $391 million in the quarter, up 41% year-on-year and year-to-date. Revenue of $742 million was up 22%, led by strong increases in capital raising and transactional revenue. Firmwide investment banking revenue totaled $233 million, while both capital raising and advisory revenue increased sequentially and year-on-year. As expected, underwriting revenue continues to lead the rebound in investment banks.

Speaker Change: Total revenue for the segment was $391 million in the quarter up 41% year on year and year to date revenue of $742 million was up 22% led by strong increases in capital raising and transactional revenue.

James M. Marischen: Firm wide investment banking revenue totaled $233 million, while both capital raising and advisory revenue increased sequentially and year on year.

James M. Marischen: As expected underwriting revenue continues to lead the rebound in investment banking.

James M. Marischen: Equity underwriting of $48 million was up 19% from the first quarter and 59% over the same period in 2023 as health care and financials were strong contributors. Fixed income underwriting revenue increased 8% from 2Q23 as improved public finance revenue helped to offset slower taxable issues.

Speaker Change: What are you underwriting a $48 million was up 19% from the first quarter and 59% over the same period in 2023 is health care and financials were strong contributors.

Jim Marischen: Ander, fixed income underwriting revenue increased 8% from 2223, as improved public finance revenue helped to offset lower tax relationships. We continued to be a leader in a municipal underwriting business as we ranked number one in the number of negotiated transactions, with nearly 15% market share. Advisory revenue was 131 million and was our strongest quarters since first quarter in 2023, as we had styled results in our financials, gaming, industrials, and industrial verticals. Equity transactional revenue total 53 million, up 16% from the second quarter of 2023. We continued to gain traction and our electronic offerings, as well as strong engagement with our high-touch trading and best in class research.

Speaker Change: Fixed income underwriting revenue increased 8% from <unk> 23, as improved public finance revenue helped to offset lower tax bill issuance.

James M. Marischen: We continue to be a leader in the municipal underwriting business as we rank number one in the number of negotiated transactions with nearly 15% market share. Advisory revenue was $131 million, and it was our strongest quarter since the first quarter of 2025, as we had solid results in our financials, gaming, industrials, and industrials verticals. Equity Transactional Revenue totaled $53 million, up 16% from the second quarter of 2020. We continue to gain traction in our electronic offerings, as well as strong engagement with our high-touch trading and best-in-class reach.

Speaker Change: We continue to be a leader in the municipal underwriting business as we ranked number one in the number of negotiated transactions with nearly 15% market share.

Speaker Change: Advisory revenue was 131 million and was our strongest quarter since the first quarter in 2023, as we had solid results in our financials gaming industrial and industrial verticals.

Speaker Change: Equity transactional revenue totaled $53 million up 16% from the second quarter of 2023.

Speaker Change: We continue to gain traction in our electronic offerings as well as strong engagement with our high touch trading and best in class research.

James M. Marischen: Fixed income transactional revenue of $107 million was up 58% year-on-year as our rate business continues to rebound from a very slow 2023, and activity in our corporate debt business remains solid. Additionally, we benefited from increased trading gains during the quarter. On slide nine, I'll discuss our bank results and the recent industry focus on advisory sweep deposits. Net interest income of $251 million was in the lower half of our range as average interest earning asset levels declined by nearly $1 billion and more than offset the improvement in our bank net. The primary driver of the decline in interest-earning assets was a decline in cash on our balance sheet.

Speaker Change: Fixed income streams that transactional revenue of $107 million was up 58% year on year as a REIT business continues to rebound from a very slow in 2023 and activity in our corporate debt business remains solid.

Jim Marischen: 16% transactional revenue of 107 million was up 58% year on year, as our rate business continues to rebound from a very slow 2023, an activity, and our corporate debt business remains solid. Additionally, we benefited from increased trading gains during the quarter.

Additionally, we benefited from increased trading gains during the quarter.

Speaker Change: On slide nine I'll discuss our bank results and the recent industry focus on advisory sweep deposits.

Jim Marischen: Once slide 9, I'll discuss our bank results and the recent industry focus on advisory sweep deposits. Net interest income of 251 million was in the lower half of our range, as average interest earning asset levels declined by nearly a billion dollars and more than offset the improvement in our bank them. The primary driver of the decline in interest earning assets was a decline in cash on our balance sheet. The increase in him was a result of increased loan yield and a decline in deposit costs. Given our expectations for modest cash sorting and higher interest earning assets, as well as the interest savings obtained by paying off the $500 million senior debt, we expect that NI and the third quarter will be in the $250 to $260 million range.

Speaker Change: Net interest income of $251 million was in the lower half of our range as average interest, earning asset levels declined by nearly $1 billion.

Speaker Change: And more than offset the improvement in our bank NIM.

Speaker Change: The primary driver of the decline in interest, earning assets with a decline in cash on our balance sheet.

James M. Marischen: The increase in them was a result of increased loan yields and a decline in deposit costs. Given our expectations for modest cash sorting and higher interest-earning assets, as well as the interest savings obtained by paying off the $500 million senior debt, we expect that NII in the third quarter will be in the $250 to $260 million range. Our credit metrics and reserve profile remain strong. The non-performing asset ratio stands at 29 basis points. Credit Loss Provision totaled $3 million in the quarter, and our consolidated allowance to total loans ratio was 88 basis points, which was impacted by the growth in loan balances and fund banking, mortgage, and CNI.

Speaker Change: The increase in NIM was a result of increased loan yields and a decline in deposit costs.

Speaker Change: Given our expectations for modest cash sorting and higher interest, earning assets as well as the interest savings obtained by paying off the $500 million senior debt.

Speaker Change: We expect that NII in the third quarter will be in the $250 million to $260 million range.

Speaker Change: Our credit metrics and reserve profile remains strong.

Jim Marischen: Our credit metrics and reserve profile remain strong, and now performing asset ratios stay at the 29 basis points. Our credit loss provision total $3 million per quarter, and our consolidated allowance to total loans ratio is 88 basis points, which was impacted by the growth and loan balances and fund banking, mortgage, and CNI. Our balance sheet continues to be well-capitalized. Tier 1 leverage capital increased 50 basis points sequentially to 11.1%. I'd also note that the unreliable losses in our bond portfolio continue to improve, as credit spreads tightened in the CLM market.

Speaker Change: Non performing asset ratio stands at 29 basis points.

Speaker Change: Credit loss provision totaled $3 million for the quarter and our consolidated allowance to total loans ratio was 88 basis points, which was impacted by the growth in loan balances and fund banking mortgage and C&I.

Speaker Change: Our balance sheet continues to be well capitalized.

James M. Marischen: Our balance sheet continues to be well capitalized. Tier 1 leverage capital increased 50 basis points sequentially to 11.1%. I'd also note that the unrealized losses in our bond portfolio continue to improve as credit spreads tighten in the CLO market. I also want to touch on the recent concerns regarding the potential for higher sweep deposit costs on advisory. This has drawn significant interest as to its impact on the industry, and consequently, we felt it was important to address this issue as it relates to Stifel.

Speaker Change: Tier one leverage capital increased 50 basis points sequentially to 11, 1%.

Speaker Change: I would also note that the unrealized losses in our bond portfolio continue to improve as credit spreads tightened in the CLO market.

Speaker Change: I also want to touch on the recent concerns regarding the potential for higher sweep deposit costs on advisory accounts.

Jim Marischen: I also want to touch on the recent concerns regarding the potential for higher sweep deposit costs on advisory accounts. This has drawn significant interest as to the impact on the industry, and consequently, we felt it was important to address this issue as it relates to SQL. Let me start by saying that SQL has been at the forefront of industry trends for much of the cash sorting cycle. Our smart rate product was introduced before rates began to rise, and offer clients a competitive saving account, which resulted in the retention of client cash within SQL. In addition, the position or balance sheet to inflate us from interest rate risk to provide acceptable risk-adjusted net interest margins.

Speaker Change: This has drawn significant interest as to the impact on the industry and consequently, we felt it was important to address this issue as it relates to Stifel.

Speaker Change: Let me start by saying that Stifel has been at the forefront of the industry trends for much of the cash sorting cycle or.

James M. Marischen: Let me start by saying that Stifel has been at the forefront of industry trends for much of the cash sorting cycle. Our SmartRate product was introduced before rates began to rise and offered clients a competitive savings account, which resulted in the retention of client cash within Stifel. In addition, we positioned our balance sheet to insulate us from interest rate risk and provide acceptable, risk-adjusted net interest markets. Before the onset of rate increases, Stifel's sweep deposits totaled approximately $28 billion.

Speaker Change: Our smart rate product was introduced before rates began to rise and offer clients a competitive savings account, which resulted in a retention of client cash within Stifel.

Speaker Change: In addition, we positioned our balance sheet to insulate us from interest rate risk and provide acceptable risk adjusted net interest margin.

Speaker Change: Before the onset of rate increases depot sweep deposits totaled approximately $28 billion.

James M. Marischen: Before the onset of rate increase. Services, Stifel Swift Positotal approximately $28 billion. Today, Stifel has approximately $10 billion in sweet deposits, and $16 billion of smart rate deposits. Then, another way, 63% of Stifel's pre-rate cycle sweet deposits have sorted into smart rate. Additionally, I've pointed the growth and are ticketed money market fund in short-term treasury balances to highlight the additional cash alternatives that our advisors utilize to generate higher yields for their clients. Generally speaking, sweet deposits represent operational cash, as the average firm white balance per account is roughly $11,000. On the other hand, smart rate is more representative of investment cash, with an average account balance of $190,000.

Today's depots approximately $10 billion in sweep deposits and $16 billion of smart rate deposits.

James M. Marischen: Today, Stifel has approximately $10 billion in sweet deposits and $16 billion in smart rate deposits. Put another way, 63% of Stifel's pre-rate cycle suite deposits have sorted into smart. Additionally, I'd point to the growth in our ticketed money market fund and short-term treasury balances to highlight the additional cash alternatives that our advisors utilize to generate higher yields for their clients. Generally speaking, sweep deposits represent operational cash, as the average firm-wide balance per account is roughly $11,000.

Speaker Change: Said, another way, 63% of Stifel as pre rate cycle sweep deposits have sorted into smartphone.

Speaker Change: Additionally, I would point to the growth in our ticketed money market fund and short term treasury balances. The highlight the additional cash alternatives that our advisors utilize to generate higher yields for their clients.

Generally speaking sweep deposits represent operational cash as the average firm wide balance per account is roughly $11000 on.

James M. Marischen: On the other hand, SmartRate is more representative of investment cash, with an average account balance of $190,000. However, in terms of the sweet deposits within our advisory platform, the average deposit size is only $9,000 and represents 1.7% of fee-based assets, which we disclosed in our slide. We believe that given the relatively low percentage of sweet deposits maintained in our advisory accounts compared to total fee-based assets in those accounts, our CashSweep product is being utilized as designed and intended, primarily as a source of account liquidity to pay fees and meet short-term cash needs.

Speaker Change: On the other hand smart rate is more representative of investment cash with an average account balance of $190000.

James M. Marischen: In terms of the sweet deposits within our advisory platform, the average deposit size is only $9,000 and represents 1.7% of fee-based assets, which we disclose in our slide deck. We believe that, given the relatively low percentage of sweet deposits maintained in our advisory accounts, as compared to total fee-based assets in those accounts, our cash-week product is being utilized as designed and intended. Primarily, as a source of account liquidity, the pay fees and meet short-term cash needs. Consequently, we believe that through our focused efforts to provide higher yielding alternatives to our clients, we have mitigated much of the potential impact of this issue, and the incremental risk to Steeple are not material.

Speaker Change: In terms of the sweep deposits within our advisory platform. The average deposit size is only $9000 and represents one 7% of fee based assets, which we disclosed in our slide deck.

Speaker Change: We believe that given the relatively low percentage of sweep deposits maintained in our advisory accounts as compared to total fee based assets in those accounts, our cash sweep product is being utilized as designed and intended primarily as a source of account liquidity to pay fees and <unk>.

Speaker Change: Short term cash needs and.

James M. Marischen: Consequently, we believe that through our focused efforts to provide higher-yielding alternatives to our clients, we have mitigated much of the potential impact of this issue, and the incremental risks to people are not material. To illustrate this, we are not changing our net interest income guidance.

Speaker Change: Consequently, we believe that through our focused efforts to provide higher yielding alternatives to our clients. We have mitigated much of the potential impact of this issue and the incremental risk to Stifel are not material.

Jim Marischen: To illustrate this, we are not changing our net interest income guidance.

Speaker Change: Illustrate this we are not changing our net interest income guidance.

Speaker Change: On the next slide we go through expenses.

James M. Marischen: On the next slide, we go through expenses. The comp to revenue ratio in the second quarter was 58%, which was again at the high end of our full year guidance that we gave at the beginning of the year. I would note that during the quarter, we incurred nearly $10 million in severance costs tied to our efficiency initiatives and our international operations. Non-compensation operating expenses, excluding the credit loss provision and expenses related to investment banking transactions, total approximately $248,000. Non-comp FX as a percentage of revenue was 20.4%. The effective tax rate during the quarter came in at 25.8.

James M. Marischen: On the next slide, we go through expenses. Compton revenue ratio on the second quarter was 58%, which was again at the high end of our full year guidance that we gave at the beginning of the year. I would note that during the quarter, we incur nearly $10 million of severance costs tied to our efficiency initiatives in our international operations. Non-compensation operating expenses, excluding the credit loss provision and expenses related to investment banking transactions, total approximately $248 million. Non-compotbacks as a percentage of revenue was 20.4%. The effect of tax rate during the quarter came in at 25.8%.

Speaker Change: Comp to revenue ratio in the second quarter was 58%, which was again at the high end of our full year guidance. We gave at the beginning of the year.

Speaker Change: I would note that during the quarter, we incurred nearly $10 million of severance costs tied to our efficiency initiatives in our international operations.

Speaker Change: Non non compensation operating expenses, excluding the credit loss provision and expenses related to investment banking transactions totaled approximately $248 million.

Speaker Change: Non comp Opex as a percentage of revenue was 24%.

Speaker Change: The effective tax rate during the quarter came in at 25, 8%.

Jim Marischen: Before I turn the call back over to Ron, let me discuss our capital position. On last quarter's call, we indicated the possibility of retiring $500 million of senior notes that were maturing in July, given the growth in our bank and its ability to fund this growth. Last week, we paid off this debt. Given our conservative approach, in the fact that this was the first time we've retired senior notes, we reduced our buyback activity in the quarter to ensure we had more than ample levels of excess liquidity. As a result, our share of purchases of 229,000 shares in the quarter was down significantly from the prior quarter.

James M. Marischen: Before I turn the call back over to Ron, let me discuss her capital position. On last quarter's call, Dean indicated the possibility of retiring $500 million of senior notes that were maturing in July, given the growth in our bank and its ability to fund. Last week, we paid off this debt. Given our conservative approach and the fact that this was the first time we'd retired senior notes, we reduced our buyback activity in the quarter to ensure we had more than ample levels of excess liquidity. As a result, our share of purchases of 229,000 shares in the quarter was down significantly from prior. As of the end of the second quarter, we have approximately 11 million shares remaining on our authorization.

Speaker Change: Before I turn the call back over to Ron Let me discuss our capital position on last quarter's call. We indicated the possibility of retiring $500 million of senior notes that were maturing in July given the growth in our bank and its ability to fund its growth last.

Ronald James Kruszewski: Last week, we paid off this debt.

Given our conservative approach and the fact that this was the first time. We've retired senior notes, we reduced our buyback activity in the quarter to ensure we had more than ample levels of excess liquidity.

Ronald James Kruszewski: As a result, our share repurchases of 229000 shares in the quarter was down significantly from the prior quarter.

Jim Marischen: As of the end of the second quarter, we've approximately 11 million shares remaining on our authorization. We have more than 415 million of excess capital based on a 10% Tier 1 leverage chart.

Ronald James Kruszewski: As of the end of the second quarter, we have approximately 11 million shares remaining on our authorization, we have more than $415 million of excess capital based on a 10% tier one leverage target.

Ronald James Kruszewski: We have more than $415 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 second quarter gap net income of $156 million. We remain focused on generating strong risk-adjusted returns when deploying capital and have done this through reinvesting in the business, making acquisitions, as well as through share repurchase. However, without any assumption for additional share repurchase. And assuming a stable stock price, we'd expect the third-quarter fully diluted share count to be 111 million shares.

Ronald James Kruszewski: Additionally, we continue to generate substantial amounts of excess cash as illustrated by our second quarter GAAP net income of $156 million.

Ronald James Kruszewski: We remain focused on generating strong risk adjusted returns when deploying capital and have done this to reinvesting in the business.

Ronald James Kruszewski: Making acquisitions as well as through share repurchases.

Ronald James Kruszewski: Absent any assumption for additional share repurchases and assuming a stable stock price, we would expect the third quarter fully diluted share count to be 111 million shares.

Ronald James Kruszewski: And with that, I will turn the call back over to Rod. Thanks, Jim. Let me conclude by talking about how we see the remainder of the year playing out and why we are optimistic about the future. Our annualized results for the first half of the year put us above the midpoint of our guidance and roughly in line with street estimates for the full year. As I said last quarter, the outlook for the remainder of the year is certainly not without its risks.

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

Rod: Thanks, Jim.

Rod: Let me conclude by talking about how we see the remainder of the year playing out and why we are optimistic about the future.

Rod: Our annualized results for the first half of the year put us above the midpoint of our guidance and roughly in line with street estimates for the full year.

Rod: As I said last quarter the outlook for the remainder of the year certainly not without its risks.

Ronald James Kruszewski: However, given the current trends we are seeing in the market and the operating leverage in our business, we believe that we are well-positioned for a strong second half. Additionally, as we exit 2024, we believe that we will be on a trajectory to reach our near-term milestones of over $5 billion in annual revenue and $8 per share, as well as our long-term milestone of $1 trillion in client assets and $10 billion in annual revenue. We have not changed our revenue But, as you can see from the arrows on the right side of the slide, we believe that all of our revenue line items will at least match, if not exceed, our first half results, as market conditions continue to improve.

Rod: However, given the current trends, we're seeing in the market and the operating leverage in our business. We believe that we are well positioned for a strong second half.

Rod: Additionally, as we exit 2024, we believe that we will be on a trajectory to reach our near term milestones of over $5 billion in annual revenue and $8 per share as well as our long term milestone of one trillion and client assets of $10 billion in annual revenue.

Ronald James Kruszewski: On the transactional side, wealth management is resilient, and our rates business continues to improve as banks are seeing more opportunities to trade their securities and Investment Banking. Our results so far this year have been driven by increased underwriting activities, both in equity and fixed income.

Rod: We have not changed our revenue guidance for 2024, but as you can see from the arrows on the right side of the slide we believe that all of our revenue line items will at least match if not exceed our first half results as market conditions continue to improve on the transactional side wealth management in Brasilia and our rates business.

Rod: Continues to improve as banks are seeing more opportunities to trade their securities portfolio.

In investment banking our results so far this year, but driven by increased underwriting activity both in equity and fixed income as we look at the second half of the year. We anticipate continued solid results from capital raising but also increased performance from advisory as activity levels continue to improve and closings pick up.

Ronald James Kruszewski: As we look at the second half of the year, we anticipate continued solid results from capital raising, but also increased performance from advisory as activity levels continue to improve and closings pick up. Given that most of our asset management revenue is priced off trailing quarter asset levels, we've essentially locked in three quarters of revenue for 2020. In terms of net interest income, as Jim articulated, we're maintaining our previous guidance for NIH. On the expense side, we've narrowed the range for our compensation racial guidance to reflect the conservatism that we had in the first half.

Speaker Change: Given that most of our asset management revenues price drop trailing quarter.

Speaker Change: Asset levels, we have essentially locked in three quarters of revenue for 2024.

Speaker Change: In terms of net interest income as Jim articulated we're maintaining our previous previous guidance for NII.

Speaker Change: On the expense side, we have narrowed the range for our compensation ratio guidance to reflect the conservatism that we've had in the first half of the year. While we are optimistic for the second half we are still building back to our 2021 revenue levels, particularly in our institutional segment.

Ronald James Kruszewski: While we are optimistic about the second half, we are still building back to our 2021 revenue levels, particularly in our institution. As such, we've tightened our guidance to 57 and a half to 58, which still reflects our optimism for stronger revenue results. In addition to our expectation for a strong second half, we should see some benefit from some of the efficiency initiatives we have implemented. As Jim mentioned, we took a $10 million severance charge in the quarter as we rightsized our international operations.

Speaker Change: As such we've tightened our guidance to 57, 5% to 58%, which still reflects our optimism for stronger revenue results in the second half of the year.

Speaker Change: In addition to our expectation for a strong second half we should see some benefit from some of the efficiency initiatives. We have implemented as Jim mentioned, we took a $10 million severance charge in the quarter as we right size our international operations.

Ronald James Kruszewski: While these decisions are never easy, we believe they put our business on a stronger path towards improved profitability without impacting our revenue. Let me finish by saying that I am as optimistic about the future of our business as I've ever been. We've built a world-class diversified business that has proven its ability to generate strong returns despite ever-changing markets. The investments we've made have resulted in increased operating leverage, and the growth of our bank and asset management revenue has added to the stability of our...

James M. Marischen: While these decisions are never easy we believe it puts on our business on a stronger path towards improved profitability without impacting our revenue growth.

So let me finish by saying that item as I am optimistic about the future of our business really as much as I have ever been we built a world class diversified business has proven its ability to generate strong returns despite ever changing market conditions.

James M. Marischen: Investments. We've made have resulted in increased operating leverage and the growth of our bank and asset management revenue is added to the stability of our results.

Ronald James Kruszewski: Given the excess capital we generate, we'll continue to reinvest in our business and return capital to our shareholders, with, as always, a focus on high-risk... With that, Operator, please open up the line. Thank you. If you would like to ask a question, please signal by pressing star one 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.

James M. Marischen: Given the excess capital we generate we'll continue to reinvest in our business and return capital to our shareholders.

James M. Marischen: <unk> is always a focus on high risk adjusted returns.

Speaker Change: And with that operator, please open up the lines for questions.

Speaker Change: Thank you. Thank you I would like to ask a question. Please signal by pressing star one on your telephone keypad.

Speaker Change: 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. And we'll pause for just a moment to allow everyone an opportunity to signal. We can take our first question from Devin Ryan with Citizens JMP. Great. Good morning, Ron, Victor, Jim, and Jim. Hey Devin.

Speaker Change: Press Star one to ask a question.

Speaker Change: We'll pause for just a moment to allow everyone an opportunity to signal.

Speaker Change: Okay.

Speaker Change: And we can take our first question from Devin Ryan with citizen is from JMP.

Devin Patrick Ryan: First question, hey, first question is on some of the cash sorting commentary, Ron. You spoke about the potential for more cash sorting. I'm just curious, do you think we're close to the end with transactional cash at such low levels? And a little flavor on the difference between brokerage and fee-based would be great.

Devin Patrick Ryan: Great. Good morning, Rod Victor Jim Kevin first question first.

Devin Patrick Ryan: Just on some of the cash to work in commentary Ron. So you spoke about the potential for more cash sorting and I'm. Just curious do you think we are close to the end with transactional cash at such low levels and flavor on the difference between brokerage and fee base would be great. And then also really appreciate the comments about the wire house moves over the past couple of weeks.

Ronald James Kruszewski: And also, I really appreciate the comments about the wire house moves over the past couple weeks. I know you guys were probably getting questions there. Why do you think they did that?

Speaker Change: I know you guys have probably good questions there.

Ronald James Kruszewski: Was it a competitive move? Does it have any influence on Stifel at all? Well, let me take your last question first. You know, I'm reading like you are what people are doing, and I frankly don't know, you know, what, what or why or exactly what they're doing. You know, you'll read comments that not all advisory cash is eligible for higher rates. Look, I've looked into that. That means that their transactional or operational cash is not. [inaudible] They're increasing the rate, but just up a little bit and, you know, not the high yield. So, you know, there's there's a lot of questions. I don't really know.

Speaker Change: Why do you think they did that was it a competitive move does it have any influence on Stifel at all.

Speaker Change: Well, let me take your last question first.

Speaker Change: I have.

Speaker Change: Im reading like you are what people are doing and I frankly don't know.

Speaker Change: What.

Speaker Change: Our wire exactly what they are doing.

Speaker Change: <unk> comments that not all advisory cash is eligible for higher rates. So can I read into that that means that their transactional or operational cash does not it's part of.

Speaker Change: The platforms I read that I read other ones where.

We are increasing the rate, but just up a little bad not the high yields.

Speaker Change: There's a lot of the questions I don't really know I just know what we were doing and what we have been doing.

Speaker Change: What I would say as it relates to that goal generally speaking.

Ronald James Kruszewski: I just know what we're doing and what we have been doing. What I would say as it relates to that, though, generally. Stifel has been higher, you know, we are, are, are. Sweep deposits, you know, don't have a.01, you know, and a lot of institutions still were at the very, very low end of paying on sweep deposits.

Speaker Change: Steve Hall had been higher we are are Rob.

Speaker Change: Sweep deposits don't have a 0.1.

Speaker Change: A lot of institutions still we're at the very very low end of paying on sweep deposits and so I think thats, where some of it's coming from those pressure as people are really looking at it and say wait a minute point on one and so.

Ronald James Kruszewski: And so I think that's where some of it's coming from. This pressure is that people are really looking at it, say, wait a minute,.01? And so that's where I see some of it. But look, clients need the option to have alternatives for higher cash. We have to run our business and provide operational transactional cash, both in brokerage and advisory. That's what we've been doing. Suddenly, it became a hot topic for you all to talk about, as it relates to...

That's where I see some of that but look clients need the out the option to have alternatives for higher cash we have to run our business and provide operational transactional cash both in brokerage and advisory that's what we've been doing.

Speaker Change: And.

Speaker Change: We think that the products, we put in place have largely mitigated what.

Speaker Change: Suddenly became a hot topic for you all to talk about so as it relates to.

Ronald James Kruszewski: I think we've managed this correctly prior to this even coming up. But what you'll see... As Jim mentioned, when you look at what's happened, Unknown Attendee, Alexander Blostein, Gerasimos Kalogiratos, Michael Anagnostakis, James Marischen, and the metrics are very similar between brokers. So, I don't know. You know, that really answered all your questions. I took it in reverse, but you know, that's just how Yeah, no, thank you, Ron.

Speaker Change: So I think I think we've managed the correctly prior to this even coming up.

Speaker Change: But what youll see.

Speaker Change: As Jim mentioned that when you look at what's happened.

Jim: Really a $9000 average account.

Jim: <unk> is the the operational cost that moves all around within accounts, sometimes bonds mature and since we've done that moves and it gets reallocated those are normal levels.

Jim: In fact, I would say low levels of transactional cash because of the rate environment.

Jim: <unk>.

Jim: The metrics are very similar between brokerage and advisory.

I don't know.

Speaker Change: That really answered all your questions I took it in reverse but that's just top of mind.

James M. Marischen: That's really helpful. I have a question for Jim, just on the balance sheet. And just thinking about just potential growth in the balance sheet and appetite for new loans and maybe where you guys would want to lean in. It would just be great to get a little bit of an update on what you're seeing in the market spreads, and then just the ability to expand the balance sheet into that market.

Speaker Change: Yes, no. Thank you Rob it really helpful to your.

Speaker Change: Question for Jim just on the balance sheet and just thinking about.

Speaker Change: Potential growth in the balance sheet and appetite for new loans, and maybe where you guys would want to lean in I would just be great to get will give an update on what youre seeing in the market spreads and then just the ability.

To expand the balance sheet into that market. Thanks.

Speaker Change: Yes, so obviously we have.

James M. Marischen: Yeah, no, obviously, we have the capacity to generate additional loans on our balance sheet. I think if you look at this quarter, we grew loans by a couple hundred million dollars, and we grew investments. In the normal categories we've talked about over the last several quarters, if you look at the growth in fund banking, you look at the growth in mortgage, you look at the growth in the CLO portfolio, all those categories continue to have attractive risk-adjusted returns for us.

Speaker Change: The capacity to generate additional loans on our balance sheet I think if you look at this quarter. We grew loans couple of hundred million dollars, we grew investments.

Speaker Change: And then the normal categories, we've talked about over the last several quarters. If you look at the growth and fund banking. If you look at the growth in mortgage you look at the growth in the CLO portfolio. All those categories continue to be attractive risk adjusted returns for us and obviously given the the.

James M. Marischen: And obviously, given the capacity to fund that with our liquidity, as well as the excess capital we're carrying, I think we're going to continue to see growth there. But if you look at the current quarter, most of that growth didn't result in pure asset numbers coming up because we were carrying over $2 billion of cash.

Speaker Change: The capacity to fund that with our liquidity as well as the excess capital. We are carrying I think we're going to continue to see growth. There. If you look at the current quarter. Most of that growth didn't result in pure asset numbers coming up because we were carrying over $2 billion of cash. So most of that was reallocating from cash into loans. So.

Ronald James Kruszewski: So most of that was reallocating from cash into loans. So as you see going forward, as we bring on more deposits on the balance sheet, that incremental pickup will be even more as we grow the loan portfolio as well as CLOs. Yeah, and I'll go back to your, I forgot one part of your first question, Devin, and I'll supplement.

Speaker Change: As you see going forward as we bring on more deposits on balance sheet that incremental pickup will be even more as we grow the loan portfolio as well as CLO, yes.

Speaker Change: I'll go back to I forgot one part of your first question Devin and ill supplemented here.

Ronald James Kruszewski: And that is that we have, and we've said it now for almost two and a half years, that we were going to limit the growth in the balance sheet, and that was primarily because we didn't want to get in the position of not understanding the dynamics of cash source, and getting in a position where we were generating while and then suddenly looking at what we thought would be our perceived NIM being different than what we anticipated because, as we know, it's been a highly volatile not followed but straight up 500 basis points from zero, our appetite to grow the balance sheet as it relates to that issue, is increasing because, frankly, I see the cash sorting issue, you know, becoming less and less, of the, you know, certainly the prospect of a rate increase based on recent numbers. [inaudible] Yet overall, the stability of this created an ability where we now are more confident about adding, in a manner that we believe. Okay, that's great, Keller. Thank you so much.

Speaker Change: And that is that we have and we've said it now for almost two five years that we were going to limit the growth in the balance sheet and that was primarily because we didn't want to get into a position of not understanding the dynamics of cash sorting.

Speaker Change: And getting in a position, where we were generating loan and then suddenly looking at what we thought would be our perceived NIM being different than what we anticipated because as we know it's been a highly volatile.

Speaker Change: <unk>.

Speaker Change: Great up 500 basis points from zero.

Speaker Change: Today, our appetite to.

Speaker Change: To grow the balance sheet as it relates to that issue.

Speaker Change: Is increasing because frankly I see the cash sorting issue.

Speaker Change: Becoming less and less and less.

Speaker Change: The certainly the prospect of a rate increase based on recent numbers.

Speaker Change: There has to be significantly lower I'm, not going to rule it out ever but significantly lowered it in fact.

We think you.

Speaker Change: Youll see some rate decreases I am not in the camp that says it happens September yes overall the stability of this.

Speaker Change: Dynamic.

Speaker Change: Has created an ability where we now are more confident about adding assets.

Speaker Change: In a manner that we believe we can manage our risks.

Speaker Change: Okay. That's great color. Thank you so much.

Speaker Change: Sure.

Speaker Change: Thank you.

We will take our next question from.

Steven Joseph Chubak: Steven <unk> with Wolfe research.

Steven: Hi, Good morning, Ryan Good morning, Jim.

Operator: Sure. Thank you. We'll take our next question from Steven Chubak with Wolf Research. Hi, good morning, Ron. Good morning, Jim.

Steven: So.

Steven Joseph Chubak: [inaudible] Yeah, really appreciate the thoughts on the sweep deposit dynamics, certainly the topic du jour at the moment. Now, one of the questions that we've been getting following your remarks is just folks trying to understand the competitiveness of the sweep offering in the context of your overall offering to the advisor. Are you confident that a deficient sweep yield is not a competitive disadvantage, at least relative to the recent moves on the wires for Stifel?

Speaker Change: Yeah, I really appreciate the thoughts on the sweep deposit dynamics certainly the topic du jour at the moment.

Speaker Change: One other questions that we've been getting following your remarks is just folks trying to understand the competitiveness of the sweep offering in the context of I guess your overall offering to the advisor are you confident that efficient sweep yields.

Speaker Change: Not a competitive disadvantage at least relative to the recent moves at the wires for Stifel and just to put this issue hopefully at least two.

Steven Joseph Chubak: And just to put this issue, hopefully, at least in Tibet for the time being, are you comfortable maintaining sweep pricing does not expose you to potential regulatory screenings? Again, your last question first: not really sure of all of the regulatory aspects, you know, you, we need to, we need to, Unrecognized. So there are a lot of differences. First of all, you've got a broad question that impacts brokerage and non-discretionary. Discretionary, eBay.

Speaker Change: Tibet for the time being or are you comfortable maintaining sweep pricing does not expose you to potential regulatory scrutiny.

Speaker Change: Again your last question first not not.

Speaker Change: Really sure of all of the regulatory aspects.

Speaker Change: We need to we need to.

Speaker Change: Recognize there's a lot of differences first of all you've got broad question that impacts brokerage non discretionary fee based accounts discretionary fee based accounts the long and the short of it is that we always have a lot of levers that we can pull as it relates to how we manage our platform.

Ronald James Kruszewski: The long and the short of it is that we always have a lot of levers that we can pull as it relates to how we manage our platform, you know, for our various products. And it will remain to be, and we offer a competitive product for our clients when you consider all of the things that go into, you know, the client's experience. So we're very, very competent, and this issue has been laser-focused on, something that we've been laser-focused on for the last two and a half years.

Speaker Change: For our various products.

Speaker Change: We.

Speaker Change: The wire houses for instance, charge account fees and we don't and they have had lower interest on generally speaking and we have so look are we competitive yes. We're competitive we have to be competitive we wouldn't be recruiting people, we wouldn't be getting clients that were not competitive of course for competitive.

Speaker Change: And we will remain to be competitive and we.

Speaker Change: We offer a competitive.

Speaker Change: For our clients when you consider all of the things that go into.

Speaker Change: The client's experience so.

Speaker Change: We're very very comp and this issue has been laser focused on.

Speaker Change: Something that we've been laser focused on for the last two and a half years and when you think of the competitiveness of the rates. If you look at some of the news reports from the larger peer that came out yesterday.

Ronald James Kruszewski: And when you think of the competitiveness of the rates, if you look at some of the news reports from the, you know, the larger peers that came out yesterday, the idea that they're moving certain accounts up to 2%, we're already offering 2% on our suite program. And in terms of competitiveness, I think that's indicative of where we were already at. In addition to the number of products we have on our platform across alternatives, particularly money market mutual funds.

Speaker Change: The idea that theyre moving certain accounts up to 2%, we're already offering 2% on our sweep program and.

Speaker Change: In terms of competitiveness I think that's indicative of where we were already at in addition to the number of products, we have on our platform across alternatives, particularly money market mutual funds.

Ronald James Kruszewski: You know, Steven, and one thing I'll just say that we don't have the issue of race, and I'm not sure you've enlisted it as an issue. But you know, we're not a platform offering our service to other parties as a platform. And I think there's I think that's an issue, and people say, well, there's no pressure on race.

Speaker Change: No Steven and one thing I'll, just say that it doesn't we don't have the issue on it I'm not sure.

Speaker Change: Whether you view been lifted it is an issue, but we don't we're not a platform offering our services.

Speaker Change: Two other parties as well.

Speaker Change: And I think there's I think that's an issue and people say well there is no pressure on rates. If you do that well I guess the risk because.

Ronald James Kruszewski: Well, yes, there is, because, you know, you can't be subsidized; platform fees through low interest rates are your only option. So I point that out because we don't really have that issue. But, you know, that does seem to have gotten lost in some of the analysis, so to speak. So that's about all I have.

Speaker Change: You can't be subsidizing.

Speaker Change: Platform fees through low interest rates is your only option. So I point that out because we don't really have that issue.

Speaker Change: But.

Speaker Change: That does that seem to have gotten lost in some of the.

Speaker Change: Analysis, so to speak so.

Speaker Change: At that level I have to say about that.

Speaker Change: Understood Okay well.

Steven Joseph Chubak: Understood. Okay. Well, I'm sure others are going to have questions on this topic, so I'm just going to switch gears to slide 12, a really helpful mark-to-market of the guidance. It shows that consensus revenues are at least near the higher end of the range, the NII guidance unchanged, and the comp ratio also near the higher end. I was hoping you could just speak to the drivers about some upward pressure on comp. Is it simply due to mix, or are there other factors?

Speaker Change: I'm sure others have questions on this topic, so I'm just going to switch gears to slide 12.

Mark: Really helpful Mark to market of the guidance.

Speaker Change: It shows consensus revenues or at least near the higher end of the range. The NII guidance unchanged. The comp ratio also near the higher end I was hoping you could just speak to the drivers of some upward pressure on comp.

Speaker Change: Is it simply due to mix or are there other factors and where are we in the journey of some of the COVID-19 recruiting packages potentially rolling off in the coming years.

Steven Joseph Chubak: And where are we in the journey of some of the COVID recruiting packages potentially rolling off in the coming years? Yeah, just folks you hired during 2020-21 where you are more aggressive in terms of leaning into banker recruitment. Oh, I'm sorry; I thought you were talking about wealth management. Well, you know, I haven't heard of covert recruiting packages, nor do I think we did that. We certainly didn't have a program.

Speaker Change: Covid recruiting packages.

Speaker Change: Folks who have higher during 2028 21, where you are more aggressive in terms of lenient.

Bank of recruitment.

Speaker Change: Oh.

Speaker Change: I'm, sorry, I thought you were talking about wealth management.

Tom.

Speaker Change: Yes.

Speaker Change: I haven't heard cohort recruiting packages, nor do I think we did that we certainly didn't have a program that.

Ronald James Kruszewski: And I feel that, you know, we built into 2021. I think the issue, not even the issue, the opportunity is that we have a platform that supports significantly more revenue from an ability to generate revenue. We did $2.2 billion, and we haven't, you know, materially changed staff. That answers the second question as well, the reason we're tightening our range a little bit is that we are on track as to where we think we will be.

Speaker Change: And.

Speaker Change: I feel that.

Speaker Change: We built into 2021.

Speaker Change: <unk> not in the interest of the opportunity that we have a platform that supports significantly.

Speaker Change: Significantly more revenue from our from an ability to generate revenue, we did $2 $2 billion in that business and we haven't materially changed staffing so.

Speaker Change: That answers the second question as well is that the reason we're tightening our range a little bit is that we are on track as to where we think we will be we are rebuilding and retracing. The decline. We went from two two to $1 2 billion in revenue and <unk>.

Ronald James Kruszewski: We are rebuilding and retracing the decline; we went from 2.2 to 1.2 billion in revenue, and if you look at the annualized rates, we're retracing that back. We don't expect it to happen all the time. I don't really share all of the hockey stick-type recovery.

Speaker Change: And if you look at the annualized rates, we're retracing that back we don't expect it to happen all of this year.

Speaker Change: Not really share the optimism of this being a hockey stick type recovery.

Ronald James Kruszewski: I'm that part of the business. And therefore, we're conservative in just narrowing our comp to revenue range, which is kind of where we think we would be within that range if the year plays out as we see it here.

Speaker Change: On that part of the business.

Ronald James Kruszewski: Look, I think this is positive, not negative. We're maintaining our platform. We're generating high returns, high returns on tangible capital equity, investing in our people, and doing so with a, you know, realistic view of the forward curve of improvement.

Speaker Change: And therefore, we're.

Speaker Change: Conservative and are just narrowing our comp to revenue range, which is kind of where we think we would be within that range. If the year plays out as we see it here look I think the positive not negative we're maintaining our platform. We're generating high returns high return on tangible capital equity investing in our business.

Speaker Change: And doing so with a.

Speaker Change: A realistic view of the forward curve of improvement of business.

James M. Marischen: Obviously, NII plays a big role in the comp leverage, either up or down. And we were able to hold 58% comp to revenue last year in a challenging environment for our institutional group, but upward sloping NII results. This year, for the first six months, NII is down $85 million year-to-date.

Speaker Change: I'd add to that a little bit obviously NII. It plays a big role in the comp leverage either up or down and we were able to hold at 58% comp to revenue last year in a challenging environment for our institutional group, but.

Speaker Change: Upward sloping NII results. This year for the first six months NII is down $85 million year to date. So you think about that over the first six months, that's equates to about two points of comp margin that we've absorbed in how we absorbed some of that is the rebound in the decrease in subsidy and other businesses and so there's that.

James M. Marischen: So you think about that over the first six months, that equates to about two points of comp margin that we absorbed and how we absorbed it. Some of that is the rebound and the decrease in subsidy in other businesses. And so there's obviously a lot of moving factors here, but I think I'd point to the stability of a diversified business model and how we're able to not see material swings up or down in a number of different business environments. Thanks for that. And I'm just going to squeeze in one more quick one.

Speaker Change: Obviously, a lot of moving factors here, but I think I'd point to the stability of our diversified business model and how we're able to.

Speaker Change: Not see material swings up and a number of different business environments.

Speaker Change: Okay. Thanks for that and just squeezing one more quick one just what drove lower deposit cost quarter on quarter, certainly encouraging to see but just given the decline in sweep deposits was a bit tough to reconcile.

Steven Joseph Chubak: Just what drove lower deposit costs quarter on quarter? Certainly encouraging to see, but just given the decline in sweep deposits was a bit tough to reconcile. Yeah, it was not related to sweep.

Speaker Change: Yes, it was not related to sweep was all related to Ics type deposit reciprocal type deposits that are higher costing deposits that we moved off balance sheet, we basically use more sweep deposits in the quarter and so it's a couple of basis points of a change, but that's what drove that fluctuation on a sequential basis, we have that flexibility.

James M. Marischen: It was all related to ICS-type deposits, reciprocal type deposits that are higher costing deposits that we moved off balance sheet. We basically use more sweep deposits in the quarter. And so, you know, it's a couple basis points of a change, but that's what drove that fluctuation on a sequential basis.

Speaker Change: To do that so.

Speaker Change: Understood well, thanks for taking my questions.

Speaker Change: Thank you.

Alexander Blostein: And we will take our next question from Alex <unk> with Goldman Sachs.

Operator: Yeah, we have that flexibility to do. Understood. Well, thanks for taking my questions. Thank you. And we'll take our next question from Alex Blostein with Goldman Sachs. Hey, guys. Hello, Ron. Good morning, everybody.

Alex: Hello, Hey, guys, Hello, Ron and good morning, everybody. So a couple of more questions on this topic.

Alexander Blostein: So a couple of more questions on the topic of the week. Yeah, I'm good. Thanks. I've been busy. So staying on the topic of the week, or, you know, the week, I guess, you know, first, just a clarification. So roughly the $3 billion of advisory sweep cash that you pointed to in the deck, you're saying you're already paying 2% on that. And ultimately, there's no plans to change that. But based on kind of regulatory dynamics and kind of how that evolves, are you thinking that might evolve as well? Did I did did I read the answer in the question?

Alexander Blostein: Paul.

Alexander Blostein: [laughter].

Paul: Yes, I am good thanks, it's been busy.

Speaker Change: So staying on the topic of the week or week I guess first just a clarification.

Speaker Change: So roughly a $3 billion of advisory sweep cash that you pointed to in the deck, you're saying you're already paying 2% rate on that and ultimately there is no plans to change that but based on kind of regulatory dynamics and kind of how that how that evolves youre thinking on that might might evolve as well did I did I read data protection.

Speaker Change: Let me stop you there going to be sure. If that's if that's what you heard that that's not what I mentioned to Eric here.

Ronald James Kruszewski: Let me stop you there. I was going to be sure if that's what you heard, that it's not what I meant for you to hear here. What I said was that, you know, there's a portion of our sweep deposits that we view as the operational path, at, you know, $9,000. And our view of operational cats goes into our normal tiering, it's our normal sweet product. The highest rate of that tier is 2%.

Speaker Change: I said was that.

Speaker Change: There is a portion of our sweep deposit we view.

Speaker Change: Operational cash.

Speaker Change: $9000.

Speaker Change: And average balances and our view of operational cost goes into our normal.

Speaker Change: We.

Ronald James Kruszewski: But not every balance is 2%. So I just want to be clear there. But we were already at where some people are saying, You know, they want to go on rates that our sweet deposit pays off for everything, including birth control. Got it.

Karen.

Speaker Change: Normal suite product at the highest rate of that care is 2%, but not every balance is 2% side, let's be clear there, but we were already at where some people are saying.

Speaker Change: They want to go on rates our sweep deposit.

Speaker Change: Pays up to 2%.

For everything including broker.

Joe: Got it Okay. That's helpful clarification, Joe and I guess just building on that so while the balances are obviously small and they are operational in nature. As you described but how does that insulate you guys in the industry from the fiduciary obligation under Abi right because operationally is having this transactional cash.

Alexander Blostein: Okay, that's helpful clarification. So, and I guess just building on that. So, you know, while the balances are obviously small, and they're operational in nature, as you described, but how does that insulate you guys in the industry from the fiduciary obligation under REGBI? Right? Because operationally, it's having this transactional cash in a smart rate deposit or money market fund. Is that different?

Joe: And smart rate deposit or mining Megatron is that different does that preclude the customer from performing kind of some of their normal way investment activity I'm just trying to understand like is there a red line between small operational sweep.

Ronald James Kruszewski: Does that preclude the customer from performing kind of some of their normal investment activity? I'm just trying to understand that, like, is there a red line, you know, between a small operational sweep on a fiduciary or not? Right?

Speaker Change: Under fiduciary or not and whether or not that could still fall under the <unk>.

Speaker Change: Look I'm cautious about ever making regulatory interpretation.

Ronald James Kruszewski: And whether or not that could still fall under the REGBI? Look, I'm cautious about ever making regulatory interpretation questions. Okay, I know that we need to have a reasonable platform needs to be understood. Most, most advisory platforms will allocate a percentage, 2% to 3% into cash to pay fees and to have operational cash. That's part of the platform that's very reasonable. As long as it's understood, then that's just what we do, and there's nothing wrong with that. There is no law that says you have to have the highest rate or charge the lowest fee.

Speaker Change: Question, Okay, I know that we need to have a reasonable platform.

Speaker Change: It needs to be understood.

Speaker Change: Most most.

Speaker Change: Advisory platforms will allocate.

Speaker Change: A percentage 2% to 3%.

Speaker Change: Got it.

Speaker Change: <unk> cash for to pay fees to have operational cash as part of the platform that's very reasonable.

Speaker Change: As long as it's.

Speaker Change: Understood then.

Speaker Change: That's that's just.

Speaker Change: That's just what we do in that.

Nothing wrong with that there is no.

Speaker Change: Law that says you have to have the highest rate or charge the lowest fee I mean, let's just take your whole thesis right.

Ronald James Kruszewski: I mean, let's just take this whole thesis and say that Reg V.I. says that the highest you can charge for advice is what ETFs charge for. That's not what it says, and we need to have a... We need to be reasonable. And the biggest driver for us is competitiveness. It's the competitive, providing a competitive product so that we can grow client assets, and clients have a choice. And if you do not provide a competitive product, they, they leave, or, you know, or certainly the advisors aren't happy, and they would leave. So I think when you boil it all in, we're very comfortable. I gotcha. Great.

Speaker Change: <unk> says that you highest you can charge for advisors.

What.

Speaker Change: The Etfs charge for it.

Speaker Change: That's not what it says and we need to have a.

Speaker Change #100: We need to be reasonable and the biggest driver for us is competitive it's the competitive putting a competitive product. So that we can grow client assets and clients have a choice and if you do not provide a competitive product.

Lee: Hey, Lee.

Lee: Certainly the advisors are happier.

Lee: So I think when you boil it all in we're very comfortable with where we are.

I gotcha, great. Okay. Thank you for that let's let's maybe move on.

Alexander Blostein: Okay, thank you for that. Let's maybe move on. Maybe just talk a little bit about the recruiting environment. I know it's been a bit tougher for the industry as a whole over the last couple of quarters with perhaps more competition from some of the higher paying kinds of providers out there. If this whole cash dynamic results in more pressure relatively to, you know, relative to some of the more aggressively priced packages, particularly from some of the private firms, I guess, what opportunity, if at all, do you see for Stifel to kind of lean into that market, either from aggressively recruiting, perhaps a bit more or doing something inorganic? Well, look, there's always dynamics that impact recruiting. They're always changing and always present.

Speaker Change: Maybe just talk a little bit about recruiting environment I know, it's been a bit tougher for the industry as a whole over the last couple of quarters with perhaps some more competition from some of the higher paying.

Speaker Change #104: Kind of providers out there if this whole cash dynamic results and more pressure relatively to relative to some of the more aggressively priced packages, particularly from some of the private firms I guess what opportunity. If at all do you see for Stifel to kind of lean into that market either from aggressively recruiting or perhaps a bit more or doing something inorganically.

Speaker Change: Well.

Ronald James Kruszewski: This is just one; it will change. Broadly speaking, you know, I think that I've said for a long time that part of the competition was the migration from employee-advised full service to independent, that there was a lot of, in my view, you were... Supplementing from a platform perspective, you could supplement, hire recruiting. Cost and maybe ongoing compensation by subsidizing it with very low options for Client Katz. That dynamic changes, which I think it will change from the very low 0.01 to 0.4 for that platform.

Speaker Change #101: Look there is always dynamics that impact recruiting they are ever changing and always there. This is just one and it will change just broadly speaking.

Speaker Change #102: I think that I've said for a long time that the that part of the competition was the migration from employee adviser full service two independent.

Speaker Change #101: There was a lot of a lot of competition.

Speaker Change #103: Because in my view you were you were.

Speaker Change #101: Supplementing from a platform perspective, we could supplement higher recruiting.

Speaker Change #101: Cost and and maybe ongoing compensation by.

Speaker Change #101: Subsidizing very low.

Speaker Change #101: Options for client cash.

Speaker Change #101: Is that dynamic changes, which I think will change from those very low point of one point score.

Speaker Change #101: For that platform that will change the economics on that side.

Ronald James Kruszewski: That will change the economics on that side of the industry, which we view as beneficial to us. Great. Thanks so much.

Speaker Change #101: Free.

Speaker Change #101: Which we view will be beneficial to us competitively speaking.

Speaker Change #105: Great. Thanks, so much.

Speaker Change #106: Thank you.

Operator: And we'll take our next question from Bill Katz with the TD Calendar. Okay, thank you very much.

Speaker Change #106: And we will take our next question from Bill Katz with TD talent.

William Raymond Katz: I, too, have one more cash sweep, and excuse maybe the elementary nature of this question. If you were to look outside of transactional cash and the rest of the sweep cash under the fiduciary account, how did the yields stack up? I guess 2% for cash makes sense if you're just sort of keeping it idle, but when rates are around 5% or so, I appreciate you have the smart rate and fixed income and so forth, but does that put any kind of open pressure either on third-party sweep yields or even on that sort of deposit, excuse me, that swept onto the bank?

Okay. Thank you very much.

Speaker Change #107: One more cash sweep and excuse the maybe the elementary nature of this question.

William Raymond Katz: You were to look outside of transactional cash and the rest of the sweep cash under the fiduciary account.

Speaker Change #109: The yields stack up I guess, 2% four.

Speaker Change #110: Cash makes sense, if you just sort of keeping their idle, but when rates around 5% or so I. Appreciate you have smart way and in fixed income and so forth, but does that put any kind of upward pressure on third party sweep yields where even suite that's sort of.

Speaker Change #111: Deposit excuse me that swept onto the bank just trying to get my hands around that a little bit better. Thank you.

Ronald James Kruszewski: Just trying to get my hands around that a little bit better. Thank you. Bill, we looked, we tried to say that, you know, we put products in place to encourage cash sorting and to give those options, and we, you know, we've watched 63% of our pre-rate cycle. [inaudible] So, you know, as we look at it. As we, if we would, you know, choose to raise yields, we'll do so with the idea of attracting more deposits that we feel that we can, you know, deploy on the asset side because we have a vast, vast liquidity pool from deposits sitting off balance.

Speaker Change #112: Oh, no. We look we tried to say that we put products in place to encourage cash sorting and to get those options and we.

Speaker Change #113: We've watched.

Speaker Change #114: 63% of our pre rate cycle, we have deposits movement.

Speaker Change #114: The higher yielding savings and we've seen a tremendous increase in short term treasuries and we've seen an increase in ticketed money funds all of which are part of the competitive dynamic so as we look at it.

Speaker Change #115: As we if we would.

Choose to raise yields will do so with the eye of attracting more deposits that we feel that we can deploy on the asset side, because we have a vast vast liquidity pool from deposit sitting off balance sheet.

Ronald James Kruszewski: So, you know, the dynamic, one of the dynamics of increasing rates will be to attract more cash onto the platform, all things like that. But, you know, look, I think that the regulatory aspects, which I do not understand fully, so I can't know what's going on, you know, inside the four walls.

Speaker Change #115: So the dynamic one of the dynamics.

Speaker Change #115: Increasing rates will be to attract more cash.

Speaker Change #115: Platform, all things being equal so.

Speaker Change #115: I don't.

Speaker Change #115: <unk>.

Speaker Change #115: <unk>.

Speaker Change #116: Look I think that the regulatory assets with I do not all understand what I can't know what's going on inside the four walls.

Ronald James Kruszewski: Some of the firms that have dealt with that. Again, we believe we have a competitive, [inaudible] And I'm comfortable. So it's hard to answer your question. It's not elementary.

Speaker Change #116: Of some of the firms that have dealt with us but.

Speaker Change #116: We believe we have a competitive.

Speaker Change #116: Fair product that we offer on our platform that is very fair when you consider all costs that go into it.

Speaker Change #116: I am comfortable so.

Speaker Change #117: It's hard to answer your question, it's not elementary actually.

Ronald James Kruszewski: Very complex. It was multiple thousands, which is what I'm trying, and I can think, you know, One of y'all wrote something. I read something where, you know, experienced management teams know how to do this and know how to manage businesses. And I would, I would like to think we're one of those management teams. We've been doing it a long time, navigatingd through all kinds of market conditions and changes in the market, and have gotten ahead of many. Transcripts provided by Transcription Outsourcing, LLC.

Speaker Change #117: Very complex.

Speaker Change #117: Multiple facets, which is what I'm trying to convey here and I can I think.

Speaker Change #118: One of the all wrote some can I read something where.

Speaker Change #119: Experienced management teams know how to do this.

Know how to manage the businesses I would.

Speaker Change #119: I would like to think we're one of those.

Speaker Change #119: Management teams, we have been doing it a long time.

Speaker Change #119: Navigated through all kinds of market conditions.

Speaker Change #119: Conditions and changes in the market and have gotten ahead of many of them.

Speaker Change #119: And I feel that's where we are today.

Speaker Change #119: Okay. That's very helpful. And then maybe one for Jim just in terms of capital priorities now that that is behind your tier one leverage ratio capital ratios are very good.

Speaker Change #120: How should we think about maybe the pace of buyback from here.

Speaker Change #121: Maybe you could put denim stage or maybe pay out of free cash flow.

Speaker Change #122: Or any priorities between de novo versus inorganic opportunities.

Jim: Yes, so as we mentioned on the call we have $415 million of excess capital today. So the capacity has increased in terms of our ability to deploy capital in terms of the buyback that said the buyback is going to be price dependent and it will not be linear obviously, we've talked a little bit about allocating some capital.

James M. Marischen: Yeah, so as we mentioned on the call, we have, you know, $415 million of excess capital today. So the capacity has increased in terms of our ability to deploy capital in terms of the buyback. That said, the buyback is going to be price-dependent, and it will not be linear.

Operator: Obviously, we've talked a little bit about allocating some capital to bank growth within the loan portfolio. But a lot of that can be done with just the capital generated by the bank. And so we don't have a formulaic process in terms of payouts or in terms of price; we will be opportunistic. And, you know, you may see capital increase some over time, but we will be active in the buyback at some point in the future.

Jim: To bank growth within the loan portfolio a lot of that can be done with just the capital generated in the bank and so we don't have a formulaic process in terms of payouts or in terms of price, we will be opportunistic and.

You may see capital increase some over time, but we will be active in the buyback at some point in the future.

Speaker Change #123: Thank you.

Speaker Change #123: Okay.

Speaker Change #124: Thank you.

Operator: Thank you. Thank you. We'll take our next question from Brennan Hawken with UBS. Morning, thanks for taking my question. I'm going to take the same one, Unknown Executive, Unknown Attendee, Alexander Blostein, Gerasimos Kalogiratos, Michael Anagnostakis. But you know, on to my question. Sorry. No, thank you.

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

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

Speaker Change #126: Well now take the same.

Brennan Hawken: The same option that all my peers did and have my first question on sweeps and Ron though I Gotta give you props two years ago, we spoke about this and you actually flagged the risk.

Speaker Change #127: About about sweep and the potential.

Speaker Change #128: For for some risk here, so tip of the cap that first.

Speaker Change #128: But onto my question.

Speaker Change #128: Alright.

Brennan Hawken: We did talk about this, I remember. And the only thing I'd add to it is that not only did we talk about it, but we put in products to deal with it. Thank you for remembering.

Ronald James Kruszewski: No. Thank you we did talk about this I remember and the only thing I would add to it is not only did we talk about it but we put in products.

Speaker Change #129: To deal with it.

Speaker Change #130: Thank you right to remember.

Speaker Change #131: Yeah, Yeah, Yeah, Yeah of course.

Ronald James Kruszewski: Yeah, yeah, yeah, of course. So, you know, you had flagged the smart rate offering. And certainly, that's a compelling offering for your clients, as evidenced by the take-up rates that you've seen. But it's my understanding that smart rates, you know, cannot be held in advisory accounts. And they're like a ticketed item, you know, sort of like buying a money market fund.

Speaker Change #132: So you.

You had flagged a smart rate offering and <unk>.

Speaker Change #133: Certainly that's a a compelling offering to your clients as evidenced by the take up rates that you've seen but it's my understanding that smart rate cannot be held an advisory accounts and it's like a ticketed item sort of like buying a money market fund so.

Brennan Hawken: So, you know, I'm not really sure how that would address this issue, particularly given the fact that, excluding the one that, you know, we have a press report overnight, they haven't actually made any changes yet, seems to be doing a lesser action; the other two wires have moved all advisory to a more, more compelling rate; it seems as though this, there's a distinction drawn between brokerage and advisory. And so, therefore, this is really squarely a fiduciary issue.

Speaker Change #132: Not.

Speaker Change #134: I'm not really sure I understand how that would address this issue, particularly given the fact that.

Speaker Change #135: Excluding the one that.

We have a press report overnight they haven't actually made any changes yet.

Speaker Change #136: It seems to be doing a lesser action. The other two wires have moved all advisory to a more.

More compelling rate it seems as though.

Speaker Change #137: There is a distinction drawn between brokerage and advisory and so therefore this is really squarely a fiduciary issue and then an employee model the firm as a fiduciary so.

Brennan Hawken: And in an employee model, the firm is a fiduciary. So how is it that you believe that it is the firm that is putting the client's interest above their own and not maybe, you know, moving in a similar direction to some of these wires, as far as the frictional cash and not bothering to draw distinctions when you have a fiduciary obligation? I look, I. You're, you're, conflating that, you know, fiduciary obligation is, you know, it's the lowest possible cost, you know, everywhere.

Speaker Change #138: How is it that you believe that.

Speaker Change #139: The firm is putting the clients interest above their own and not may be moving in a similar direction December these wires as far as the frictional cash not not bothering to draw distinction when you have a fiduciary obligation.

Luke: Hi, Luke.

Speaker Change #141: Youre complaining.

Speaker Change #142: <unk> obligation is at the lowest possible cost.

Speaker Change #141: Everywhere.

Speaker Change #143: The reasonable we have an obligation we meet that obligation.

Ronald James Kruszewski: The reasonable person, we have an obligation. You can take that to an extreme in terms of... I'm not sure that I have read that all advisory cash has been adjusted. In fact, I have read that a lot of advisory cash is not eligible for the savings. That's what I've read, which to me, you know, Reservoir of cash used for, I haven't, I don't really know. Unknown Executive, Unknown Attendee, Alexander Blostein, Brennan Hawken, Stifel Financial Corp. Unknown Speaker.

Speaker Change #144: You can take that to an extreme.

Speaker Change #144: In terms of.

Speaker Change #144:

Speaker Change #144: Fees and everything else the platform needs to be properly disclosed I am not sure that I have read all advisory cash is.

Speaker Change #144: And that's been adjusted in fact.

Speaker Change #144: That that a lot of advisory cash does not eligible for the same that's what I've read.

Speaker Change #144: To me.

Speaker Change #144: Is this reservoir cash used or operational and transaction, which is happening industry based anyway. So.

Speaker Change #145: I haven't I don't really know.

Speaker Change #146: How they've done that and again there were press reports last night that suggests a large firm was not doing that.

Unknown Speaker: Thank you. So again, it doesn't really matter I'm trying; I'm only trying to. Transcripts provided by Transcription Outsourcing, LLC. And we are. All right. And that's the thing. Now, as it relates to smart rate, not an advisory account, that's one of the crazy things about some of these regulatory aspects. SmartRate should be available, and we would love to offer it in advance, but there are some arcane rules about that specifically that prevent us from doing that. So what has happened instead, those who moved to money, those are in ticketed money, of, you know, we had our, we would be offering SmartRate to our advisory council. We just can't.

Speaker Change #146: So again it doesn't really.

Speaker Change #146: Im trying I only trying to understand the competitive nature.

Speaker Change #146: And making sure that we're competitive and we are.

Speaker Change #146: Alright.

Speaker Change #147: Now as it relates to smart rate not an advisory account, that's one of the Crazy thing about.

Speaker Change #147: How about some of these regulatory aspects.

Speaker Change #147: Smart rate should be available and we would love to operate an advisory but theres. Some arcane rules about about that specific routes.

Speaker Change #147: That prevent us from doing that so what has happened instead, let's move to money those are ticketed money.

Speaker Change #147: We had our choice, we would be offering smart right.

Speaker Change #147: Our adviser count we just can't.

Speaker Change #147: Which is sort of.

Speaker Change #147: <unk> when we when we start thinking about.

Speaker Change #147: <unk>.

Speaker Change #147: No.

Unknown Speaker: [inaudible] Our producer obligation is that we can offer a great product, and the ticketed money funds are yielding roughly equivalent to what the smart rate is. And what's interesting is the balance of ticketed money funds in advisory accounts is almost identical to the balance of advisory sweep cash accounts.

Speaker Change #147: Our fiduciary obligation yet we can offer a great product.

Ronald James Kruszewski: And then taking the money funds are yielding roughly equivalent with smart rate is and what's interesting is the balance of ticketed money funds in advisory accounts is almost identical to the balance of advisory sweep cash counts. So you can see some of that cash is already sorted over there as Ron indicated.

Unknown Speaker: So you can see some of that cash is already sorted over there, as Ron indicated. Look, these are very... To everyone that's asking questions, everyone, this is the first question. I'm sure it's going to be the first question.

Speaker Change #147: So hey look these are.

Barry: These are these are Barry.

Speaker Change #148: All everyone. That's asking questions everyone. This was the first question I'm sure it's going to be the first question on every.

Unknown Speaker: I would just encourage you to look at the various aspects, platform side, and fiduciary side of the program, all of which have been. We have two of them, and we feel that we have done so appropriately and competitively.

Speaker Change #148: Paul I would just encourage you to look at the various aspects of that.

Speaker Change #148: And understand that.

Platform side, the fiduciary side, the brokerage side all of which have implications we have two of those three.

Speaker Change #148: That we have to deal with.

Speaker Change #150: We feel that we have done so.

Speaker Change #153: Appropriately and competitively.

Speaker Change #148: Great, but fully appreciate the situation is very fluid and we're getting data points.

Brennan Hawken: Well, I fully appreciate the situation's very fluid, and we're getting data points very frequently. So thanks for providing your perspective on that. Shifting gears a little bit, Jim, you had indicated that the expectation for the share count in the third quarter will be roughly flat with the end of the period at $111. Does that mean that we should expect maybe limited buybacks in the third quarter, even though the debt's already retired? Maybe you want to rebuild your cash, or am I misunderstanding you?

Speaker Change #151: Very frequently so thanks for thanks for providing your perspective on that.

Speaker Change #151: Shifting gears a little bit.

Speaker Change #151: I think Jim you had indicated that expectation for share count in the third quarter will be roughly flat with the end of period at 111.

Speaker Change #152: Does that mean that we should expect maybe limited buybacks in the third quarter, even though the debt is already retired maybe you want to rebuild cash or am I misunderstanding.

Brennan Hawken: Will we include in our prepared remarks the assumption of no change in stock price and no additional repurchases? That is not indicating what our plans are for repurchases. We've not said anything specific about what the buyback would look like. That's just to give you an idea of what the number would be absent those two fluctuations, and you could put your assumption in there. Jim gives you the same number he gives me.

Speaker Change #154: Well we include in our prepared remarks assumes no change in stock price and no additional repurchases that is not indicating what our plans are for repurchases. We've not said anything specific about what the buyback would look like that's just to give you an idea of what the number would be absent those two fluctuations and you could put your assumption right Jim.

James M. Marischen: He says, "Here's our base. Now, an increase in this share price will increase our diluted shares and decrease, and then layer your stock purchases on it. So you can do the same thing that we do.

Speaker Change #152: Jim gives you the same number he gives me okay. He says here's our base now an increase in the share price.

Jim: <unk> increased our diluted shares outstanding decreased low decrease.

Jim: And then layer in your stock.

Jim: Purchases on it so you can do the same thing.

James M. Marischen: We start with a base of $111 million and the two variables that will impact that base, share repurchases. Perfect. Thanks for clarifying.

Jim: Okay, we start with a base of $111 million in the two variables that will impact that pace or share repurchases and stock price.

Jim: Perfect. Thanks for clarifying.

Jim: Okay.

Jim: Thank you.

Operator: Thank you. Before we take our next question, one more reminder to our audience, please start at number one if you'd like to join the queue. Our next question comes from Chris Allen with Citi. Good morning, everyone.

Speaker Change #155: Before we take our next question one more reminder, to our audience star one if you'd like to join the queue.

Speaker Change #156: Our next question comes from Chris Allen with Citi.

Christopher John Allen: I appreciate it. How's it going, Ron? I want to switch gears a little bit.

Christopher John Allen: Good morning, everyone I appreciate it.

Christopher John Allen: How's it going wrong.

Christopher John Allen: I wanted to switch gears, a little bit I think we've talked about deposit rates enough at this point.

Christopher John Allen: Maybe if you could talk about the outlook.

Speaker Change #158: So it goes from here I mean, you noted that cash sorting the impact there is.

Speaker Change #159: Declining I was just wondering if there's any other constraining factors on loan growth from here I know you've talked about in the past about.

Ronald James Kruszewski: I think we've talked about deposit rates enough at this point. Maybe if you could talk about the outlook for loan growth from here. You noted that cash sorting, the impact there is declining. Just wondering if there are any other constraining factors on loan growth from here.

Speaker Change #160: Aligning loans with deposit relation relationship with clients and kind of what's the appetite for loan growth going forward.

Speaker Change #161: I think that no I mean, we I've always said, we have tremendous demand for loan.

Ronald James Kruszewski: I know you've talked about in the past about aligning loans with deposit relationship with clients and kind of what's the appetite for loan growth going forward. I think that no, I mean, we've I've always said we have tremendous demand for loans. One of the one of the constraining factors has been the foundational basis of funding, which is deposits and cash sorting and our uncertain, With that, and the forward yield curve, and the inversion of the yield curve, and all of that boiled together, we said, again, a couple of years ago, say, whoops, we're going to, we're going to limit balance sheet growth here until we get a clearer picture of what we do on the asset side is properly, has a proper foundation on how it's funded on the line.

Speaker Change #162: One of the.

Speaker Change #162: One of the constraining factors has been the.

Speaker Change #162: The foundational basis of funding, which is deposits and cash starting in our uncertainty with that and the forward yield curve and the inversion of the yield curve and all of that put together we have satellites again, a couple of years ago said look we're going to we're going to limit balance sheet growth year until we get a clearer picture of what we do on the asset side as profitably at.

Speaker Change #162: The proper foundation on what how it's funded on the liability side, we are getting past that point of being able to see have some visibility into how we can build the balance sheet and a and a profitable risk adjusted way, which is what we always talk about.

Ronald James Kruszewski: We are getting past that point of being able to have some visibility into how we can build a balance sheet in a proper way, risk-adjusted way, which is what we always talk about. And I would say today that yeah, no, we can we can grow the constraining factor today, just to answer you, will be if there is one, is that the entire industry got into a... Transcripts provided by Transcription Outsourcing, LLC, to, to, you know, variety. Clients, that might be the only thing they had was that, and you were doing it because you were a Washington pilot, and you just keep going to Friday.

Speaker Change #163: I would say today that yes, we can we can grow.

Speaker Change #164: The <unk>.

Speaker Change #164: Constraining factor today, just to answer you will be if there is one is that we are.

Speaker Change #164: <unk>.

Speaker Change #164: The entire industry got into.

Speaker Change #164: I think into possess.

Speaker Change #164: Position of sort of running the balance sheet and so you were lending almost on a spread basis.

Speaker Change #164: Two two variety of clients.

Speaker Change #164: That might be the only relationship that you had was that and you were doing it because you are Washington deposits.

Speaker Change #164: Built in spread.

Speaker Change #164: Spread income.

Ronald James Kruszewski: We did a little bit of that as well, but not a lot. But the constraining factor now is that we're not just a spread lender or a relationship when we're evaluating what we're putting on our balance sheet, a lot more indoors, if you will. [inaudible] Treasury, banking, and all of those things that are an overall, So that's just how we talk about it internally. And that's what I would say. But even that has a tremendous amount of ability.

Speaker Change #165: We did a little bit of that as well.

Speaker Change #165: And what but not a lot, but the constraining factor now is that we're not just a spread lender relationship lenders. So when we're evaluating what we're putting on our balance sheet, that's going to have a lot more doors.

Speaker Change #165: Or if you will.

Speaker Change #165: Ability to do other business, whether it's in wealth or.

Speaker Change #165: Or.

Speaker Change #165: Treasury.

Speaker Change #165: <unk>.

Speaker Change #165: Bank.

Speaker Change #165: Banking and all of those things that are that are an overall relationship. So that's that's.

Speaker Change #165: That's just how we talk about it internally and that's what I would say, but even that has a tremendous amount of ability for us to grow.

James M. Marischen: That the opportunities for growth are not a problem at all. It's us getting comfortable with the overall economic environment in which we're growing. And when you think of some of those relationships, particularly with venture lending, fund banking, you know, those produce additional deposits, as Ron talked about last quarter. Those were up probably another 200 million. And the pace of that has picked up already in the third quarter.

Speaker Change #165: The opportunities for growth is not a problem at all it up getting comfortable with the overall economic environment with which we are growing into and.

Ronald James Kruszewski: So we're seeing some of the fruits of the investments we've made there, and that's going to continue to provide another source of liquidity to fund overall balance sheet growth. Thank you for that question.

Ronald James Kruszewski: When you think of some of those relationships, particularly with venture lending fund banking those produce additional deposit as Ron talked about last quarter those were up probably another $200 million and the pace of that has picked up already in the third quarter. So we're seeing some of the fruits of the investments we've made there and that's going to continue to provide another source of liquidity.

Ronald James Kruszewski: To fund overall balance sheet growth.

Ronald James Kruszewski: Yeah.

Speaker Change #166: Thank you for that and just.

Speaker Change #166: Yes.

Speaker Change #167: And another one.

Speaker Change #168: On a different topic just on FIC trading any color on the marks during the quarter and how are you.

Speaker Change #169: How are you thinking about the environment moving forward, we know credit trading activity has slowed down a little bit but re trading outlook can you just look for a pretty robust from here.

Speaker Change #170: I think it's I think it's a lot of our rate trading is correlated to bank balance sheets.

Ronald James Kruszewski: I think it's I think a lot of our rate trading is, you know, correlated to bank balance sheets. And we see that activity picking up for the same reasons that I talked about on the asset side of trying to know, you know, what the forward environment might look like, that allows us to, you know, make decisions on the line. That same thing is directly related to what banks are doing in their portfolios and trying to understand how to reposition them and the strategies around that, which is what we do.

Speaker Change #170: And we see that activity picking up for the same reasons that I talked about on the asset side of trying to now.

Speaker Change #170: What the forward environment might look like that allows us to.

Speaker Change #170: The decision on the line.

Speaker Change #170: Yes same thing is directly related to what banks are doing in our portfolio and trying to understand how to reposition their portfolios.

Ronald James Kruszewski: We help. We advise on that. We help on strategy. We help, position, and stress test to get various things.

Speaker Change #170: And the strategies around that which is what we do we have revised on that we help fund strategy with outside.

Speaker Change #170: Interest rate risk, we help on how those portfolios are positioned and stress tests to get various things on what we see is that in 2023, I think a lot of.

Ronald James Kruszewski: And what we see is that in 2023, I think a lot of people will not do a lot of trading. And we see that picking up and that trend expanding, you know, absence of, you know, big game. Transcript by Transcription Outsourcing, LLC.

Speaker Change #170: People were very cautious because of the outflow of deposits the uncertainty in the marketplace and it was not a lot of trading going on and we see that picking up and that trend expanding.

Speaker Change #170: Absent some.

Speaker Change #170: A big change in the economic environment, but the trend in that business.

James M. Marischen: For sure. But I would highlight that, historically, we do typically see a bit of seasonality in the third quarter, some slowdown there, and then that kind of picks back up in the fourth quarter. So as you're thinking of kind of your forward numbers, I would remind you to take that into consideration. And, you know, we did have some gains during the quarter that played into some of the results in 2Q as well. But, you know, just keep those things in mind as you look forward to the rest of the year. I did count on my CFO to put quarterly parameters on my overall viewpoint of the marketplace.

Speaker Change #171: For sure, but I would highlight we historically, we do typically see a bit of a seasonal some seasonality in the third quarter. Some slowdown there and then that has kind of picked back up in the fourth quarter. So as youre thinking of kind of your forward numbers.

Speaker Change #172: Mind, you to take that into consideration and we did have some gains during the quarter that played into some of the results in <unk> as well, but just keep those things in mind as you look forward for the rest of the year always count on my CFO.

Speaker Change #173: Orderly parameters on my overall viewpoint for the marketplace.

Operator: Thank you, Jim. Thanks, guys. Thank you. It appears we have no further questions at this time. Mr. Kruszewski, I'll turn the conference back to you for any additional or closing remarks. Well, thank you for pronouncing my name perfectly.

Speaker Change #174: Thanks, guys.

Speaker Change #174: Yeah.

Speaker Change #175: Thank you.

Speaker Change #175: It appears we have no further questions at this time, Mr. Kruszewski I will turn the conference back to you for any additional or closing remarks.

Ronald James Kruszewski: And what I would say is that we are excited about the remainder of the year where we believe that as uncertainties come off the table, the markets will continue to improve. We still see exit, you know, exit velocity into 2025. I think we are on our way to both our mid and long-term milestones that we've talked about, and I look forward to reporting back to you after the third quarter of this year. Thank you everyone for taking the time to listen to us, and we will see you next time. This concludes today's call. Thank you for your participation. You may now disconnect.

Kruszewski: Well, thank you for pronouncing my name perfectly and.

Speaker Change #177: The what I would say is we.

Kruszewski: <unk>.

Kruszewski: We're excited about the remainder of the year, where we believe that.

Kruszewski: As uncertainties come off the table to markets will continue to improve.

Kruszewski: We still see exit volatile.

Kruszewski: Exit velocity into 2025, I think we are.

Kruszewski: On our way to both our mid and long term milestones that we've talked about and I look forward to reporting back to you. After the third quarter of this year and thank you everyone for taking the time to listen to us and we will sign off thank you.

Speaker Change #178: This concludes today's call. Thank you for your participation you may now disconnect.

Speaker Change #178: [music].

Speaker Change #178: Okay.

Speaker Change #178: [music].