Q1 2025 Stifel Financial Corp Earnings Call
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Speaker Change: Good day and welcome to the Stifel Financial First Quarter 2025 Financial Results Conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Joel Jeffrey, Head of Investor Relations. Please go ahead.
Joel Jeffrey: Thanks operator. I'd like to welcome everyone to Stifel Financial's first quarter, 2025 conference call, and join on the call today by our chairman and CEO , Ron Kruszewski, our co-president, Inspector Newtie and Jim Zemlock, and our CFL Jim Marischen.
Joel Jeffrey: 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 you to our reconciliation of Gap to non-GAAP , as disclosed in our press release. I would also remind listeners to refer to our earnings release, financial supplement, and our slide presentation for information on forward-looking statements and other non-GAAP
Joel Jeffrey: The Zodial Katz is copyrighted material, Steepel Financial, and may not be duplicated, reproduced, or re-broadcast, without the consent of Steepel Financial Corp. We're now trying to call over our Chairman and CEO , Ron Kruszewski. Thanks, Joel. Good morning and thanks to everyone for taking the time to listen to our first quarter earnings conference call.
Joel Jeffrey: Stifel's core operating strength was evident in generating roughly $1.3 billion in net revenue during the first quarter, despite the volatile market environment. [inaudible]
Joel Jeffrey: This marks our highest first quarter revenue and third strongest quarter overall, driven by record asset management revenue and our global wealth management segment and robust advisory and transactional revenue from institutional equities.
Joel Jeffrey: While our bottom line was impacted by a significant legal charge, which I will discuss later, excluding this charge are operating EPS with $1.65, an 11% increase over the same period a year ago, and it does represent record first quarter earnings per share.
Joel Jeffrey: Our revenue performance is particularly noteworthy considering the market conditions throughout the quarter. Although we were optimistic about Stifel's prospects in 2025, we also were conservative in our general market outlook.
Joel Jeffrey: Following two consecutive years of better than 20% gains in the S&P 500, we adopted a more conservative market outlook.
Joel Jeffrey: on a year-to-day basis. The combination of tariffs, uncertainty of over global capital flows and disagreement between the administration and the federal reserve on monetary policy has contributed to increase market volatility.
Joel Jeffrey: Meanwhile, counterweights that usually strengthen with stocks fall, such as the government bonds and the US dollar, are also under pressure, leaving investors with few havens to wait out the storm.
Joel Jeffrey: This backdrop has clearly weighed on investor competence and slowed activity across certain segments of the market.
Joel Jeffrey: Having served in this role for over 27 years, I've witnessed numerous market crisis fees.
Joel Jeffrey: from the Russian debt crisis in the late 90s, the technology meltdown in 2000 to 2001, 2005, 2008 financial crisis in the most recent global pandemic. Each time US financial markets have demonstrated resilience and remained a global benchmark.
Joel Jeffrey: Considering the underlying strength of the U.S. economy and efforts to address trade and fiscal imbalances, we remain optimistic about long-term growth. In the near-term, while volatility presents challenges, we are cautiously optimistic. Indeed, periods have uncertainly highlight the value of our advice-centric business model.
Joel Jeffrey: We're seeing high levels of engagement between our investment bankers and their clients. That said, the greater challenges lies in converting these pipelines into realized revenue, particularly giving ongoing market uncertainty.
Joel Jeffrey: Now there are pockets of strength within banking as illustrated by KVW's strong quarter, as we are seeing a growing appetite for Bank M&A and we continue to project a strong year for financials vertical [inaudible]
Joel Jeffrey: In wealth management, our asset management revenues were up 11% versus last year, but the finite item was closely tied to market levels, and effective markets do not rebound that could have a negative impact on these results in the future quarters for 2025.
Joel Jeffrey: Overall, while the market conditions have certainly slowed, we believe that Stifel's diversified business model is well positioned to navigate through short-term volatility and drive significant growth as the market normalizes.
Joel Jeffrey: Moving on to Slide 2, I'll review our first quarter operating results.
Joel Jeffrey: The table on the left illustrates our performance, excluding the legal charge incurred during the quarter. Presenting our results this way offers a clearer view of our core business performance compared to prior quarters. I'll address the impact of the legal charge separately.
Joel Jeffrey: We generated net revenue of 1.26 billion, marking the strongest first quarter in our history and an 8% increase year over year. This growth reflects strength in both global wealth and our institutional growth.
Joel Jeffrey: Notably, this is the first quarter since the end of 2021 where all categories in our revenue bridge have shown positive contribution.
Joel Jeffrey: Looking at the specific line of revenue lines, commissions and principal transactions increased 3% with both wealth management and institutional growth showing year-over-year growth. Invest in banking revenues rose 11% driven by increases in both capital raising and advisory.
Joel Jeffrey: Asset Management Revenue reached a record high up 11% reflecting organic growth and market appreciation, net interest income increased 4% compared to the same period last year.
Joel Jeffrey: Our compensation ratio stood at 58 percent, aligning with the high end of our full-year guidance as we maintain a conservative approach to compensation of rules early in the fiscal year.
Joel Jeffrey: Operating pre-tax margin exceeded 20%, consistent with the poor quarter and first quarters of 2024, operating in EPS with a state of $1.65.
Joel Jeffrey: While our operating results improved year-over-year, a bottom line.
Joel Jeffrey: on both a core and gap basis was negatively impacted by a legal charge related to a recent federal arbitration panel ruling, which we are currently appealing. As shown on the table on the right, the legal cruel total 180 million for the quarter, resulting in a $1.16 negative impact on our EPS.
Joel Jeffrey: To the ongoing nature of this matter, we are limited in our ability to discuss it further. However, we believe that we are appropriately accrued to the recent judgment as well as the remaining outstanding cases.
Speaker Change: Before I turn the call over to Jim, I want to highlight the critical role our global wealth management business plays in the people's long-term growth strategy.
Joel Jeffrey: Over the past decade, we've more than doubled our revenue in the segment, reaching a record $3.3 billion in 2024. The scope is a testament to our unwavering commitment to providing exceptional service to our advisors and afflipping them with the tools necessary to deliver tailored investment advice to their clients.
Joel Jeffrey: Our visor-centric culture has been a significant driver of our recruiting success
Joel Jeffrey: Over the past five calendar years, we've added 464 experienced advisors with trailing 12-month production, exceeding 365 million.
Joel Jeffrey: 24-a-long, we recruited 100 financial advisors, including 34 experienced employee and 12 experienced independent advisors, contributing a total of 12-month production of 37 million.
Joel Jeffrey: As we focus our recruiting efforts on higher producing advisors, we've seen a continued increase in the percentage of our revenue coming from recurring sources, such as asset management and net interest income, contributing to greater stability in the segment.
Joel Jeffrey: The strong upward trend in markets over the last few years led many advisers to delay transition, hoping to maximize their trailing production for recruiting packages. Additionally, competition among RAA platforms has driven transition costs higher across the industry.
Joel Jeffrey: That said, we are seeing real momentum build. The recent market pullback has prompted more advisors to act and we've adjusted our approach to remain competitive while staying disciplined on our return on investment.
Joel Jeffrey: We are seeing early success in this initiative and our second quarter is off to a strong start as we've added seven experienced advisors with the trail in 12 month revenues of 14 million and more than three billion in client assets.
Jim: To reiterate, our recruiting pipeline remains robust, and I'm confident as I've ever been in our ability to continue attracting highly productive advisors.
Thanks Ron, and good morning everyone.
Overall, operating results were relatively in line with consensus expectations.
Jim: This was a result of a slightly lower net revenue, which is offset by lower expenses when excluding the legal charge.
Jim: In terms of net revenue, we felt short of the street estimate by 1%, or approximately $14 million, a stronger investment banking and asset management revenue, or more than offset by lower transactional revenue and net interest income.
Jim: Investment banking revenue was the largest upside contributor, coming in 10 million above the street estimate, driven primarily by higher advisory and equity capital markets revenue.
Jim: I note that in our February operating metrics announcement, we anticipated investment banking revenue to be similar to the first quarter of 2024.
Jim: The stronger result was due to a few additional transactions closing at the end of the quarter.
Jim: At the management revenue, was 1% higher than the street, primarily due to a higher fee capture rate.
Jim: Transactional Revenue was 5% below the street due to lower fixed income and wealth management revenue that more than offset higher than expected institutional equity revenue.
Jim: Net interest income was 3% below the street estimate on lower NIM, which was driven by lower than expected loan growth.
Jim: We also had some success fees we recognized last quarter related to some venture clients. Those types of fees are episodic and hard to predict when they come in.
Jim: On the expense side, our compensation ratio was 58%, which was slightly above the street and in line with the high end of our annual guidance.
Jim: Non-copy expenses were significantly impacted by the $180 million illegal charge we incurred in the quarter. Excluding this, our non-copy expenses were $5 million below the street estimate.
Jim: The provisioned rank of taxes came in below the consensus number as the tax rate was impacted by the excess tax benefit recognized due to stock-based compensation.
Moving on to our segment results [inaudible]
Jim: Global Health Management Revenue was $851 million in pre-tax margins, excluding the impact of the legal charge, were 36% on record asset management revenue and our second highest first quarter transactional revenue.
Jim: During the quarter, we added 52 total advisors to our platform. This included nine experienced advisors with trailing 12-month production of $12 million.
Jim: We enter the quarter with fee-based assets of 190 billion and total client assets of 486 billion.
Jim: The sequential declines were due to weaker equity markets and modest asset outflows.
Jim: While our net new assets growth for the quarter was modestly negative, I would note that assets flows turned positive in March, as net new assets for the month were in the low single digits.
On Flight 6, I'll discuss our bank results.
Jim: Ned Interest Income of 262 million came within our guidance as firm-wide average intercerning asset levels increased by 350 million and our bank Ned Interest margin decreased by 14
Jim: In addition to what I said earlier, the decrease in NIM was also due to lower acid yields given the repricing lag resulting from the most recent rate cut as well as the lower day count in 1Q.
Arbank Falchee remains relatively great neutral [inaudible]
Jim: As such, as we progress throughout the rest of 2025, we'd expect any changes in our quarterly and I and them to be dependent on loan growth.
Jim: Ron will touch on this in more detail in his concluding remarks.
Jim: which were primarily due to typical seasonality in the first quarter related to tax payments.
Jim: These declines were slightly offset by the $600 million increase in venture and fund-baking deposits.
Jim: As a result of these fluctuations are total third-party deposits available to Stifel Bank Corp, into the quarter at more than $3.7 billion.
Jim: Our credit metrics and reserve profile remain strong. The non-performing asset ratio stands at 50 basis points.
Jim: Our Credit Lost Provision total $12 million of the quarter, it was negatively impacted by the macroeconomic forecast and increased reserves on CNI and unfunded commitments.
Our Consolidated Allowance to Total Loans Ratio with 85 basis points.
Jim: Moving on to the institutional group, total revenue for the segment was $385 million in the quarter, which was up 10% year on year.
Jim: Firmwide Invest in Banking Revenue, total 288 million as we experience year-on-year increases in advisory and capital-raising revenue.
Jim: Advisory Revenue was 137 million and increased 15% from last year.
Jim: The Growth and Revenue, which are in by a strong quarter in financials and solid contributions from our technology and industrial services verticals.
Jim: While discussions and pipelines continue to be strong, we've seen some de-activity be delayed given market volatility.
Jim: Equity underwriting of 49 million was up 22% over the same period in 2024 as financials, health care, and industrials were our strongest contributors.
Jim: While our first quarter was strong, we did see activity levels slow towards the end of the quarter and that continued into the first month of the second quarter.
Jim: Fixed income underriding revenue was $46 million in the first quarter and declined by 9% year-on-year.
Jim: This was primarily due to lower issue with activity from our corporate credit clients [inaudible]
Jim: as we had a particularly strong quarter in one queue last year. [inaudible]
Jim: Our public finance revenue was relatively similar to that of 1 Q2 024.
Jim: People continue to be ranked number one by the number of negotiated issues led as sole or senior manager.
Jim: Equity Transactional Revenue, totaled $60 million, which was up 10% year on year driven by increased market volatility.
Jim: Fixed income transactional revenue of $89 million was up 1% year-on-year as our race business continued to perform well as customer activity within our depository and credit unit clients has been strong even the normalized yield curve
Jim: This more than offset the slow-artivity levels we saw from our high yield in municipal betasks.
And the next slide we'll go through expenses [inaudible]
Jim: As we noted earlier, our Compton Revenue Ratio in the first quarter was 58% [inaudible]
Speaker Change: Our non-copy expenses told $451 million were significantly impacted by the $180 million legal charge that Ron mentioned earlier.
Speaker Change: Our tax rate for the quarter was 16.4%, which was due to the excess tax benefit mentioned earlier.
On slide 9, I'll review our capital position.
Our balance sheet continues to be well capitalized.
Speaker Change: Tier 1 Leverage Capital decreased 60 basis points sequentially to 10.8% and our Tier 1 wrist-based capital ratio decreased by 60 basis points to 17.6%.
Speaker Change: Based on a 10% to 1 leverage ratio target, we have approximately 324 million of excess capital.
Speaker Change: In terms of capital deployment during the quarter, I note that we increase bank assets by $700 million to $32.1 billion.
Speaker Change: We were repurchased and net settled roughly 2 million shares with 9.2 million shares remaining on our current authorization
Speaker Change: Finally, absent any assumption for additional share repurchases and assuming a stable stock price, we'd expect the second quarter fully diluted share count to be 108.2 million shares.
Speaker Change: And with that, let me turn the call back over to Ronald [inaudible]
Thank you William.
Speaker Change: So despite the market volatility, our operating business started the year with a solid quarter with continued recruiting success and a strong contributions from KVW and our public finance designs.
Basically, Stifel remains well positioned as the year progresses.
Speaker Change: While we have a solid start to the year, the implementation of new administration policies.
Speaker Change: For 2025 it has started slower than we had anticipated just a few months ago [inaudible]
Speaker Change: Overmarket conditions can shift quickly. The uncertainty around policy direction and difficult market conditions have in our view merely delay what we believe to the significant business growth in the near future.
Speaker Change: If we can establish greater stability and trade policy and advanced meaningful tax legislation, both of which we at Stifel believe are achievable, we expect to see positive momentum in the broader economy and capital markets.
Speaker Change: But at this time, we are not revising our 2025 Financial Guidance, and we remain confident in our positioning and long-term growth strategy.
Speaker Change: However, while we remain cautiously optimistic, we are prepared to revisit our full-year forecast of current conditions possessed [inaudible]
Speaker Change: We also have the flexibility to reallocate capital as needed. Given current market conditions in our recent share price levels, we may moderate long growth and instead prioritize share
Speaker Change: Our first quarterback activity reflects this approach and we will continue to evaluate the most strategic uses of capital as the year progresses.
Speaker Change: In conclusion, people of the vice-centric model proves invaluable during periods of market volatility. Our seasoned advisors across both private client and institutional sectors have consistently guided clients to turbulent times.
Speaker Change: As markets stabilize, we are poised to continue our long-standing tradition of growth.
With that operator, please open the line for questions.
Speaker Change: Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star one to ask a question. And we'll pause for just a moment to allow everyone an opportunity to signal. Thank you.
Speaker Change: And we can take our first question from Devin Ryan with Sittifense
Devin Ryan: Good morning, David. Great to be here on the gym. How are you doing, Gordon? Good.
Devin Ryan: Good. Before I start with a question on advisor recruiting, I heard some of the commentary Ron, but obviously there's been a number of acquisitions in the space over the past year. On the flip side, your market to the volatile, which aren't always the best time for people to think about.
Devin Ryan: Moving, so you're just with some of those cross-carsers. Love to maybe get a sense of what?
Devin Ryan: It looks like in terms of advisors in motion right now and how, you know, if you can just maybe drill in a little bit more on the recruiting pipeline and you have expectations for 2025, the obviously last year, advisor account, the client a little bit for reasons that you guys spoke about, I think that was more of an aberration, but just your expectation for growth this year just given some of those cross-currents.
Devin Ryan: Well, it has been active with both, you know, the recent deal on the employee space with private equity and then the independent transactions, I guess, I don't need to name the names, I probably know who they are. But, yeah, those have been interesting transactions.
that I've noted. [inaudible]
Devin Ryan: As it relates to recruiting what I am pleased with, I am pleased with some very three high quality
Devin Ryan: is positioning us as a destination for advisors that really are highly productive. And we see that
Devin Ryan: You know, continuing my my calendar in terms of recruiting and dinners and
Devin Ryan: Yesterday we had a virtual open house that was highly attended [inaudible]
I'm encouraged. [inaudible]
Devin Ryan: and markets like this when you get through this volatility with some decline in the markets generally pick up recruiting activities. So look, I'm pleased, I advise her, I don't look at advisor head count as much as I look at productivity.
Devin Ryan: and what we're doing is really increasing the productivity of the scale, the breadth, the depth.
Devin Ryan: and just our reach into the wealth management space. So look, Devin, I'm-
Devin Ryan: I'm pleased, we can always do better, we always, you know, we're driven by that darn thing called Return on Investment, alright? And so that's the governor on this, but I'm encouraged.
Devin Ryan: In addition to recruiting it, I also remind everyone that we closed the Be Riley transaction in early April .
Devin Ryan: which added, you know, 36 financial advisors and approximately 4 billion of AUMs. That's another area of growth that we'll contribute. And on our platform, I think those advisors are going to be much more productive.
I want to say that.
Devin Ryan: We will see in the productivity of those advisors you'll see the strength of our platform.
Devin Ryan: Go ahead, Jim. I mean, that was it. So yeah, I think it's a great question. It's always a question and every quarter, we're focused on continuing to build the firm to our goals.
Yeah.
Devin Ryan: with the volatility. I'm going to try to get a little bit of a sense of what happened in the first quarter and then kind of a trajectory as we look at it over the course of the year.
Devin Ryan: I think it was a little bit of both. I think someone was fairly committed, or the trail as well as just limited activity or in the quarter. You remember a lot of the volatility that occurred happened after the end of March and so we've seen somewhat of a pickup there in some of the client engagement and client repositioning portfolios but again that happened after the end of the quarter.
Got it, okay, Ronald is right there, thank you both.
Thank you.
Speaker Change: And our next question will come from Mike Brown with Wells Fargo Securities
Good morning, and thanks for being my question [inaudible]
Thank you for joining us. Thank you.
Speaker Change: Ron, just to maybe follow up on the organic growth question from Devin, you alluded to a change in the shift in the approach to recruitment, and that does seem like it's been supporting success with big teams.
Speaker Change: and from the wirehouses. So maybe some light of this can you just expand on what that shift has as meant and do expect to see continued success from some of those bigger teams.
Speaker Change: Well, I think that if you look at, I think our view on it is that if you look at our margin in wealth management.
Speaker Change: Look at our footprint and the scalability of that model and where we have...
Speaker Change: Capacity, these are all factors that went into our thought process [inaudible]
and in various cities. [inaudible]
Speaker Change: We can be more competitive in our transition packages and yet still easily clear our return requirements. So we've been pretty disciplined as the markets moved away from us.
Speaker Change: And we've said, you know, some of these deals are crazy. But then we went back and looked at, you know, our advantage, which in many ways it's classic business, right? If you have a pricing advantage, which we do in terms of our margins.
Speaker Change: and it gets really competitive, well then let's just compete a little bit more because we have the ability to do that and you couple that nearly 400 offices and some empty desks.
Speaker Change: that are sitting there underutilized and you put all that together and we've set up, let's just be a little more competitive and that we can see that that's going to pay you know that that'll help the recruiting.
Speaker Change: And still, I can still say to all of you, look, we're not mortgaging the future to show short-term growth. And that's always my concern is, you know...
Speaker Change: These deals get amortized over a long time, and if you consistently do bad deals, it won't show up immediately a bit, it'll show up in a few years, and we're cognizant of that.
Bye, I like where we are.
Speaker Change: Okay, great, it makes sense. And then if we just maybe change gears and unpack your comments on the M&A activity in the bank space.
That's an area where the deregulation is happening.
Speaker Change: The Capitol wanted to cover a deal. It has gotten approval. That seems to remove a regulatory overhang.
Speaker Change: But we are seeing lower share prices, shifting interest rate backdrop, those present headwinds so...
Speaker Change: Perhaps a strong is that as strong as it was coming into the year and you think we can see those announcements coming through in 25 and then just given that deregulation tailwind are you expecting a shorter time for between announced and close on the deal. [inaudible]
Speaker Change: You're second question first, and the answer is yes, we believe.
Speaker Change: that Discover Capital, and we believe that even deals that could be announced now.
Speaker Change: Could close this year, okay? If you didn't ask me that two years ago, I'd have said no.
Speaker Change: There will be no more closings and deals that are going to get announced in April . But yes, we believe that the
Speaker Change: even to the point where I would say, you know, but it would not be unreasonable to announce a deal and so close this year. At least that's what my bankers are telling me and I'm listening to them, okay?
Speaker Change: and the one that are going through the process. So that's the second question first. As it relates to overall activity, it's a great question and it will be driven in many ways.
Speaker Change: Yeah, it's a, it's sort of a, I don't want to say a self fulfilling prophecy, but there is a
There's a lot of reasons that consolidation needs to occur
Speaker Change: and there, you know, there were a number of headwinds in terms of the pounding and mark to market.
Speaker Change: and a number of things. Well, you'll see, I think, all right, and you're just going to take me, I'm not going to point anything, but...
I think though you'll get a couple of transactions.
Speaker Change: when they do or if they do get an answer or whatever, that will begin to drive the what happens when someone says oh that was how that was done and oh we got to look at this deal and so you know banking banking M&A is often a you know. All right.
Speaker Change: Crowdsport, you know, if you will. One does it and another one does it and then the another one reacts to the competitive things and so that that's what happens and that's I can see that happening all right now
Speaker Change: We'll see, okay, but that's what I would say. I would say if I overall looked at our segments.
Speaker Change: I would still think that our fig segment, at least on the advisory side, will be one of our better segments and would be if I sit here today, will be stronger than last year.
Other segments, I think are more, more...
Speaker Change: Tara of, you know, tax policy, number of uncertainties that need to be cleared up to allow that even even there's more debt financing and some other segments so I feel that that's a little softer but financials I think will be a little stronger.
Speaker Change: We've seen bank deals approved in as little as four months, and so there's obviously some positive feedback we're getting from the regulators and their receptivity to approving transactions, and that's very positive given the rationale that Ron laid out in the need for banking. Right, and I think a lot of the regulators understand that there's a there's
Speaker Change: You know, between announcement and closing that that that regulated recognize now and they're trying to minimize because that that is a risky time for him for shareholders
Great, thank you so much for all the color there.
Yeah.
Speaker Change: Thank you. Our next question comes from Alex Blostein with Goldman Sachs.
Alex Blosstein: Hey guys, good morning. Thank you. Another one on recruiting just again related to the sort of adjustments you made to your approach to stay more competitive. Is there any particular section in the market that's more receptive to sort of the changes you made?
Speaker Change: and the changes you see in your recruiting pipeline and I know you talked about building out the independent channel in the past I'm not sure of that sort of part of the changes you're making or you're still largely focused on the employee channel.
Speaker Change: Well, largely focused on an employee channel, first of all, and second of all, yeah, I think where we focused is on the higher productivity, more holistic teams that do...
Speaker Change: The advisors team, so not just single advisors, but attracting teams that approach the business on the employee side, albeit, but approach the business.
Steven Chubak, David
from a holistic, you know, advice and planning model.
Speaker Change: In that, look, we have a lot of advisors do very well, just...
Speaker Change: You know, advising clients, but there is there's a segment of employee channel that we've adjusted to be more attractive to because that's that same
Speaker Change: Segment is probably also being more heavily courted by the RIAs, and so we're adjusting to both our inherent pricing advantage and the competitive nature that comes from the RIAs.
Speaker Change: Got it. Okay. Understood. Um, and then in terms of the outlook of the public.
Speaker Change: Obviously appreciate the challenges with trying to predict the next several months given all the uncertainty so maybe keep banking out of it.
Speaker Change: But when it comes to NII, maybe give us your updated thoughts on sort of near-term outlook for Q2 and for the full year, and it's part of that I was hoping you can hit on where cash balance is spent in April obviously lots of volatility, but there's also tax season so...
where that stand so far in April .
Speaker Change: You know, Alex, this is a great time for me to thank you. So I mean, I think we gave a range for NII for the second quarter of 260 to 270 million.
Speaker Change: and I think given the fact we've talked about our balance sheet being rate neutral, the outlook is really going to be dependent on the mix and volume of loan growth.
Speaker Change: Ron gave some commentary of continuing to evaluate the tradeoff between repurchases and loan growth, and we're going to look at that every day based upon the best risk-adjusted return. So more to come there based upon how the market continues to evolve, but that's going to be the primary driver.
in terms of cash suites. [inaudible]
Speaker Change: We've still seen some continued outflows since the end of March, sweeps probably down another $150 million and we've seen a couple hundred million plus in terms of smart rate. Again, I would say the vast majority of that is typical seasonality related to tax payments.
Speaker Change: I think the key with the inflection point in the sweep and smart rate balances is what happens now that we're after tax season and where balances go from here.
and following two years were really strong. [inaudible]
Speaker Change: Mark Gaines, and some profit-taking that was occurring is high. Okay, relatively high. There's a lot. Government coffers are getting some cash, well, at least from this part of the economy.
that I see.
So...
Speaker Change: And I think just to go on what Jim just said, I want to reiterate, it should be obvious to everyone on this call.
that in the environment that we're in especially...
with the drawdown and chair valuations and so on.
especially in financials and in at Steve Falle. [inaudible]
that the math changes.
Speaker Change: allocating capital to building balance sheet growth be alone or repurchasing shares.
at these levels, the math changes. [inaudible]
but also the loan demand in this environment is also...
somewhat muted relative to what we were expecting, and we...
Speaker Change: You know, we don't necessarily like trying to grow loans in...
without a lot of loan demand, because that...
Speaker Change: Sometimes lead dabber selection, so the combination of all of that just has us trying to say to you, look today as we sit here today
Speaker Change: We can see instead of saying we're going to grow our assets by three to five billion.
Speaker Change: We could say that would be lower, but we'll up our share of repurchases because we're still generating a lot of capital [inaudible]
Well, that's maybe the...
of the shift in tone, a little bit of Alex. [inaudible]
Speaker Change: In one other follow-up comment on cash, I should also mention we've continued to see nice increases across the venture and fund banking deposit. The last two quarters have been well above that kind of $300 million run rate of net additions, and we're continuing to see that nice level of increase in the first, what we've seen so far in April .
Yep, it's a balance, totally get it. Thanks, guys.
Thanks, Alex.
Thank you.
Speaker Change: and we will take our next question from Steven Chubak with Wolf Research.
Stephen Chewback: Good morning, Ryan Jim. I hope you're both doing well.
Stephen Chewback: So I wanted to ask a follow-up on some of the trends that we saw at the bank specifically around the NIM. The contraction was admittedly probably the highest among the banks that we track.
It looks like the primary culprit was security deals. [inaudible]
Speaker Change: I was hoping you could unpack the timing related impacts that you were alluding to earlier. Just wanted to get a centrist to how big of a drag that was on the name in the quarter, and how you're thinking about just managing duration, bigger picture, just given some of the expectations for increased deepening of the curve.
Speaker Change: So obviously within the bond portfolio, the CLO, the CLO book is by far the largest piece. Those reprise over 90 days, so you're still getting the lag effect.
Speaker Change: Baking in on the asset side there in terms of the last two rate cuts in the fourth quarter. You also saw a pretty sizable drawdown, if you look on the yield chart on C&I loans, I think it was down 75-ish somewhere on 75 basis points.
Speaker Change: Again, I mentioned on the call, both this quarter and last quarter, the impact of some of the success fees that we have related to venture clients.
Speaker Change: That was a couple million dollars in the fourth quarter and obviously those are episodic kind of one time in nature and hard to predict but when you think about that impact on NIM that's annualized into the NIM calculation and has a bit of an outsized impact
Speaker Change: So you combine, you know, the day count, you combine the repricing lag [inaudible]
Speaker Change: You know, you look at loan growth being lower than we originally anticipated and then you layer on top the success fees That's really what's driving it and so you know while the decline may have been more than you've seen in some other places We're still very happy with a 310 bank a NIM in this environment I think that that return is is very strong. I'd also say if you look at a result they were also within our forecasted range of 260 to 270 million although at the lower end of that range so I think this is not
Speaker Change: We're not unexpected from where we were trying to guide to last quarter on our call. I think, look, it's a great question and looking at the raw numbers, I agree with what you're saying but when we unpack it
Speaker Change: We're very comfortable, primary of these success fees and the impact that that has
So, you know, Steve and I.
Speaker Change: I hear you, but I would caution you to not think that that's some permanent compression. Yeah, I mean, we're more sensitive the most bass, right? And so we also have the ability to adjust that on the liability side in terms of rate cuts.
Speaker Change: and so, you know, that gives us the ability to be relatively rate neutral outside of these kind of timing effects, whether it be the fees or the lag on certain items on a quarter to quarter basis.
Speaker Change: No, it's a fair point and then certainly did see that in the liability side you guys did a nice job of managing deposit pricing
Speaker Change: These, just for my follow-up, I did want to drill down into...
Public Finance and maybe Fixed Income More Holistically [inaudible]
Speaker Change: Now the public finance outlook just given the murky policy picture, how much of the strength and activity do you believe is durable versus temporary? And now in fixed income brokerage just given the strength and volumes and volatility, the revenues there were a little bit lighter than we had anticipated and was hoping you could unpack that as well.
Speaker Change: You know, on public finance. Yep, it's murky. There are a lot of things that are murky.
with respect.
Speaker Change: to, you know, a tax bill and what's on the table. You could actually see a big, big, big, big spike.
College, you know, attacking up sides.
Speaker Change: of certain large colleges. There's a lot of things on the table here and so I think that that coupled with
I just the Martinez has led that to...
Speaker Change: You know, to be a little choppy. That said, a lot of infrastructure that needs to be done. We see it, especially at the community level where we are highly active.
Speaker Change: in terms of just normal infrastructure, whether it's schools, sores, you know, development, housing.
So we see that business remaining healthy.
but any time you're floating around tax bills...
You know, that's going to create some uncertainty.
That's what I would say in public finance. We certainly hit in things more kind of ground to a whole to public finance in March.
Speaker Change: Certainly in their pocket, but I'd say our calendar right now, our underwriting calendars as disease has ever been, and the outlook there is very strong. Well, it not just at Stifel on the street, yeah, and then look at the bottom. Certainly, and then in regards to rates or in regards to fixed income trading.
Speaker Change: The thing I point out is we had a decent quarter in our rates business. One queue was typically our seasonally slow period for our rates business. And then you add on to the fact in the comparable period last year, particularly when they're a credit book, we had a lot of trading in the visa b shares. [inaudible]
Speaker Change: That is, you know, somewhat episodic as well and didn't repeat itself to anywhere near the level we saw.
Speaker Change: in the prior year. So, you combine those things that had an impact on the first quarter, but I think from here for, if you think about fixed income trading, I think, you know, the second quarter will be relatively fight to up from here with a relatively optimistic outlook.
That's great caller. Thanks so much for digging my questions.
Absolutely.
Speaker Change: Thank you. Our next question will come from Bill Katz with TD Cowan.
Bill Katz: Great. Thank you very much for taking the questions this morning. Good morning, everybody. So I'm just trying to come back to some of the math if that's okay. If I simply annualize your first quarter revenues, I get sort of below the low end of your initial guide, your current guide, which you're not changing at the moment, I just don't appreciate all the moving parts.
Bill Katz: But as I think about your commentary into the second quarter and what's been gone on the macro perspective, it seems like...
Bill Katz: Revenue is made tip-down, potentially just given the different business component pieces, if you will. So, just trying to understand what's your macro framework as you get to the second half of the year, particularly if you still think the S&P is going to hover at current levels here, I'm just trying to figure out where the incremental drivers of opportunity might be. Thank you.
Bill Katz: Well, first of all, I don't know this exactly, so I should be careful. I'm thinking if you go back like almost every year and analyze our first quarter, you would end up less than what we end up with. I mean, that's just a seasonality in our businesses.
tends to be relatively slower at the end of the third quarter. [inaudible]
Bill Katz: Usually, okay, but we have adjusted our internal forecast to account for lower equity markets.
Bill Katz: We've adjusted it for our pipelines, we've adjusted it for what the deals are, so would I say that we're not revising our guidance?
Bill Katz: It's not on the hope of some, you know, miraculous turnaround, it is on the beliefs that, you know, the equity markets may hover around here [inaudible]
Bill Katz: But we do, you know, we do think that on the institutional side of business and on the advisory side, which is probably the biggest.
Bill Katz: Fluctuation, always. We believe that this short-term, low and inactivity, fans, all of the things, we believe, if not, and...
Bill Katz: for the rest of the year. Now, as I said in my remarks, if it turns out that we're going to take tariff in China, it is 250% and, you know, and...
Bill Katz: and do some other things that they've been talked about. And we'll revisit it. But right now as we sit here today I'm comfortable with what we have said. And I believe I believe from here that market conditions will improve.
But...
Speaker Change: You're at that looking into a crystal ball and I would want to say that.
Bill Katz: Art need to get within our guidance range, so it does not require…
Speaker Change: You know, some recovery in the markets here of any, you know, magnitude it would help. It will definitely help on the institutional side to get, take some of the volatility out of this market.
Speaker Change: I would add, it's just, it's really hard to annualize, invest and make a result in any quarter and any economic environment.
Speaker Change: That's really lumpy, and particularly on the underwriting side, that can change very quickly if the market gets some stability to it. On the advisory side, we talked about the strength in KBW at length here already, but we've also seen a strong outlook within our tech practice, with our industrial services practices. There are pockets of strength there that we see things improving over the back half of the year. We've also seen a strong outlook within our tech practice, and we've seen a strong outlook within our tech practice, and we've seen a strong outlook within our tech practice.
Speaker Change: That's very helpful. And maybe just on capital management, I appreciate the interplay between the decision to re-purchase stock versus grow the bank balance sheet. How do you think about M&A more broadly for the firm at large, just given a lot of volatility and some deals around you, any areas of a particular focus that might be of interest as you think about it will get in the opportunities. Thank you.
Speaker Change: Yeah, but you know, back to the first part, I also want to say that I'm a street and I would echo this, you know, activity especially by you is usually back halfway, okay? And and
Speaker Change: That's true in almost every year, but when I listen to the commentary and what people say and as I said in my remarks
A lot of things have been delayed.
I think I've not been canceled. [inaudible]
So there is increasing demand for services
Speaker Change: Assuming we don't drive the US economy off the cliff, okay? And I don't think we're going to. Now to relate to M&A, we're always, you know, we're always looking at things and
Speaker Change: and we will continue to do so. I feel that a lot of the pricing...
which is primarily driven by firms.
that don't have the capital levels. [inaudible]
that we have as a regulated institution.
that fund...
D.O.L.F. with that.
Speaker Change: and don't really need tangible equity. It has really made pricing of these deals difficult for us in the last few years, but we're always looking. Again, B-Riley was a nice Oppon, and...
Speaker Change: I'm always open, okay, and get a lot of the calls. I don't feel like we're missing anything, but as I said in my opening remarks, I do rely on that calculator and return on investment and that's always going to be a governing factor.
Okay, thank you for taking both questions.
Thank you.
Speaker Change: And our next question will come from Chris Allen with City
Hey Chris, morning guys, thanks for seeing the question [inaudible]
Speaker Change: Thanks for taking the question. I think most topics have been covered.
Speaker Change: What they wanted to ask on is just the thick broker jealousy to Q5. Just if you could remind us
Speaker Change: What level of business brokerage is tied to fixed underwriting, and what is, and it's kind of the separate buckets there. Munis, I think, is a key driver trading, but I think rates is most important, and just to try to think about the different outlooks and what's...
Speaker Change: What is tied to underwriting, under recovery and what can continue to perform without underwriting
Speaker Change: the softer quarter in the year. I don't know if you have anything else to add. No.
Thanks, guys, appreciate it.
Thank you.
Speaker Change: And it appears that we have no further questions at this time, Mr. Kruszewski, I will turn the call back to you for any additional or closing remarks.
Speaker Change: Thank you operator. So I just quote by saying, you know, these are these are
Mr. Kruszewski: volatile times and uncertain times. Stifel is well-positioned from a balance sheet, from a liquidity, from a diversification of business.
Mr. Kruszewski: to not only perform well in markets like this, but were well positioned.
Mr. Kruszewski: with respect to the rebound in markets. And maybe an optimistic note that I believe the recent volatility in all the uncertainty is short-term. It's unique negotiating styles.
but the-
The economy remains strong, and when we get...
Mr. Kruszewski: A little more certainty on some of these very disruptive policies we will, we are well-positioned and I think the industry is well-positioned [inaudible]
Mr. Kruszewski: to take and monetize some of the deals that have frankly been delayed.
Mr. Kruszewski: But we'll see hope springs eternal here and we were well positioned to continue our historical growth. I look forward to talking everyone on the second quarter call and to everyone have a great day. Thank you.