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Stifel Financial Corp. misses on earnings expectations. Reported EPS is $1.34 EPS, expectations were $1.65.

Operator: Good day, and welcome to the Stifel Financial Second Quarter 2025 Financial Results Conference Call. Today’s conference is being recorded. At this time, I’d 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 2025 Conference Call. I’m joined on the call today by our Chairman and CEO, Ron Kruszewski; our President, Jim Zemlyak; 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 you to our reconciliation of GAAP to non-GAAP as disclosed in our press release. I would also remind listeners to refer to our earnings release, financial supplement and our slide presentation for information on forward-looking statements and non-GAAP measures.

This audio cast is copyrighted material of Stifel Financial Corp, and may not be duplicated, reproduced or rebroadcast without the consent of Stifel Financial. I will now turn the call over to our Chairman and CEO, Ron Kruszewski.

Ronald James Kruszewski: Thanks, Joel. Good morning, and thanks to everyone for taking the time to listen to our second quarter earnings conference call. On our last earnings call back in April, I noted that uncertainty around tariffs and the so-called Big Beautiful Bill have created headwinds for the market. But I said then that if we got clarity on these issues, conditions could improve quickly. And that’s exactly what happened. Investor sentiment improved significantly in the last 2 months of the quarter as greater clarity on tariff and tax policy emerged. The S&P 500 rallied to 1,000 points since our last call, fueling record client assets in wealth management and sparking a rebound in M&A and capital markets activity. As a result, we exited the quarter with far more momentum than we started the quarter with.

If conditions hold, we’re positioned for a strong second half. Our second quarter results included a very challenging April, yet we still delivered over $1.28 billion of net revenue and $1.71 in core EPS, which was the best second quarter in our history and return on tangible common equity of 22%. Our balanced model continues to deliver across market cycles. Global Wealth Management posted its strongest second quarter ever with record client asset levels and higher net interest income. Our Institutional business was resilient with a 7% year-over-year revenue increase, record fixed income revenue and a late quarter pickup in investment banking. In Global Wealth, Stifel ranked #1 overall in the J.D. Power Advisor Satisfaction Study for the third straight year and was ranked #1 in 5 of the 6 categories measured as follows: compensation, leadership and culture, operational support, products and marketing and technology.

That recognition reflects our commitment to adviser support. It’s not just a cultural point, it’s a recruiting advantage. This was our strongest recruiting quarter since Q4 of 2015 with 82 new advisers added, including 36 through B. Riley and 21 experienced advisers representing 51 million in trailing 12-month production. Strategically, we completed our acquisition of Bryan Garnier, a European boutique investment bank with deep expertise in health care and technology. As Jim will discuss later, this acquisition supports our broader effort to reposition our European operations, deemphasizing sales and trading while expanding our focus on advisory and investment banking. Combined with the ongoing — with ongoing efficiency initiatives, this positions Europe to contribute more meaningfully to the firm’s long-term profitability.

Moving on to the numbers. Our record second quarter net revenue grew 6% year-over-year, with gains across the board, except for a modest decline in advisory. Commissions and principal transactions rose 11% with gains in both Global Wealth and Institutional. With respect to investment banking, the quarter started very slowly in April, but ended strongly. Asset management revenues rose 6%, reflecting both market appreciation and improved organic growth. Net interest income was up 8% on higher interest earning assets and lower funding costs. Our compensation ratio was 58% consistent with the high end of our full year guidance as we continue to accrue compensation conservatively. Operating pretax margin was 20.3% and operating EPS of $1.71, up 7% from last year.

Before I turn the call over to Jim, I’ll walk through our 2 core business segments and why we’re optimistic about the rest of 2025 and beyond. In Wealth Management, we continue to gain momentum, ranking #1 overall in J.D. Power isn’t just a badge, it’s a recognition of our foundation, which drives results. Since 2020, we’ve added nearly 800 financial advisers with $420 million in trailing 12- month production. Recruiting accelerated in 2025. In the first half alone, we brought in 66 experienced advisers with $63 million in production. That includes a major team from B. Riley and 30 organic recruits with $43 million in production, many in the $1 million dollar plus category. For perspective, in all of 2024, we added 50 experienced advisers with $37 million in production.

These highly productive advisers bring more client assets, and those assets are increasingly fee-based, but drives more stable recurring revenue from asset management and net interest income. We ended the quarter with record total client and fee-based assets of $517 billion and $206 billion, respectively. The sequential increases were due to stronger equity markets and strong asset inflows, including the advisers from B. Riley. I’d note that our net new assets improved each month during the quarter with annualized June net new assets coming in around 5%. Looking ahead, we’re confident in continued growth. While recruiting can vary from quarter-to-quarter, we expect a strong second half, with new advisers transitioning clients to our platform.

Our clients continue to hold over $15 billion in money market funds and $6 billion in short-term treasuries, providing potential liquidity source for Stifel deposits. Now let me move to the Institutional Group. Total revenue for the segment was $420 million, which was up 7% from the prior year. Firm wide investment banking revenues totaled $233 million, driven by year-on-year and sequential increases in capital raising revenue. Fixed income underwriting revenue was $54 million and increased 18% sequentially driven by a solid increase in public finance activity. Stifel continues to rank #1 by the number of negotiated issues led as sole or senior managers. Equity capital raising totaled $46 million in the quarter. The market effectively shut down for 6 weeks following Liberation Day with only a handful of pipes and advisory linked deals.

Activity returned mid-May alongside tariff relief, and we entered the third quarter with meaningfully stronger conditions. While industry-wide ECM fees were in line with the first half of 2024, the mix shifted. Financials and fintech were strong. Health care was down more than 50%. We’re seeing early signs of broader IPO recovery and follow-on activity remains deposit driven with private equity continuing to lead issuance. As M&A paths narrow, late-stage private placement continuation vehicles and IPOs are increasingly being used to create liquidity. Advisory revenue was $127 million. We continue to get a strong — we continue to get strong contribution from financials despite the increased volatility early in the quarter. In the second quarter, we also got solid contributions from industrials and industrial services.

We are also seeing improvement in health care and technology and overall, the accelerating activity levels bode well for the second half of the year and into 2026. Now taking a step back and looking back at our acquisition of KBW now more than 10 years ago, we made a deliberate decision then to preserve the KBW brand within Stifel. That integration has been a resounding success with nearly all of the original KBW investment banking managing directors, still with KBW Stifel. The sustained focus and successful integration have helped us build a franchise with deep expertise and long-standing client trust. That commitment is now paying off. In 2025, we advised on 84% of total disclosed bank and thrift deal value, an extraordinary market share and a testament to the strength of our platform and positions us as the first call in bank M&A.

Bank M&A, frankly, is accelerating and the strategic needs for larger banks to combine is also increasing. Given the improved market dynamics, we expect the trend to continue, and I’m confident in our ability to participate and lead at every level. As to our trading businesses, equity transactional revenue totaled $61 million, which was up 16% year-on-year, driven by increased market volatility. Fixed income revenue of $129 million was up 21% year-on-year with increased contributions from our rates, aircraft and municipal businesses during the quarter. Before I turn the call over to Jim, I want to briefly comment on AI, particularly the promise of agent-based models. We view AI not just as a tool for back-office automation, but as a platform to enhance how we serve clients, manage data and accelerate insights.

We are systemically reviewing workflows across the firm where intelligent agents can amplify our professionals’ productivity and decision-making. We’ve already seen early wins in areas like investment banking analytics and adviser support, examples where the right AI tools can create real leverage. That said, we’re clear-eyed about the role of technology and enhances what our people do. It doesn’t replace them. Our business is built on trust, relationships and judgment. AI will help us work faster and smarter, but should not replace the human side of Stifel. Now let me turn the call over to Jim to walk you through the details of our second quarter results. Jim?

James M. Marischen: Thanks, Ron, and good morning, everyone. Our operating results exceeded Street expectations, driven by stronger-than-anticipated revenue, while expenses remain roughly in line with consensus. Looking at our quarterly revenue, we beat The Street estimate by 4% or $50 million on stronger investment banking and transactional revenue as well as higher net interest income. Investment banking revenue came in at $233 million, which is more than $20 million above the guidance we gave in our June operating metrics as we had 6 transactions that closed right at the end of the quarter that were not in our second quarter forecast. I’d also highlight that fixed income underwriting beat The Street estimate by more than 18% on strong public finance activity.

Transactional revenue was 9% above The Street, primarily because of higher institutional fixed income and equity revenue. I note that our fixed income revenue benefited from a gain in our aircraft leasing business. Net interest income was 2% above The Street and at the high end of our guidance. As we benefited from approximately $4 million of fee income, mainly tied to success fees within our Venture Banking Group. Asset Management revenue was 1% below consensus primarily due to lower third-party sweep fees. On the expense side, our compensation ratio was 58%, which was slightly above The Street and in line with the high end of our initial annual guidance. Non-compensation expenses were roughly in line with the consensus and we’re at the midpoint of our adjusted noncomp operating expense guidance range and roughly 20% of revenues.

Provision for income taxes came in above the consensus number, but was within our expected level of 25% to 26% due to nondeductible foreign losses. Global Wealth Management revenue of $846 million was a second quarter record as each line item improved from the same period a year ago. Pretax margins were 36% which was in line with our performance over the past year. During the quarter, we added a total of 82 advisers to our platform. This included 57 experienced advisers with trailing 12-month production of $51 million. The 36 FAs acquired from B. Riley were included in the experienced higher total. On Slide 8, I’ll discuss our bank results. Net interest income of $270 million came in at the high end of our guidance. Firm-wide net interest margin increased on higher asset yields and lower deposit costs, which more than offset a modest decline in average interest- earning assets.

The 12 basis point increase in bank NIM was a function of lower cash balances, higher yields on our loan book, as well as lower deposit costs. As I mentioned earlier, we generated $4 million of fee income. Excluding these fees, we still would have been at the higher end of our guidance. For the third quarter, we estimate net interest income will be $265 million to $275 million. Our bank balance sheet remains relatively rate neutral, though we experienced some modest benefit from lower funding costs as we had a slight mix shift in our deposits towards lower cost funding. I’d also note that we anticipate an incremental $1 billion of loan growth in the second half of 2025. Client cash levels decreased during the quarter due to a $1.4 billion decline in smart rate balances and the nearly $460 million decrease in sweep balances.

In terms of the decline of smart rate balances, roughly 2/3 of the decline occurred in April. And I note that sweep balances improved late in the quarter as June sweep balances increased $300 million. Since quarter end, we’ve seen client cash balances essentially flat. As you can see in the chart, we have also included non-wealth deposits, which primarily include our venture and fund channels. While these are commercial deposits that provide us with an important funding source and reduce the potential impact of the fluctuations within wealth management cash. In the second quarter, these deposits increased $1.1 billion and have increased more than $2.2 billion year-to-date as these growth initiatives continue to accelerate. Our credit metrics and reserve profile remained strong.

The nonperforming asset ratio stands at 51 basis points. Our credit loss provision totaled $8 million for the quarter, and our consolidated allowance to total loan ratio was 83 basis points. Moving on to our expenses. As we noted earlier, our comp to revenue ratio in the second quarter was 58%, and based on our current forecast, we anticipate our third quarter comp ratio to come in at 58%. Our noncomp expenses totaled $278 million, a 7% increase from the same period last year, and our noncomp operating ratio was 20.3%. We would expect a similar noncomp ratio for the third quarter. I’d also note that we incurred $28 million in severance and other restructuring charges during 2Q in our European operations. As Ron mentioned earlier, this is part of the plan to shift our European focus more towards investment banking.

These costs represented the majority of the non-GAAP expenses incurred during the quarter. Our tax rate for the quarter was 25.4%. I would note that we expect to see a similar effective tax rate for the third quarter, but then see a decline in this rate during 4Q. If the stock price holds at current levels, we’d expect the full year effective tax rate to be between 20% and 22% for 2025. On Slide 10, I’ll review our capital position. Our balance sheet continues to be well capitalized. Tier 1 leverage capital was in line with first quarter levels at 10.8%. Our Tier 1 risk-based capital ratio declined by 10 basis points to 17.5%. Based on a 10% Tier 1 leverage ratio target, we have approximately $315 million of excess capital. In terms of capital deployment during the quarter, we completed the acquisitions of B.

Riley and Bryan Garnier. This added approximately $90 million to goodwill and intangible assets, and we repurchased roughly 970,000 shares with 8.2 million shares remaining on our current authorization. Absent any assumption of additional share repurchases and assuming a stable stock price, we’d expect the third quarter fully diluted share count be 110.2 million shares. And with that, let me turn the call back over to Ron.

Ronald James Kruszewski: Thanks, Jim. Let me turn to our full year guidance. Despite market volatility in March and April, our annualized net revenue is on track for another record year. We are seeing momentum build across our businesses, which we believe will translate into a strong second half and we remain confident that our full year 2025 results will come in within our guidance range. In addition, while our tax rate expectations aren’t shown on the slide, as Jim said, we continue to anticipate a full year effective tax rate in the 20% to 22% range. From a capital allocation standpoint, we remain focused on generating strong risk-adjusted returns and reinvesting in our business. We anticipate additional bank growth in the second half and have more than 8.2 million shares remaining under our repurchase authorization, and we’ll continue to pursue both organic and inorganic growth opportunities in Global Wealth Management and the Institutional Group.

We’re also mindful of what’s happening at the edges of the market. From a macro perspective, there is still a lot of uncertainty about the overall impact that tariffs will have on the economy. In terms of the market, we’ve seen a reemergence of mean stock behavior, a sharp rise in margin debt and pockets of speculation that feel disconnected from fundamentals, certainly in my view. Valuations are now pricing in near perfect outcomes. And while we’re not in the business of predicting pullbacks, we do believe in staying disciplined. We’ve been through enough market cycle to know that strong markets can be fragile, especially when momentum overtakes fundamentals. A brief pullback wouldn’t surprise us. In fact, we’d welcome it as a sign of healthy price discovery.

But either way, we’ll keep doing what we’ve always done, serving clients, underwriting growth and allocating capital with a long-term lens. Taking it all together, we’re very optimistic about the second half of the year. Market conditions have clearly improved since April. Deal activity is up, investor sentiment has turned constructive and key macro risks like tariffs, inflation appear better contained than many peers just a few months ago. Additionally, our recruiting activity year-to-date has been extremely strong, and we’ve built the platform to support it, reflected in our third consecutive #1 ranking in J.D. Power Adviser Satisfaction. That recognition isn’t just about today. It positions us for continued recruiting success going forward.

In Institutional, we’re leading in bank M&A and believe that the current environment creates even more opportunity. And in venture lending, we’re making meaningful progress, deepening relationships with venture funds, founders and emerging growth companies across innovation-driven sector. These are early wins, but they’re strategic and they’re building real momentum for the future. So overall, I’m confident in our positioning, and I look forward to a strong second half. Before I close out the call, I want to take a moment to recognize Victor Nesi. As many of you know, Victor recently stepped down from his day-to-day responsibilities as Co- President and Head of our Institutional Group after 16 years of extraordinary leadership. At the same time, I’m pleased to share that Victor has joined the Board of Directors of Stifel Financial Corp.

His contributions to our firm, particularly in building one of the industry’s leading middle market investment banks are hard to overstate and I look forward to his continued insight and guidance as a Stifel Director. So with that, operator, please open the call for questions.

Operator: [Operator Instructions] And we will take our first question from Devin Ryan with Citizens.

Devin Patrick Ryan: I want to start with a question just on KBW, and I appreciate financials, investment banking, KBW’s already been, I think, pretty strong just from the nondepository subsectors. But with bank M&A seemingly reaccelerating here and probably picking up more into the back half, and then you had a nice deal that KBW was advising on last week. What are you expecting there in terms of activity? And if you can, maybe just frame out a little bit more around the opportunity and order of magnitude of kind of revenue potential or maybe what you’ve maybe been missing because there’s been such a dearth of depository M&A over the past 4 years?

Ronald James Kruszewski: Part of your question answers your question, Devin, in that the dearth of activity over the last several years, driven by many factors, the economic, the rate environment, a certain amount certainly of uncertainty. The regulatory backdrop was not, shall we say conducive, certainly not conducive to timely M&A approvals. So as those things — all of them have improved hence the environment for M&A. And you couple that with a need for banks and certainly some of the mid regional banks to probably combine to be able to compete, whether it’s technology or market share or just frankly, share growth of the SIFI will — bodes well, I think, or speaks to the need for some consolidation. We’ve been talking about this for years, But the environment today is conducive to that and certainly board room talks.

They understand the benefits of doing smart strategic M&A. As it relates — so the environment is good. That’s a long answer to say the environment is good. With respect to — I don’t talk about our share or whatever. We’ve done very well. I think KBW Stifel has shown that it’s the way we’ve approached that deal and the way we maintain the culture and the brand and the research and the sales and the trading and everything that goes with that has paid some dividends here. So I never am expecting a business at all. We’ve earned it, but we’re well positioned. So that’s — I’m not going to give you any revenue numbers, heck, I don’t know. I just expect to get our fair share.

James M. Marischen: I’m sorry, KBW is hosting a depository conference in New York right now. So hopefully, they’re signing up deals as we speak.

Ronald James Kruszewski: Yes.

Devin Patrick Ryan: We’ll keep an eye out. And then just as a follow-up in the wealth business, nice to see the strong financial adviser recruiting. And Ron, I heard the comment about net new assets kind of increasing through the quarter and ending June around 5%. If you’re seeing an acceleration in adviser recruiting, and there’s often a bit of a lag of assets relative to when advisers join. Could we expect further acceleration in net new assets from kind of mid-single digits? Or just more broadly, what are some of the puts and takes you’re seeing in the formula for net new assets?

Ronald James Kruszewski: Well, look, we’re in the business of getting net new assets. And that’s just what our business is. So it’s always somewhat hard to understand what’s really going on because we’re not a custody firm. And so sometimes net new assets will appear while you’re custodying assets. That’s relatively lower margin in terms of what happens with net new assets. But I’m very pleased with our recruiting, especially high end, big teens and the net new assets bodes very well. So stepping back and looking at what we’ve been doing, looking at our momentum, I’ve been pleased, Devin. We’ve been doing this a long time, and this is — I think we’re doing very well on this front.

Operator: [Operator Instructions] We’ll go next to the line of Steven Chubak with Wolfe Research.

Steven Joseph Chubak: So wanted to start off with a question on the NII outlook. So just looking at Slide 11 in the deck, you noted that you expect to see a meaningful ramp across majority of fee and revenue category, second half versus first half. It looks like for the full year NII, you expect the second half run rate to roughly approximate the first half. I want to know if that’s the right interpretation and whether there is a credible path to at least reaching the low end of the guidance range that you offered up for NII at the start of the year?

James M. Marischen: I think that’s a fair way to think about it. It is the right interpretation. I’d say if you take a step back and think about 2Q, we certainly benefited from some of the fee income we talked about. In terms of NIM, that probably equates to about 4 basis points. And then you think about some of the deposit mix shift given the fact that typically, the non-wealth deposits, so venture fund banking and commercial are typically a lower-cost funding mechanism than smart rate. That’s been about 10 basis points cheaper. There’s not necessarily a rate sheet we can point you to, but that average is probably the best way to think about it. We really benefited from that. Now the fee income is hard to extrapolate going forward, but any potential mix shift is a benefit there.

So you think about our guidance for 3Q is $265 million to $275 million. That equates somewhere around a 310 to 320 NIM. That being said, we did sell probably about $500 million of middle market C&I loans, which carried higher yields. So it’s a bit of a headwind going forward. But that will be offset as we continue to grow the balance sheet. $1 billion is the guidance we gave, that certainly — that number can move up from here. We could see more additional growth in the back half. And really then it’s going to come down to really what happens with the funding mix. So I think you’re reading the chart right. We’re not ready to change our full year NII guidance, but there is a path with more loan growth, with more deposit mix shift, and those various different components to get to the bottom of that as well.

Ronald James Kruszewski: Yes. Look, I’m really — I’m pleased with where we are. I’m always trying to look forward and discern trends in NII as if there’s some long-term health trend is not how I look at it. I just want to tell you, we’ve done some balance sheet shifts, for instance, selling some portions of our loan portfolio that were higher yielding, but we did not view as necessarily as strategic as to where we’re placing other assets. So that has a short-term impact on NII. But look, what do I like? I like the fact that our deposits have grown, our liquidity source for deposits have grown. We do not have a problem generating loans here, all right? So it’s a matter of doing it right. And so I think that you’re reading the chart right, but I wouldn’t — I’d tell you to be careful not to read that as some limiter on growth.

It’s just as we’re remixing things. You’re seeing us not trying just to hit a target. We’re trying to build a high-earning, stable, risk-adjusted NII, and that’s just where we’re going here. And we’re on that path. We’re doing really well.

Steven Joseph Chubak: No, I appreciate all that detail. Maybe just a follow-up on Devin’s earlier question around bank M&A and some of the structural tailwinds that you outlined. I think it’s consensus, but I think there’s a strong case to be had that we’re poised to see a meaningful ramp in bank consolidation activity. Certainly, we’re seeing a meaningful uptick in deal activity in recent months. One of the concerns that has started to emerge is just some of the weaker performance in the share prices of the — both the acquirer bank as well as the target. And I was hoping to get some perspective on whether you view some of that price action as being somewhat anomalous or whether that could actually disrupt some of the recent momentum in bank consolidation activity.

Ronald James Kruszewski: Great question. It’s so deal specific. That’s hard to answer generally. What — when you take potentially 2 high-performing banks in the middle market whose stock is discounting growth as they gain market share and combine them, you’re going to take that growth premium initially out of those stock prices, and that’s what we just saw in my opinion. It’s just — but what came out of that will be a stronger bank, a stronger competing bank and a bank that can deliver returns. So I think that the bigger question is putting deals together that are sustainable and that are competitive over the next number of years. And I think Board and management teams are clear eyed about that is the goal, not necessarily worrying about taking a little growth premium out of stock.

Stocks are highly valued here, in my opinion, in terms of historical valuations. But I don’t think that, that’s a concern regarding the long-term rationale, therefore, the underpinning of future bank consolidation. That makes sense to you?

Steven Joseph Chubak: That makes perfect sense. I appreciate that.

Ronald James Kruszewski: Overall, well, these are being done for strategic questions. You need to grow and some of these banks need to grow. They need to — they need technology, their deposits, all of the things that are driving this strategic underpinnings are there. And that’s what I think these companies are focusing on, which is the right thing. And so I don’t really share that concern.

Steven Joseph Chubak: Great. If I could just squeeze in one more ticky-tack modeling question. I was hoping you could quantify the aircraft leasing gain just so we could gauge what’s the right jumping off point for that core FIG brokerage number?

James M. Marischen: I think that’s a good question. So the gain in the quarter was about $28 million. And as we sit here and think about this going forward, $100 million is a good run rate as we look at probably the fourth quarter. But I would say you have to remember that there is some seasonal slowness that we typically see in the third quarter in terms of fixed income transactional. That’s a good way to think about it. But that group is still active. You’ll see additional gains in the future, but that’s a good way to think about the normalized run rate.

Ronald James Kruszewski: Yes. Jim’s been pointing this out as a onetime item for about 5 times now. So I just want to point that out, okay? So anyway, it is a little more lumpy than — but it’s — they take it. But that’s a fair question.

Steven Joseph Chubak: We’ll be mindful of the recurring onetimers.

Operator: We go next to Alex Blostein with Goldman Sachs.

Alexander Blostein: I have a 2-part question, but we can lump it into one, and you guys could kind of take it in parts. But it’s related to the overall profitability of the franchise. And I guess on the cyclical part, as you think about recovery in investment banking, I think that’s pretty well expected by the market at this point. How do you think the incremental margins from higher investment banking revenues will come through the P&L, both in terms of the impact on institutional margins but also firm-wide? And then the second question, and I have to ask the AI since you guys put the slide out there. As you think about what profitability and efficiencies that could create to the organization over time, how that would show up and how we could measure that from the outside looking in and out, that would be helpful.

Ronald James Kruszewski: Yes. Well, look, I’ll take the second question first and then talk about the other one. Although they are kind of related, too, so I’m glad to put them together. As it relates to AI, probably the thing that we see is an ability to use a lot of these AI agent models on things that in our business, so much of what we do administratively is comparing inputs to rule books, okay, whether it’s advertising, supervisory analyst type stuff. A lot of things that I can go on and on through our workflows and identify productivity, not unlike what the personal computer did in many areas. So what I see happening is productivity increases where we can continue to grow and not driving profitability by reducing workforce, but by being able to be much more efficient and reassign people to other tasks, whether it’s in, again, onboarding, marketing, compliance, AML, investment banking, analytics, all of these things, which I frankly — I read what you’re doing over at Goldman as well.

And I see it, and the key is to train people and to make sure that my concern would be that we somehow work to a lowest common denominator, which can be AI. I mean, my goal is that AI is an amplifier, not just something that you just plug in and people can work from home. That’s not the viewpoint here. And so we see and I personally see big efficiencies, not just at Stifel, but across the industry, primarily in productivity. As it relates to your first part of your question, look, I think — we’ve — we’re restructuring in Europe. Our fixed income margins this quarter were very good. Our equity margins were less than optimal, but we have a clear path toward improving our equity business, both our focus shift in Europe, while some of the productivity things that we have been putting into place, we see meaningful improvement in the margins in that business.

And that will impact overall the margin capability of the business. And when we talk about getting — I hate to bring it up because no one brought it up, but we did have a — talking about $8 a share, that differential versus where we are to that is simply some of that low-hanging fruit and margin improvement in the institutional primarily equity part of our business. So I’m optimistic about that, Alex.

James M. Marischen: To put some simple math behind that, when you look at the Institutional Group, we were sub 15% pretax margins this quarter. That number really should be north of 20%. And so you can look at a normalized operating environment in terms of revenue and that kind of margin capability. And that’s the kind of lift we’re talking about here in terms of the operating leverage, particularly within equities.

Ronald James Kruszewski: Yes. And we have — this isn’t just looking at a number and saying, “Oh, it should be higher.” We have a clear path to how to get there. We know exactly what we need to do.

Operator: We’ll move next to Bill Katz with TD Cowen.

William Raymond Katz: Just circling back to the [ NAA ] discussion on the new assets coming in the door. I was wondering if you could click maybe a level deeper. You mentioned that things are going well, which is great to hear and certainly appreciate the accelerating momentum into the second half of the year. Could you unpack a little bit about what is actually going well? Is it just better recruitment? Is it better packages? Is there a pickup of market share just given what’s going on with some larger scale transactions out there? I’m just sort of curious if you could just speak to what’s driving that good growth.

Ronald James Kruszewski: I think it’s overall the platform of what we do as we always say, what does business is net new assets, okay? And we are in the business of getting net new assets. It’s a core basis of what we do. And so I don’t know, Bill, that it’s necessarily quarter-to-quarter, you can get a couple of nice accounts. But across our firm now with some scale, and we have some scale, we just need to put in place the culture and the systems and the technology, all of the things that you see in — that you saw come through the J.D. Power. I know I’ve said it a couple of times, but that underscores what we’re doing in terms of recruitment and the fact that we’re bringing in some very large teams now and they’re quite productive.

So we’re going to continue to grow. And when I say we’re going to grow, and we’ve grown for, shoot, 28 years. So as we go back, we’ve had record — I can’t remember when’s the last time we didn’t have a record year in wealth management. It’s because we have a culture and a system to grow our business, which means growing net new assets. So it moves around and you got to — sometimes there’s noise in those numbers, mostly around the custody side is what I would say. But anyway, I want to just tell you that I’m not sure how much I can unpack it, but we’re pleased with the growth. You see it in recruiting first and NAA later.

William Raymond Katz: Okay. And then just maybe a follow-up on capital allocation, it hasn’t come up yet on the call. Just wondering if you could sort of speak to priorities. I appreciate you might grow the bank a little bit net of the loan sales into the third quarter, I presume. How should we be thinking about maybe buyback versus bank growth versus maybe where you are in terms of the pipeline of potential deals?

Ronald James Kruszewski: Yes, I feel like we’ve come full circle here. We talked about — we started the year when our equity values, including financials, at this level, we said we would focus on bank growth because we view the risk-adjusted returns and the franchise value that we get by allocating. It’s just turning the dial, it’s not like we’re going to do one or the other. But we’re going to do bank growth. And then we run into Liberation Day and our stock, the whole industry corrects down a significant amount, really. We got on the call and said, “Hey, we’re going to focus on buying back our stock and not do bank growth.” So now we’re sort of all the way back to where we were beginning of the year, and we’re going to look at bank growth.

And you might not see the numbers because we’re restructuring the bank a little bit in our loan mix. But we’re going to focus relatively compared to the first quarter, we’ll focus more on bank growth. We’ll still do stock buybacks, but we see the numbers being more accretive in bank growth. And it’s just a function of where the market is from an equity valuation perspective.

Operator: We’ll turn next to Michael Cho with JPMorgan.

Michael Cho: I’m going to just go ahead and ask an AI question as well. Ron, you kind of laid out the various areas you’re looking to improve. And then you’re clear that it’s not just a profitability kind of focus. I’m just kind of curious, with the dozens or even hundreds of things that are out there in terms of how AI can improve your own business and your own client experience, I mean how are you prioritizing some of these initiatives? And maybe you can kind of talk through the pace of focus or pace of investment that you’re thinking about when it comes to AI? And are you doing this all in-house or are you using vendors? I’m just kind of, again, just curious how about the magnitude and pace as you’re thinking through these AI initiatives.

Ronald James Kruszewski: Yes, it’s a great question. I mean we’re starting, I would say, with basics across the firm. AI, you’ve got to — you’ve got to train people. I keep saying, I say it all the time that it’s — AI is an amplifier. It makes smarter people smarter. On the converse side, if you’re not so smart, it makes you look really organized, not so smart. And so we have to — we’re obviously doing the basics that are in our system, Copilot. All of the things we’ve rolled that out. We — very high productivity for people that are using that. We’re focusing on training and then scaling that up. We’ve implemented a number of seats on LLMs that are much more sophisticated. And — but what I would say is that in our business, the regulatory aspect doesn’t say that AI can sign off on Series 24, certain things that require human element.

So we’re being a little careful to make sure that our workflows have human interaction at the end. But the point is that there’s so much to do on basic, basic things that AI is very good at, which is summarizing, comparing, contrasting, looking at fixed rules and being able to make people much more productivity. And so I personally sat down on our workflows, and I identified like 70 of them. I just said there was like 70 — me, I’m sitting in my office and I’m not even getting into some of the stuff and going, “Oh, my gosh, we can do this, this and this.” And a lot of that is off-the-shelf type stuff. We’re — this is moving so fast that I’m concerned, if you will, that we don’t need to be trying to write our own models when it’s evolving so fast that we can get so much lift off of doing stuff that’s pretty much off the shelf and then we customize it a little bit.

We don’t need to be developing our own or competing with some of these firms. But let them give it to us. There is so much we can do on the productivity front. So that’s what we’re doing. I think the difference is, from my perspective, the biggest impediment to AI is bureaucracy. I mean bureaucracies have a way of protecting bureaucracies. And so here at Stifel, I’m taking a lead on pushing through what I think are relatively simple productivity enhancements utilizing AI.

Michael Cho: That’s great. I appreciate all that color. Just I want to touch on Europe for my second question. You talked through the business mix shift there a couple of times and certainly in the past as well. I recognize you just closed the deal. But going from here, where do you see kind of the incremental focus from here as it relates to the expansion and the mix shift there whether in terms of from an industry perspective or geography focused? Kind of curious where you think the next incremental focus is at given where you’re at?

Ronald James Kruszewski: I wouldn’t call it incremental, I’d call it a shift and focus a little bit, what we learned, if you will, the sales trading, anytime you touch markets in any market. But in Europe, the overhead associated with that from a legal compliance market structure, making sure settlement, risk, all of those things on the sales and trading side is — it’s a scale business in the U.S. It’s really a scale business in Europe. And so as we’ve looked at it, we’ve decided that we would deemphasize that and then focus on where we see real synergies, which is in banking. And we’ll still have sales and trading, you need to have it because we’re going to take — we’re going to help companies access the U.S. markets or underwrite as we have in the past.

But we’re going to not be as much in the day-to-day trading business. We’re going to focus on advisory and banking, which is a natural extension of what we do in the U.S. So anything we do in Europe will have — will be, if you will, linked to what we do in the U.S. And that focus and that shift will improve our profitability because we were not nearly as efficient as we should have been over there, and we’re addressing it.

Operator: We have no further questions at this time. I’d like to turn the floor back to our speakers for any additional or closing remarks.

Ronald James Kruszewski: Well, I would just say that certainly, as I sit here today, I’m optimistic and feel good about how things are positioning for the second half of the year. It’s amazing how things have changed even since the first quarter in terms of perception and a lot of the things that are happening. So we may be always talked about ’25 being a transition year, and I think maybe it will be the back half of ’25 transitioning into ’26 because the first half was certainly slower. But I’m excited about that. I appreciate everyone getting on for the call. We look forward to reporting back to you in the third quarter, and thanks for your interest in Stifel and we’ll be in touch. Thank you.

Operator: This concludes today’s conference. We thank you for your participation. You may disconnect at this time.