Title

Presentation

Stifel Financial Corp. beats earnings expectations. Reported EPS is $1.45, expectations were $1.39.

Operator: Good day, and welcome to the Stifel Financial’s Q1 ’26 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.

Joel Jeffrey: Thank you, operator. Good morning, and welcome to Stifel’s First Quarter 2026 Earnings Call. On behalf of Stifel Financial Corp., I will begin the call with the following information and disclaimers. This call is being recorded. During today’s presentation, we will refer to our earnings release and financial supplement, copies of which are available at stifel.com. Today’s presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Stifel Financial Corp. does not undertake to update the forward-looking statements in this discussion. Please refer to our notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release. I will now turn the call over to our Chairman and Chief Executive Officer, Ron Kruszewski.

Ronald J. Kruszewski: Thanks, Joel. Good morning, and thanks to everyone for joining us. In the first quarter, we delivered very strong performance. Net revenues of $1.48 billion were up 18% from a year ago. That includes a nonrecurring gain from the sale of Stifel Independent Advisers, which closed in February, which was partially offset by interest on a legal judgment. We’ve excluded both from our core results. Excluding the SIA gain, revenue grew 15%. Either way, it was a record first quarter and regardless, it’s the growth rate comparable to the best firms on The Street. Earnings per share were $1.48 on a GAAP basis and $1.45 on a non-GAAP basis compared to $0.33 last year. That’s a significant improvement, so I want to be transparent.

Last year’s results were impacted by $180 million legal accrual, which was unusual to say the least. Adjusting for that, EPS was up 32% on a comparable basis. Our annualized return on tangible equity was nearly 25%. We expect 2026 to be a good year, and the first quarter reflects that, yet the environment has become more uncertain. Against a backdrop of escalating geopolitical risk, energy prices have risen, credit spreads have widened and interest rate uncertainty has increased. The wildcard remains the conflict in Iran and its potential impact on energy prices, inflation and ultimately growth. But I’d like to note that unlike some of our larger peers, Stifel’s business model isn’t built around trading volatility. We have a trading business, but it’s client driven and relationship oriented, not structured to capitalize on market dislocations.

Delivering these results in a volatile quarter tells you something important about the durability and diversification of what we’ve built. Our growth was broad-based. Global Wealth Management delivered record first quarter net revenue driven by record asset management revenues and growing adviser productivity. We also generated record first quarter investment banking revenue, producing a record first quarter for our Institutional business. Our firm-wide pretax margin was more than 22%, reflecting continued robust wealth management margins, coupled with an institutional pretax margin of nearly 20%. It is noteworthy that this metric improved nearly 1,300 basis points from last year, benefiting from both revenue growth and our international equities restructuring.

Jim will provide more detail on that. Look, at the risk I cite remain within a range of market expectations, we are confident in the strong 2026. That confidence is grounded in something more than one quarter. Let me put these results in the longer context. Stifel is a company that both grows and understands the concept of return on invested capital. We’ve scaled revenue from about $100 million in 1996 to roughly $6 billion today, and we’re targeting $10 billion in revenue and $1 trillion in client assets. We grow and we grow the right way. That long-term philosophy also informs how I think about some of the questions dominating every earnings call so far this season. For each one, I want to tell you what Stifel is doing and share my observations about what I’m seeing in the market around us.

The first is AI. Across Stifel, we’re seeing real benefit from our AI investments. The technology enables our advisers, our investment bankers, our commercial lenders and support teams to work faster and smarter. In every case, we’re working to enhance client relationships with AI, keeping our professionals at the center of the value proposition. The opportunity here is significant. We are in the early process of linking our data to these new tools, and there is a lot of work ahead, but the early results give me confidence that we’re on the right path. But I’d be less than candid if I didn’t raise the concern about frontier models like Mythos that are becoming an entirely new category of technology as recently as a few weeks ago. I’m not sure any of us really fully understood what Mythos was, possibly even those that create it.

And the next version, as I understand it, is already in development. Models this powerful increased capability on both sides of the table, for those defending and for those who would do harm. And if you ask me what our industry needs to get right before anything else, the answer is cyber, not just for Wall Street. This requires a national response. I have consistently said that this is an issue of national security. The second is credit. At Stifel, our lending philosophy has never been built around chasing yield. We treat lending as a relationship-oriented business, not a volume-driven growth engine. The headlines this season involve specific credit situations. First Brands, Tricolor, Medallia, where aggressive structures, weak collateral monitoring and in some cases fraud drove the losses.

People had essentially 0 exposure to any of them. As an aside, the more recent concern has been about liquidity in private credit vehicles. Some funds are limiting withdrawals, and we’re seeing secondary market participants offering liquidity at significant discounts to NAV. It reminds me of the scene in It’s a Wonderful Life where Potter is trying to buy Bailey Building & Loan shares at $0.50 on the dollar during a run on the bank. The underlying assets haven’t changed. But when everyone rushes to the exit at once, the gates come down. That’s a structural issue. The third consistent question is around software loans. I’ve read the predictions that every software loan is essentially worthless given AI disruption. To put some numbers to Stifel, our software loan exposure is approximately $500 million on a $43 billion balance sheet, not a material number.

The more important point is that we have reviewed our software exposure carefully. And while there are always normal pockets of stress, we don’t see the broad credit issues that the headlines suggest. The fourth is legislation and market structure. Two questions are dominating this debate right now, stablecoin yield and tokenized equities. Let me tell you where Stifel stands on both. On stablecoins, we will offer them. But in my opinion, if a stablecoin pays yield, that’s a deposit, subject to capital requirements, AML, BSA and the full framework of bank regulation or if the yield comes from investing in the underlying fund, then it’s a money market fund. Follow those rules. Legislation should not create a third option that avoids both. On tokenized equities, we will build the capability to offer, settle and trade them.

But in my opinion, the regulatory framework should follow the underlying assets, a tokenized Apple share is still Apple stock. Every rule that applies to that stock, disclosure, best execution, settlement finality, investor recourse applies to the token. The technology changes the delivery. It doesn’t change the obligation. And for those who say this is about protecting the incumbents, if that was true, we wouldn’t be building the capability at all, but we are building this capability. The principle is simple, a deposit is a deposit, a security is a security, custody is custody. Nearly a century of investor protection wasn’t built to apply only to some participants. The technology doesn’t change that. I’ve discussed AI and software disruption, credit markets and legislation and market structure.

In each case, I wanted you to understand both where Stifel stands and my observation about what’s happening around us. Over the last 30 years, we have shown a consistent ability to adjust to economic and technology change. Global Wealth Management is growing, our institutional pipelines are strong and our investments in the innovation economy through venture lending and deposit generation are paying dividends. Bottom line, what I see is a firm that is very well positioned. So Jim, please take us through the numbers.

James Marischen: Thanks, Ron, and good morning, everyone. Before I jump into the financial results, I’ll remind everyone that the EPS numbers are reported on a split-adjusted basis following our 3-for-2 stock split that was effective in late February of this year. Turning to the results. Total non-GAAP revenues of $1.44 billion was right in line with consensus estimates. Investment Banking was a primary upside driver, exceeding expectations by $8 million or 2% as the number of transactions closed late in the quarter. Advisory revenue was the primary driver of the beat. Transactional revenue came in 1% below expectations, but increased 7% from the prior year. I’ll cover the components in more detail when we get to the Institutional segment.

Asset Management revenue was modestly above consensus and increased 12% from the prior year and was driven by market appreciation and net new asset growth. Net interest income came in at the lower end of our guidance and $3 million below consensus. I’ll cover the details and the second quarter guidance when we get to the Global Wealth Management section, but to highlight the miss to consensus expectations was driven by lower corporate or nonbank net interest income. Expenses were well controlled and benefited from the strategic actions Ron referenced earlier. Both our comp ratio and noncomp expenses came in below consensus. The effective tax rate was roughly 23%, slightly below both guidance and consensus due to improved profitability from our non-U.S. operations.

Turning to Slide 4. Global Wealth Management generated $932 million in net revenue, the strongest first quarter in our history and essentially in line with last quarter’s record. Results were driven by record Asset Management revenue and growth in net interest income. These results are particularly strong given the sale of SIA reduced our transactional and asset management run rate for 2 months during the quarter. We ended the quarter with total client assets of $539 billion and fee-based assets of $220 billion. Excluding the SIA impact, total client assets and fee-based assets were essentially flat sequentially despite the equity market decline as net new asset growth was in the low single digits and was offset by market depreciation. Our recruiting pipeline remains robust, though activity is episodic and dependent on changing competitive and market dynamics.

Over the last 12 months, we’ve recruited trailing 12-month production totaling approximately $80 million, which does not include the impact that recruiting has on net interest income. Our client-driven balance sheet continues to enhance both earnings consistency and client engagement. As I mentioned, net interest income came in at the lower end of our guidance due to slower loan growth as market volatility impacted fund banking late in the quarter, more than offsetting growth in residential mortgages, securities-based lending and C&I loans. Nonbank interest income, particularly within corporate interest and securities lending, was approximately $3 million lower than originally forecast. For the second quarter, we expect net interest income in the range of $280 million to $290 million.

Client cash balances increased meaningfully during the quarter. Sweep balances increased by more than $670 million, while non-wealth client funding increased by nearly $1.2 billion reflecting strong momentum from our venture group. Third-party money fund balances increased by nearly $200 million. We have significant funding to grow our loan book. While loan growth in the first quarter was slower than originally forecast, we’ve already seen fund banking activity pick up in April, and we are maintaining our full year guide of up to $4 billion in asset growth. Turning to Slide 5. Our Institutional Group posted its strongest first quarter in our history. Revenue was $495 million, up 29% year-over-year, driven by record first quarter investment banking.

Investment banking revenue totaled $341 million, up 44% year-over-year, coming in slightly above our recent guidance due to the number of transactions closing late in the quarter with a particularly meaningful contribution from our new partners at Bryan, Garnier. Advisory revenues increased 59% to $218 million with continued strength in financials, industrials, consumers and health care. Equity capital raising was $67 million, our second strongest first quarter result with increased issuer engagement led by health care, industrials and energy. Fixed income underwriting of $50 million was up 9% year-over-year driven by increased public finance activity and higher corporate issuance. We remain the #1 negotiated issue manager in public finance by deal count with nearly 15% market share and are also seeing increased success in larger par value transactions.

Investment Banking and Advisory pipelines remain very strong. That said, the pace of realization will depend on the geopolitical and economic factors that Ron mentioned earlier, including energy prices, credit spreads and interest rate uncertainty. We continue to anticipate a strong 2026. Transactional revenue increased 4% year-over-year, driven by a 12% increase in fixed income revenue reflecting increased client activity from market volatility. Equity transactional revenue was down 7%, entirely reflecting the European restructuring. Excluding that impact of a $9 million year-over-year decline due to those restructuring efforts, our core equity transactional business grew by 10%. This was always — this was also the primary driver of the nearly 1,300 basis point improvement in our Institutional pretax margins year-over-year.

While we’ve made significant progress in our non-U.S. operations, the first quarter benefited from some larger advisory fees and results will not be linear over the remainder of the year. Moving on to expenses. Our comp ratio of 57.5% was at the high end of our full year guidance and down from 58% a year ago. We are certainly conservative in our comp accruals early in the year, and we’ll continue to look for leverage as the year progresses. Non-compensation expenses totaled $293 million, up 8% year-over-year after excluding the legal accrual from the first quarter of 2025. Our operating noncomp ratio was 19% and was at the midpoint of our full year guidance. The declines in our comp and noncomp ratios benefited from the strategic actions referenced earlier, and we remain confident in our full year guidance.

Turning to Slide 7. Our capital position remains strong and provides meaningful strategic flexibility. The Tier 1 leverage ratio increased to 11.4% and the Tier 1 risk-based capital ratio rose to 18.7%. Based on a 10% Tier 1 leverage target, we ended the quarter with nearly $560 million of excess capital. I’d also highlight that we have thoroughly reviewed the new proposed capital rules. Based on our review, Stifel would obtain some relief across risk-based capital requirements, but these rules would have no material impact on our Tier 1 leverage capital. Finally, we repurchased 2.8 million shares during the quarter and have 10.2 million shares remaining under the current authorization. Assuming no additional repurchases and a stable stock price, our fully diluted share count for the second quarter is expected to be approximately 163.1 million shares.

And with that, Ron, back to you.

Ronald J. Kruszewski: Thanks, Jim. I want to close by saying that I’m generally excited about where Stifel is headed. We have a strong business and experienced team and a model that has proven itself in good times and in challenging ones. The environment is uncertain. I said that at the outset, and I mean it, but uncertainty has always been the context in which Stifel has grown. Look, Global Wealth Management is growing. Our institutional pipelines are strong, and I look forward to reporting our future progress. So with that, operator, please open the lines for questions.

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

Devin Ryan: Question on AI. Ron, I appreciate the context you gave in the script. But a couple of questions we’re getting. Obviously, as the technology gets stronger and stronger and potentially agents are automating more and even transacting, do fewer people seek out financial advisers? Or does that impact pricing that advisers charge? And then the more pointed question that we’re getting is just around kind of tools that automate kind of customer cash sweep and just, does that drive balances even lower? And so that’s a revenue stream that firms have to think about. Love your thoughts on both of those.

Ronald J. Kruszewski: Well, look, the technology is powerful to your first question. And it just really helps adviser productivity. I believe, as I’ve said in many of things I’ve talked about that today, at least, the models are mathematically driven, and they’re great at summarizing, organizing, putting — helping you solve math. I said it’s like chess. It’s a finite board, and it’s very good at that. When you move to judgment, which is what our advisers do, it just really isn’t that good, and I’m not really comfortable thinking that we’re going to serve our clients with some consensus building mathematical AI, to be honest with you. And we can debate whether or not human judgment will matter. But investing in markets are not a finite game.

It’s constantly changing. Every second, it changes. The participants change. Their outcomes change, their risk tolerances change. And so that’s an ever-moving target. So to answer your question, what will happen, I believe, at least on the adviser side, is that this will make our advisers more productive. It will unearth potentially and it will, more opportunities, more ideas, more things on tax savings idea, more on a state, more things that will help our advisers do what they do, which is generally be the financial adviser to not only individuals, but the families. So I see this as a tailwind to advice, not a headwind. And it’s a more sophisticated version. We’ve seen it in the past with robo-advisers and a number of things. This technology will be better, but again, I’m going to say it’s a tailwind to the advice business.

As it relates to agentic-type models and the cash optimization. Look, we’ve been through that, Devin. I mean we have about — I’m going to say this, I think — when I look at it overall, we have about $60 billion of our AUM that I would say is allocated to short-term cash between sweep deposits, smart rate, money market funds, short-term treasuries, it is about $60 billion, which is frankly about consistent, a little 11%, 12% of our AUM toward that portion. And of that, when you get right down to it after you take out adviser cash, we have about $7 billion that is, if you would be unsorted. I love that industry term. And look, it’s transactional cash. It’s — I look at my own accounts. I have transactional cash because I have cash and I have needs, and I’m paying bills or I’m doing things or I’m getting a dividend, I’m reinvesting it.

So will some technology come that will help optimize that? I think so, but at what cost, it’s not free and what kind of movement, what kind of transactional things are going to happen. Listen, I think it will happen, but do I lose sleep over that? No. Okay. This is a business model question. And I’m hearing a lot of things, well, you just replace it with fees and things like that. And I think, well, look, we could do that, we do it anyway. We’re not going to do it just because of this. So not overly concerned about the second, very optimistic about the first part of your question. Jim?

James Marischen: Maybe add a little bit of detail there to support what Ron was saying is of the $60 billion as of the end of the first quarter, $12 billion was in sweep. So roughly 1/3 of that is an advisory cash accounts. And so that’s not subject to the same type of sorting dynamics we’re talking about here. So that’s how you get to that $7 billion or $8 billion that’s remaining. And I’d just say, as Ron reiterated, we’ve been out in front of this topic, minimizing our exposure to this. We’ve adjusted our balance sheet, both on the asset side and the liability side to give clients the yield-seeking products they want on the liability side and having a flexible balance sheet on the asset side to earn an acceptable return. So do we have some exposure here?

I think everyone has some exposure, but you’re never going to see, as Ron said, transactional cash go to 0. So I think on a relative basis, this general topic is less impactful to Stifel than to a lot of other players. If you think back 10 years ago, we funded our bank balance sheet 100% with sweep accounts. Today, that’s [ 12 ] of much bigger numbers. So we’ve diversified and have already seen the sorting occur to a material extent.

Ronald J. Kruszewski: Yes. And I answered the question, I tell you it’s not that big of an issue. I’m giving a lot of oxygen to it. But I do think about these things. And I think for Stifel, it really is not a big issue. I mean I have to look at the numbers. But you can take it to the broader financial system, and zero-based interest in many banks and stuff and you wonder what will happen there. And my viewpoint is that the market will adjust. If rates go up, so are loan, banks are earning their spread and return on capital. So enough said, there’s a lot of oxygen to something that I’m not thinking that much about.

Devin Ryan: I appreciate it to both of you. And it’s a question that we’re, I think, all getting quite a bit. So just addressing it and I appreciate it. I’ll ask a quick follow-up just on investment banking. Obviously, a very good start to the year. It sounds like backlogs are at a pretty healthy level as well. When you drill into that, can you just talk about the depository side, like just the expectations for more activity there and how that’s kind of feeding into, I think, maybe the announced backlog or even preannounced backlog? And then with sponsors, are middle market sponsors reengaged right now? Or do we need to see them ramp up and that’s the hope as the year progresses?

Ronald J. Kruszewski: Yes. Look, on the depository side, I was talking with Tom Michaud a little bit about this. And what I would say is that — in fact, it crossed M&A, not just on the depository side, but specifically on the depository side, there’s a lot of uncertainty. And this uncertainty is impacting buyers. You talk — reading the press saying about $150 oil and interest rates may be rising and what happens to credit spreads, et cetera, et cetera. And I think that, that is a pause. There’s some market concerns about have the deals been done with enough of a premium. So there’s a little bit of combine all this, and I think making people think about it. But the overriding question as depositories is that this administration and just compared to the last administration is fostering and encouraging bank M&A, and that’s not going to change.

And as we get closer to an election, not the midterms per se, but the 2028 elections, the potential and what’s going to happen is going to happen, right, as people are incented to do that. It’s not linear, which is what we’re seeing now. And that’s — and you need the same thing as it relates to 2026. Deals got to be announced in the next couple of months. Otherwise, the 2027 deals. But that’s what I would say. And overall M&A, look, we’re seeing a lot of activity. But my sense is that if we didn’t have the economic uncertainty that we have out there, we’d be seeing even more.

James Marischen: Specific to sponsor, we’re seeing a lot of activity and growth in backlog across a number of verticals. The one area I would call out that has been a little bit weaker is technology. And that’s not as big of a vertical for us, but that is certainly an area that has been slower.

Ronald J. Kruszewski: Software.

James Marischen: Software specifically.

Operator: We will take our next question from Mike Brown with UBS.

Michael Brown: So Ron, you’re allocating more capital to recruitment in 2026 and some good organic growth in the first quarter. Maybe can you just expand on how the recruitment and productivity efforts are faring relative to your expectations? Maybe what specific profile adviser are you kind of more aggressively targeting and having success recruiting? And then how is the competitive space from the wirehouses or some of your other peers? How is that been impacting recruitment and maybe cost of recruitment?

Ronald J. Kruszewski: Well, I’ll take your second part first. The competitive environment, a number — a couple of the large firms, you may know some of them yourself, have really, really ramped some of these — the competitive aspects of transitional pay, the so-called deals, and that’s been interesting. But the quarter across the industry was slower for, I think, the same reasons that we’re talking about M&A and everything else. It’s just some uncertain times. As it relates to us, our strategy hasn’t changed. We continue to be disciplined. As I said earlier in my remarks, that we grow and we’ve grown through acquisition for a number of years and recruitment and our return on tangible equity is 25%. You don’t do that by making investments with an RO — return on invested capital of 5%.

It just doesn’t work. So I’m very confident. What I’m mostly pleased about is our ability to compete, attract and recruit large teams, which is relatively being in the last, say, 10 years, new to Stifel and that we have that, and we’re talking to a number of large teams. And that, to me, is encouraging. So recruiting [indiscernible] you get this every quarter, same question. My answer seems to be the same every quarter.

Michael Brown: I appreciate the color there, Ron.

Ronald J. Kruszewski: Yes. I mean it’s — no big news there in terms of — we’re still — we’re #1 in J.D. Power. We’re #1 in advisory. We have a great culture. We have things — if anything, what we’re trying to do, and we’ve talked about this, it takes a little bit longer. We’re just trying to get our name out there. I get discouraged sometimes when I’ll talk to people and they say, oh, I didn’t really know — I didn’t know that much about Stifel. And we’re really trying to fix that. We’ve done that with a lot of our brand advertising and a lot of things we’re trying to get out there. But that’s still an area that we can improve, we will improve, and then that will improve our results.

Michael Brown: Great. That makes sense. And just as a follow-up, I appreciate the color on the advisory side. I wanted to ask about the IPO window, which has certainly had some stops and starts in 2025 and in 2026. And we’ve had the Middle East volatility this year that seems to have contributed to some delays. But what’s your read on maybe the ECM calendar specifically as we think about the back half of 2026 for Stifel and the industry here?

Ronald J. Kruszewski: Look, I think it’s good. I was talking to our desk. This might be dated by a week or so. But what I said was what’s happening. And often when deals get delayed, they just get pulled and they’ll get pulled maybe for the next set of numbers. And we’ve seen delays that are a week or two. So people are — what that told me at the time was that people or clients or issuers and buyers are just concerned about volatility. And the volatility has always impacted ECM, and I think that’s the case now. But when I layer that with the fact that things are just being delayed maybe for the next news that comes out of the Middle East or something or next comment. But it’s healthy, I think. And now the environment changes in a nanosecond, as you know. But as I sit here today, I would say that, that’s a healthy market.

Operator: We will take our next question from Steven Chubak with Wolfe Research.

Steven Chubak: So wanted to double-click, Ron, into some of the comments that you made around Agentic AI. I know you gave it quite a bit of airplay and you might argue too much airplay during at least at the start of Q&A. But this is perceived to be a pretty meaningful potential source of pressure eventually on idle Sweep Cash, whether it’s Agentic AI, tokenization, lots of technology that’s in the nascent stages of development. And I was hoping you could simply speak to the levers you might consider if headwinds to Sweep Cash do, in fact, materialize? And how does your pricing model differ from some of your competitors just in terms of account fees, platform fees that could serve eventually as potential offsets down the road?

Ronald J. Kruszewski: Yes. Well, I read your report this morning, and so well thought out, I would tell you that. And the — but again, when I put it down — yes, I didn’t go oh my gosh, we got an issue here at Stifel because we don’t. But as it relates — Steven, I don’t — I do think that there will be changes, okay? And there were changes on 0 rate commissions. And one of the leading consultants at the time said there wouldn’t be another commission trade done by 2004. And the robo-advisers were going to do this, and were going to do that. And it’s a business model. And the business model will adjust. And so if, in fact, Agentic can come in and be more efficient at sweeping cash, I don’t really see how it’s going to be that much more efficient, myself with all of the things that you would have to do.

You’d have to actually give something — access to everything, not only your recurring expenses, but your nonrecurring and your clearing checks and your — all your credit cards, not just your one single account. And that’s not going to be done for free. And so you’re going to sit there and tell me that because of transactional cash is — has a lower yield that someone is going to do and pay for that and give all that information, maybe, but it’s a ways away, in my opinion. And if it does happen, there’s a lot of things that you can do. Many banks will raise the yield in general, there’s a competitive thing just to make sure that the NIM remains. And as it relates to platform fees, which I know you referred to in your report and you just did in your question, platform fees and account fees and inactive account fees, those are all levers.

We don’t have an account fee at Stifel. We don’t have an inactive account fee. So those levers are actually unpulled at Stifel today, while many of our competitors do, do that. And so a fair question to me would be, well, why don’t you do it? And my answer is it’s not that easy, okay? It just — I’m reminded of a commercial we did years ago where the person says, hey, what are all these fees? Why don’t I have an idea, why don’t we charge a fee on a fee. And the guy said, that’s a good idea. It’s just as difficult to do. And I’ll be watching. And if the market — if the cost of advice across the industry begins to be consistently with platform fees and done for firms that are trying — that have bigger issues with cash sorting than we do. And you know that, Steven.

We’re probably at the low end of your issue of firms that are going to impact it on this. I think that’s what your report said. So look, we have a lot of levers. We have dealt with changing economics in this business for as long as I’ve been in the business, and we will continue to do so.

James Marischen: The other thing you have to think about here is the impact on the client and higher interest income is not just a complete wash based upon the fee when you think about the tax effect of those things because the higher interest income is taxable while the fee that they’re paying is not tax deductible. So you have to consider that overall impact on the client as well when you’re doing your overall thesis here.

Ronald J. Kruszewski: Yes. I’d be interested when you get your feedback as to the number of firms that will say, oh, yes, it would be easy to institute these fees because I would take the other side of that.

Steven Chubak: We’ll certainly keep you in the loop, and I appreciate that perspective. For my follow-up, just on the restructuring within Europe, I was hoping that you could quantify the benefit to the margins that we’re expecting in the coming year just from shuttering some of the businesses. And I was also hoping to get your longer-term perspective on how this informs at least your ambitions or appetite to expand outside the U.S. and tying that with just your M&A appetite in general, at least in the current environment amid what remains a heightened level of uncertainty.

Ronald J. Kruszewski: That’s a fair question. I’m going to let Jim — I don’t think we can really talk nor do we disclose margin improvement in that segment, but I’ll lateral to Jim and let him decide whether he can answer in a moment. So you can think about that, Jim. As it relates to our strategy and what we have seen margin improvement, what we did and something that we sort of unwound was the fact that we invested in sales trading and capital markets within Europe and thinking we’ll either be on the London Exchange or the Nordics, and we would do IPOs and we do sales trading and research over there. And what we found was that, that market because of MiFID and what they’ve done raised to themselves is that, that business, even at scale, I’m not sure you make any really money, but you certainly were not making — we weren’t making any money at the size that we were.

But just as importantly was that when I would visit clients in Europe, and I would ask them what their objectives were, it was interesting. Most of them — and this is a credit to the United States, their dream was to list on NASDAQ or the New York Stock Exchange. And we started — and we’ve seen this. We just did a large transaction, European-based. We listed it on the U.S. Jim referred to it. And so what we decided to do strategically, and it frames or you can frame my thoughts about this is to lead our U.S. capabilities into Europe through advice, our advisory platform. And then we — and then when we have an equity capital markets transaction, for the most part, they’re coming back to the U.S., especially in health care and in areas where we have some expertise.

So I feel that this was maybe you can criticize the way we started, but where we’re ending up is where we want to be. We’re a global firm. We have global capabilities. I just don’t think we needed to do market-making sales trading in local markets to achieve our ultimate goal. And frankly, many of the clients’ ultimate goal, which is to access the U.S. capital markets. Jim, I don’t know…

James Marischen: So in terms of some numbers to support the question you’re asking here is as we’ve talked about this in prior quarters, we frame this up with a combination of not just the European restructuring, but also the sale of SIA. And we’ve told you in the past, that’s about $100 million of revenue, probably roughly half and half between the 2 groups, the SIA as well as the European equities business. You think about it, that was probably somewhere between 70%, 80% comp margin that we’re going to save off of. And then we talked about $20 million to $25 million of non-comp expenses gets you roughly to around a breakeven number of pulling those revenues out, and that’s a good way to think about it. As we look at the non-comp expenses and what actually occurred, we were able to pull out about $6 million here in the first quarter, which is relatively consistent to what our guide was or what we talked about as we kind of framed this up last quarter.

And so all of those things are fairly consistent. As we look forward, there’s still more costs to be taken out of some of our European operations post restructuring. Think of some of the longer-term contracts like leases, think of subscription agreements and things like that. So more to come. But as we sit here today, we’ll just caveat that this is a pretty good quarter for the international or the non-U.S. business, given some of the larger fees Ron talked about, it won’t necessarily be linear, but it gives you a sense of kind of the overall financial benefit we’ll receive over this entire year.

Ronald J. Kruszewski: And look, you see it in our margins. Our margins in Institutional when I was getting questioned about that when it was sub-10% and now it’s nearly 20%. That’s a combination of both productivity and revenue plus the restructuring that we did. So I mean, it’s a good thing.

Operator: We will take our next question from Brennan Hawken with BMO Capital Markets.

Brennan Hawken: So I wanted to touch on NII. You touched a little bit on the headwinds in the quarter. You mentioned corp and securities-based loan headwinds. But maybe could you provide a little bit more texture around what caused that versus your prior expectations? And then in the context of the $280 million to $290 million expected for next quarter, good to see your expectations for that to uplift. But maybe could you provide a little bit more texture around what’s going to drive that?

Ronald J. Kruszewski: I love giving NII and margin questions to Jim, and that’s — I’m not — I’m going to do that right now. So Jim.

James Marischen: Right. So in terms of this quarter, obviously, the nonbank NII is the main piece there. If you look at kind of the consolidated NII numbers and back off what you see in Global Wealth Management, you can compare 1Q year-over-year, and you can see the nonbank is down about $3 million. So it’s consistent. That delta is consistent with what we described there. Most of that — some of it is corporate interest. It wasn’t securities-based lending, it was kind of stock — securities lending, stock lending, if you will. That’s opportunistic based upon individual hard to borrowers in your box. That number can move around from period to period. It was just somewhat slower in this individual quarter. We do view that kind of getting back to its normalized run rate.

But the bigger piece of the $280 million to $290 million NII guide is going to go back to asset growth within the bank. And we said on the call that we still feel comfortable with up to $4 billion of asset growth. We’re seeing things like fund banking pick back up in April. There was a number of paydowns kind of late in the quarter specific to fund banking that kind of caused the period-over-period end-of-period balances to decline. So as we look forward, we feel comfortable. Our original NII guide is $1.1 billion to $1.2 billion. We’re already annualizing the low end of that, and we think there’s a fair amount of growth that can occur in the second through fourth quarter that can help support getting higher in that range. So we feel pretty good about where we’re at.

Ronald J. Kruszewski: Yes. And it’s not necessarily NIM expansion. It’s just growing — it’s just growth. And we’ve never — growth is always there in banking. That’s not the issue. The issue is prudent growth, and that’s what we’re doing. But we see a lot of opportunities. I’ve always — I am still optimistic about what we’re building in venture and for the innovation economy, and that is — that’s got nice growth written all over it.

Brennan Hawken: Great. And then you touched on this a little bit, Ron, in your prepared remarks about concerns around the software loans and whatnot. But curious to hear your — what you’re seeing in the CLO portfolio. So we’ve seen spreads widen out in the levered loan market, equity and lower-rated layers of CLOs have been under some pressure recently. So totally appreciate that you’re in the higher layers, which have been fine. But what underlying trends are you seeing?

Ronald J. Kruszewski: Yes, Jim?

James Marischen: Yes. So our CLO book at the end of the quarter sat right around $6.8 billion. I’d say a little over 60% or 62% of those holdings are AAA rated with the rest AA rated. What we’re seeing in terms of credit enhancement has remained consistent with what we’ve said in prior periods. On a blended basis, that’s around 32%. You can see AAA class is 36% and north of there in terms of credit enhancement. AA class is around 24%. The underlying collateral here is very well diversified. There’s no particular concentrations over, call it, 11%, 12%, 13% of the underlying portfolio. Our portfolio is spread out over nearly 100 CLO managers. And I think the key here is that what we see in our stress testing has not changed. We’re not seeing any new issues.

We’re seeing consistent levels of the ability to withstand stress that are multiples of the great financial crisis and not break the underlying structure. So we feel very comfortable with the overall credit exposure in terms of CLOs.

Ronald J. Kruszewski: Yes. And look, I’ve always said that,Brennan, what people are talking about is the lower rated tranches. That’s really what they’re talking about as you would expect. But as it relates to diversification, I don’t think there’s any class that’s more than 10%. I think they can’t go more than 15%. And every time I look at it, which I think I did in the first quarter, I just put it down. It’s not an issue for us when we look at — we look at it individual loan by individual loan across CLOs and look at it consolidated and individually. Our team does a really good job. But at the AAA, where we are at the top and what happens when it gets stressed, actually, the subordination gets higher as stress occurs because you divert cash flow.

So what I sometimes ask myself is that is the yield give up worth the subordination, sometimes we got a lot of subordination. Remember, we don’t get the full yield. We get the AAA yield. And thus far, over 10 years, risk weighting, risk-based capital, the way that it’s allowed us to sort cash because a variable rate asset, it’s been a great asset class for us, and I don’t really see any stress in what we own.

Operator: We will take the next question from Alex Blostein with Goldman Sachs.

Alexander Blostein: I got almost as enthusiastic of response as you gave to Steve, so I appreciate that. So I wanted to ask you guys a question around the bank growth and loan growth and kind of how that comes together. Obviously, that’s a priority for the firm for some time. I’m curious how you’re thinking about funding that? Because if we look at the sweep deposit balances, they’ve been basically in a range of, I don’t know, $10 billion, $11 billion for quite some time, a couple of years, even holding the whole AI sweep cash issue aside, as you think about the forward loan growth and without a whole lot of balance sheet sweep options, how do you sort of think about the funding mix here over time? Is that more institutional? Is it more sort of high-yield savings? I’m just trying to think about the funding of the bank on the forward.

Ronald J. Kruszewski: Well, [indiscernible] both, but I would have [ accused ] Alex. I thought you might have complemented us on our deposit growth, okay, relative to our muted loan growth, okay, in terms of — I think our deposit growth was $2 billion. And what we’re seeing is much of our loan growth and the potential we see is not only self-funded, if you will, by deposit generation, but self-funded in a multiple of the loans outstanding. So some of those deposits are not sweep. So if you’re focusing on sweep, then we got to go all the way back around the barn and come back and say, transactional cash and clients isn’t going to get that much higher for all the reasons that we’ve been talking about. But in terms of our smart rate and our venture deposits and our sort of non-wealth deposits, that growth has been very strong. And that’s — to then answer your question, that’s how we’re funding that growth.

James Marischen: If you look at the supplement and you look at Page 10, the bottom of Page 10 has a disclosure of third-party deposits available to Stifel Bancorp. There’s $6.2 billion of excess deposits that are off balance sheet today that we can use to fund that growth. Obviously, a good portion of that is going to be in that third-party commercial treasury deposit line. So that’s $5.7 billion of it. The vast majority of that’s going to be obviously venture and fund banking. And as you think about that, that grew $1.2 billion in the first quarter. And if you look at that as kind of a mark-to-market of where we’re at through, I don’t know, as of yesterday, that’s up another $700 million. So that’s a significant source of funding capacity growth that continues to occur that’s been fairly consistent and gives us a lot of flexibility if we’re talking about up to $4 billion of asset growth.

Ronald J. Kruszewski: And I’ll end by saying, as I’ve said before, in this segment of what we’re doing, we’re really in the early innings of some of the things that we can do as we’ve been adding, frankly, technology capabilities to our treasury platform, international settlements. So there’s a lot of work that we’re doing to have a very competitive platform. And I see the potential. It’s a great question. But again, we’ve said that it’s almost self-funding what we’re doing.

Alexander Blostein: That’s really helpful. Question on the buyback. Really nice to see pickup. I know you guys tend to do a little more in the first quarter than typically over the course of the year. So as you think about your share repurchase plans from here on through the rest of the year, any thoughts you’d share would be helpful.

Ronald J. Kruszewski: Capital allocation, capital utilization, return on invested capital, all of those are the inputs to the model that will — we’re always buying back shares. The pace of — that math changes daily as well as to what is. That’s why we don’t just sit there and say, we’ll buy x number per day. We look at it. We balance that against M&A, other opportunities. But we’ve been more consistent because we felt that relative to our growth, our stock has been undervalued. So you see us buying back our stock. Jim do you want to…

James Marischen: Ron touched on the strategy and how we think about it. In terms of capacity, we had $560 million of excess capital at the end of the quarter. If you think about what we’ve talked with the balance sheet growth expectation of up to $4 billion, say we do the full $4 billion. That’s only about 70% of the current excess before retained earnings. So we certainly have a fairly material amount of capacity if the strategic rationale that Ron talked about, if that math works, we can buy back a lot of stock if we’re so inclined.

Operator: We’ll take our next question from Bill Katz with TD Cowen.

William Katz: Most of my big picture questions have been asked already. So maybe just thinking tactically, update us on sort of what’s been happening in April just in terms of maybe client engagement, whether it be on the advisory side or on the institutional side and what the sort of cash levels look like just net of maybe billings and/or seasonal tax payments?

Ronald J. Kruszewski: Yes. Look, I said client engagement remains strong. It certainly hasn’t — I just said that, Bill, and that wasn’t through the quarter, I guess, my comments were through this call. And it is. I have to caution though, because from where I sit, the level of uncertainty, which we’re not seeing right now, but the things that can change pretty quick whether it would be on the technology, this Mythos Anthropic thing is concerning. There’s a number of things that can change investor sentiment and perspective very quickly. And this is one of those environments where it just feels like there’s a lot of uncertainty. But today, things are good. Engagement is strong. Jim, I don’t know if you want to comment on cash.

James Marischen: Right. So if you kind of go bucket by bucket, sweep is down since quarter end. Smart rate is down since quarter end, while treasury deposits are up. And to provide some detail, you’re down probably $1.4 billion in sweep, so call it about [ 10.6% ]. You’re down about $400 million in smart rate. And then again, you’re seeing a $700 million increase offsetting some of that in the other treasury deposits.

Ronald J. Kruszewski: Yes. But you know what, I would just say that — yes, this is so seasonal. I wonder if we’ve ever had an increase in April, okay, ever, is an outflow for — and it’s a lot of taxes. That’s just what happens. And that’s across the street, Bill. So that’s — I don’t want those comments to be taken as some trend. It’s April.

William Katz: Of course. And then as a follow-up, I’m just sort of curious, you mentioned on the banking side, a very good pipeline, but it also seems like a lot of this conversation is about just sort of the ebbs and flows around uncertainty and certainly appreciate one day to next with the headlines coming out of Middle East is the confounding for everything. Should we be assuming that a little bit of a deceleration here in terms of activity from a revenue perspective, given your comments that if some things don’t get sort of booked in the next couple of months, it’s more about 2027, just as we think about the pacing for this year versus next for the advisory side of investment banking?

Ronald J. Kruszewski: Look, I think our banking is overall strong. We’re seeing real pockets and our at least what our guys tell me is it’s strong. I think we caution a little bit on depositor. We’re big in depositories. And so that feels like it’s a low a little bit, but that can change quickly, too. And software and the technology side, which we haven’t been as big at, but we can see when we look at numbers, that appears to be more muted relative to what else is going on. But overall, as I’ve said, if the risks land within the range of market expectations, we see the business improving. It’s — if some of these things get resolved, it could really improve. It’s not just all downside from here. The business especially in ECM can really pick up here if we take some of the volatility out of this and uncertainty out of this market.

There’s always volatility. There’s always uncertainty. It’s just heightened, and we all know this. I’m not telling you anyone on this call anything that news from my desk.

Operator: There are no further questions at this time. I will turn the conference back to Mr. Kruszewski for any additional or closing remarks.

Ronald J. Kruszewski: Well, I would just want to complement all the questions. Actually was very robust questions, and we like being able to engage and give you our best answers, and I appreciate that. I appreciate everyone’s time, and I look forward to talking to you in July. I would just say who knows what’s going to happen between now and July, but we’ll — many of you will be talking before then. But to our investors that are on the call, thank you for calling in, and have a great day. Thank you.

Operator: This concludes today’s call. Thank you for your participation. You may now disconnect.

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