Stifel Financial - Earnings Call - Q1 2025

Executive Summary

• Record first-quarter net revenues of $1.26B (+7.9% YoY) but GAAP diluted EPS of $0.39 fell sharply (-72% YoY) due to a $180M legal accrual; non-GAAP diluted EPS was $0.49.
• Against S&P Global consensus, revenue was ~1% below and EPS was a significant miss; management quantified the legal reserve’s –$1.16 after-tax EPS impact and noted core operating EPS of $1.65 absent the charge.
• Segment strength: record asset management revenue (+11% YoY), advisory (+15% YoY), equity underwriting (+22% YoY); Global Wealth net revenue was $851M and Institutional $385M, though margins compressed on litigation expenses.
• Guidance maintained for 2025; Q2 NII guided to $260–$270M and expected Q2 diluted share count of 108.2M; management may moderate loan growth in favor of buybacks depending on risk-adjusted returns.

What Went Well and What Went Wrong

What Went Well

• Record first-quarter asset management revenue ($409.5M, +11% YoY) and highest first-quarter net revenues ($1.26B), reflecting diversified strength across wealth, advisory, and equity transactional activity.
• Advisory revenue grew 15% YoY to $137.5M, with strong contributions from financials, technology, and industrial services; equity underwriting rose 22% YoY to $49.0M.
• CEO tone on strategic positioning: “Our net revenue of $1.26 billion marks the highest first-quarter revenue in our history… We remain optimistic about long-term growth”.

What Went Wrong

• Non-compensation operating expenses surged to 36.7% of net revenues (vs 22.8% YoY) on a $180M legal charge; GAAP pre-tax margin fell to 5.0% (vs 18.8% YoY).
• Net interest margin (bank) declined to 3.10% (–14 bps QoQ) and NII came in ~3% below street due to repricing lag, day count, lower loan growth, and absence of episodic success fees recognized in Q4.
• Wealth commissions were softer on limited activity before late-quarter volatility; net new assets were modestly negative early in Q1 before turning positive in March.

Transcript

Operator (participant)

Good day and welcome to the Stifel Financial first quarter 2025 financial results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Joel Jeffrey, Head of Investor Relations. Please go ahead.

Joel Jeffrey (Head of Investor Relations)

Thanks, operator. I'd like to welcome everyone to Stifel Financial's first quarter 2025 conference call. I'm joined on the call today by our Chairman and CEO Ron Kruszewski, our Co-Presidents Victor Nesi and 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 other non-GAAP measures. This audio cast is copyrighted material Stifel Financial and may not be duplicated, reproduced, or rebroadcast without the consent of Stifel Financial Corp. I will now turn the call over to our Chairman and CEO Ron Kruszewski.

Ron Kruszewski (Chairman and CEO)

Thanks Joel. Good morning and thanks to everyone for taking the time to listen to our first quarter earnings conference call. Stifel's core operating strength was evident in generating roughly $1.3 billion in net revenue during the first quarter despite a volatile market environment. This marks our highest first quarter revenue and third strongest quarter overall, driven by record asset management revenue in our Global Wealth Management segment and robust advisory and transactional revenue from institutional equities. While our bottom line was impacted by a significant legal charge which I will discuss later. Excluding this charge, our operating EPS was $1.65, an 11% increase over the same period a year ago, and it does represent record first quarter earnings per share. Our revenue performance is particularly noteworthy considering the market conditions throughout the quarter.

Although we were optimistic about Stifel's prospects in 2025, we also were conservative in our general market outlook. Following two consecutive years of better than 20% gains in the S&P 500, we adopted a more conservative market outlook. As I previously stated, Stifel entered the year with the lowest S&P 500 forecast on the Street at 5500. Yesterday it closed at 5288, down roughly 10% on a year to date basis. The combination of tariffs, uncertainty over global capital flows and disagreement between the Administration and the Federal Reserve on monetary policy has contributed to increased market volatility. Meanwhile, counterweights that usually strengthen when stocks fall, such as government bonds and the U.S. dollar, are also under pressure, leaving investors with few havens to wait out the storm. This backdrop has clearly weighed on investor confidence and slowed activity across certain segments of the market.

Having served in this role for over 27 years, I've witnessed numerous market crises from the Russian debt crisis in the late 1990s, the technology meltdown in 2000-2001, the 2008 financial crisis and the most recent global pandemic. Each time, U.S. financial markets have demonstrated resilience and remained a global benchmark. While the current environment has introduced volatility, we do not believe a recession is likely. In our view, the disruption surrounding tariffs is not the new normal. It's part of a high-stakes policy negotiation strategy by the White House. Considering the underlying strength of the U.S. economy and efforts to address trade and fiscal imbalances, we remain optimistic about long-term growth in the near term. While volatility presents challenges, we are cautiously optimistic. Indeed, periods of uncertainty highlight the value of our advice-centric business model.

We are seeing high levels of engagement between our investment bankers and our clients. That said, the greater challenge lies in converting these pipelines into realized revenue, particularly given ongoing market uncertainty. There are pockets of strength within banking as illustrated by KBW's strong quarter as we are seeing a growing appetite for Bank M&A and we continue to project a strong year for our financials vertical. In wealth management, our asset management revenues were up 11% versus last year. This line item is closely tied to market levels and if equity markets do not rebound, that could have a negative impact on these results in the future quarters for 2025. Overall, while the market conditions have certainly slowed, we believe that Stifel's diversified business model is well positioned to navigate through short term volatility and drive significant growth as the market normalizes.

Moving to slide two, I'll review our first quarter operating results. The table on the left illustrates our performance excluding the legal charge incurred during the quarter. Presenting our results this way offers a clearer view of our core business performance compared to prior quarters. I'll address the impact of the legal charge. Separately, we generated net revenue of $1.26 billion, marking the strongest first quarter in our history and an 8% increase year-over-year. This growth reflects strength in both Global Wealth and our Institutional Group. Notably, this is the first quarter since the end of 2021 where all categories in our revenue bridge have shown positive contributions. Looking at the specific revenue lines, commissions and principal transactions increased 3% with both wealth management and the Institutional Group showing year-over-year growth.

Investment banking revenues rose 11% driven by increases in both capital raising and advisory asset management. Revenue reached a record high, up 11%, reflecting organic growth and market appreciation. Net interest income increased 4% compared to the same period last year. Our compensation ratio stood at 58%, aligning with the high end of our full year guidance as we maintain a conservative approach to compensation accruals. Early in the fiscal year, operating pre-tax margin exceeded 20%, consistent with the fourth quarter and first quarters of 2024. Operating EPS as I stated was $1.65. While our operating results improved year-over-year, our bottom line on both a core and GAAP basis was negatively impacted by a legal charge related to a recent FINRA arbitration panel ruling which we are currently appealing.

As shown on the table on the right, the legal accrual totaled $180 million for the quarter, resulting in $1.16 negative impact on our EPS. Due to the ongoing nature of this matter, we are limited in our ability to discuss it further. However, we believe that we are appropriately accrued to the recent judgment as well as the remaining outstanding cases. Before I turn the call over to Jim, I want to highlight the critical role our Global Wealth Management business plays in Stifel's long term growth strategy. Over the past decade, we've more than doubled our revenue in this segment, reaching a record $3.3 billion in 2024. This growth is a testament to our unwavering commitment to providing exceptional service to our advisors and equipping them with the tools necessary to deliver tailored investment advice to their clients.

Our advisor-centric culture has been a significant driver of our recruiting success. Over the past five calendar years we've added 464 experienced advisors with trailing 12 month production exceeding $365 million. In 2024 alone, we recruited 100 financial advisors including 34 experienced employee and 12 experienced independent advisors, contributing a total trailing 12 month production of $37 million. As we focus our recruiting efforts on higher producing advisors, we've seen a continued increase in the percentage of our revenue coming from recurring sources such as asset management and net interest income, contributing to greater stability in this segment. The strong upward trend in markets over the last few years led many advisors to delay transitions hoping to maximize their trailing production for recruiting packages. Additionally, competition among RIA platforms has driven transition costs higher across the industry. That said, we are seeing real momentum build.

The recent market pullback has prompted more advisors to act and we've adjusted our approach to remain competitive while staying disciplined on our return on investment. We are seeing early success from this initiative and our second quarter is off to a strong start as we've added seven experienced advisors with trailing 12 month revenues of $14 million and more than $3 billion in client assets. To reiterate, our recruiting pipeline remains robust and I'm as confident as I've ever been in our ability to continue attracting highly productive advisors. With that, let me turn the call over to Jim.

Jim Marischen (CFO)

Thanks Ron and good morning everyone. Overall operating results were relatively in line with consensus expectations. This was a result of slightly lower net revenue which was offset by lower expenses when excluding the legal charge. In terms of net revenue, we fell short of the street estimate by 1% or approximately $14 million as stronger investment banking and asset management revenue were more than offset by lower transactional revenue and net interest income. Investment banking revenue was the largest upside contributor coming in $10 million above the street estimate, driven primarily by higher advisory and equity capital markets revenue. I'd note that in our February Operating Metrics announcement we anticipated investment banking revenue to be similar to the first quarter of 2024. The stronger result was due to a few additional transactions closing at the end of the quarter.

Asset management revenue was 1% higher than the street primarily due to a higher fee capture rate. Transactional revenue was 5% below the street due to lower fixed income and wealth management revenue that more than offset higher than expected institutional equity revenue. Net interest income was 3% below the street estimate on lower NIM which was driven by lower than expected loan growth. We also had some success fees we recognized last quarter related to some venture clients. Those types of fees are episodic and hard to predict when they come in. On the expense side, our compensation ratio was 58% which was slightly above the street and in line with the high end of our annual guidance. Non-comp expenses were significantly impacted by the $180 million legal charge we incurred in the quarter. Excluding this, our non-comp expenses were $5 million below the street estimate.

The provision for income taxes came in below the consensus number as the tax rate was impacted by the excess tax benefit recognized due to stock-based compensation. Moving on to our segment results, Global Wealth Management revenue was $851 million and pre-tax margins excluding the impact of the legal charge were 36% on record Asset Management Revenue and our second highest first quarter transactional revenue. During the quarter we added 52 total advisors to our platform. This included nine experienced advisors with trailing twelve-month production of $12 million. We ended the quarter with fee-based assets of $190 billion and total client assets of $486 billion. The sequential declines were due to weaker equity markets and modest asset outflows, while our net new assets growth for the quarter was modestly negative.

I would note that asset flows turned positive in March as net new assets for the month were in the low single digits. On slide six, I'll discuss our bank results. Net interest income of $262 million came within our guidance as firmwide average interest earning asset levels increased by $350 million and our bank net interest margin decreased by 14 basis points to 3.1%. In addition to what I said earlier, the decrease in NIM was also due to lower asset yields. Given the repricing lag resulting from the most recent rate cut as well as the lower day count in 1Q, our bank balance sheet remains relatively rate-neutral. As such, as we progress throughout the rest of 2025, we'd expect any changes in our quarterly NII and NIM to be dependent on loan growth. Ron will touch on this in more detail in his concluding remarks.

Client cash levels decreased during the quarter due to a $920 million decline in sweep deposits and a $690 million decrease in Smart Rate balances which were primarily due to typical seasonality in the first quarter related to tax payments. These declines were slightly offset by the $600 million increase in venture and fund banking deposits. As a result of these fluctuations, our total third-party deposits available to Stifel Bancorp ended the quarter at more than $3.7 billion. Our credit metrics and reserve profile remain strong. The non-performing asset ratio stands at 50 basis points. Our credit loss provision totaled $12 million for the quarter. It was negatively impacted by the macroeconomic forecast and increased reserves on C&I and unfunded commitments. Our consolidated allowance to total loans ratio was 85 basis points.

Moving on to the Institutional Group, total revenue for the segment was $385 million in the quarter, which was up 10% year-on-year. Firmwide investment banking revenue totaled $238 million as we experienced year on year increases in advisory and capital raising revenue. Advisory revenue was $137 million, an increase of 15% from last year. The growth in revenue was driven by a strong quarter in financials and solid contributions from our technology and industrial services verticals. While discussions and pipelines continue to be strong, we've seen some deal activity be delayed given market volatility. Equity underwriting of $49 million was up 22% over the same period in 2024 as financials, healthcare, and industrials were our strongest contributors. While our first quarter was strong, we did see activity levels slow towards the end of the quarter and that continued into the first month of the second quarter.

Fixed income underwriting revenue was $46 million in the first quarter and declined by 9% year-on-year. This was primarily due to lower issuance activity from our corporate credit clients as we had a particularly strong quarter in 1Q last year. Our public finance revenue was relatively similar to that of 1Q 2024. Stifel continues to be ranked number one by the number of negotiated issues led as sole or senior manager. Equity transactional revenue totaled $60 million which was up 10% year on year driven by increased market volatility. Fixed income transactional revenue of $89 million was up 1% year-on-year as our rates business continued to perform well as customer activity within our depository and credit union clients has been strong. Given the normalized yield curve, this more than offset the slower activity levels we saw from our high yield and municipal desks.

On the next slide, we'll go through expenses. As we noted earlier, our comp to revenue ratio in the first quarter was 58%. Our non-comp expenses totaled $451 million, were significantly impacted by the $180 million legal charge that Ron mentioned earlier. Excluding legal, our non-comp expenses were $271 million, which was a 5% increase from the same period last year, and our non-comp operating ratio, when adjusted for the impact of the legal accrual, was 20%. Our tax rate for the quarter was 16.4%, which was due to the excess tax benefit mentioned earlier. On slide nine, I'll review our capital position. Our balance sheet continues to be well capitalized. Tier 1 leverage capital decreased 60 basis points sequentially to 10.8%, and our Tier 1 risk-based capital ratio decreased by 60 basis points to 17.6%.

Based on a 10% Tier 1 leverage ratio target, we have approximately $324 million of excess capital in terms of capital deployment during the quarter. I’d note that we increased bank assets by $700 million to $32.1 billion. We repurchased and net settled roughly 2 million shares with 9.2 million shares remaining on our current authorization. Finally, absent any assumption for additional share repurchases and assuming a stable stock price, we’d expect the second quarter fully diluted share count to be 108.2 million shares. With that, let me turn the call back over to Ron.

Ron Kruszewski (Chairman and CEO)

Thanks, Jim. Despite the market volatility, our operating business started the year with a solid quarter. With continued recruiting success and strong contributions from KBW and our public finance business. Basically, Stifel remains well positioned as the year progresses. While we had a solid start to the year, the implementation of new administration policies for 2025 has started slower than we had anticipated just a few months ago. However, market conditions can shift quickly. The uncertainty around policy direction and difficult market conditions have in our view merely delayed what we believe to be significant business growth in the near future. If we can establish greater stability in trade policy and advance meaningful tax legislation, both of which we at Stifel believe are achievable, we expect to see positive momentum in the broader economy and capital markets.

At this time we are not revising our 2025 financial guidance and we remain confident in our positioning and long term growth strategy. However, while we remain cautiously optimistic, we are prepared to revisit our full year forecast if current conditions persist. We also have the flexibility to reallocate capital as needed. Given current market conditions and our recent share price levels, we may moderate loan growth and instead prioritize share repurchases. Our first quarter buyback activity reflects this approach and we will continue to evaluate the most strategic uses of capital as the year progresses. In conclusion, Stifel's advice-centric model proves invaluable during periods of market volatility. Our seasoned advisors across both private client and institutional sectors have consistently guided clients through turbulent times.

As markets stabilize, we are poised to continue our long standing tradition of growth. With that, operator, please open the line for questions.

Operator (participant)

Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal. We can take our first question from Devin Ryan with Citizens.

Ron Kruszewski (Chairman and CEO)

Good morning, Devin.

Devin Ryan (Director of Financial Technology Research)

Great. Hey Ron. Hey Jim. How are you doing?

Jim Marischen (CFO)

Morning.

Devin Ryan (Director of Financial Technology Research)

Good, good. Want to start with a question on advisor recruiting? You know, heard some of the commentary, Ron, but obviously you, there's been a number of acquisitions in the space over the past year. On the flip side, markets have been volatile, which aren't always the best time for people to think about moving. Just with some of those cross currents, just love to maybe get a sense of what it looks like in terms of advisors in motion right now and how, if you can, just maybe drill in a little bit more on the recruiting pipeline and expectations for 2025. Obviously, last year advisory account declined a little bit for reasons that you guys spoke about. I think that was more of an aberration. Just your expectation for growth this year, just given some of those cross currents?

Ron Kruszewski (Chairman and CEO)

It has been active with both, you know, the recent deal in the employee space with private equity and then the independent transaction. I guess I don't need to name the names, probably know who they are. Yeah, those have been interesting transactions that I've noted as it relates to recruiting. Look, I am pleased with recruiting. I am pleased with some very three high quality teams this quarter that are highly productive with client and assets and across, across a spectrum of businesses that is positioning us as a destination for advisors that really are highly productive. We see that continuing my calendar in terms of recruiting and dinners. Yesterday we had a virtual open house that was highly attended. I'm encouraged, and markets like this, when you get through this volatility with some decline in the markets, generally pick up recruiting activity.

Look, I'm pleased, advisor. I don't look at advisor headcount as much as I look at productivity. What we're doing is really increasing the productivity, the scale, the breadth, the depth, and just our reach into the wealth management space. Look, Devin, I'm pleased. We can always do better. We always, you know, we're driven by that darn thing called return on investment. All right. That's the governor on this. I'm encouraged.

Jim Marischen (CFO)

In addition to recruiting, I also remind everyone that we closed the B. Riley transaction in early April which added, you know, 36 financial advisors and approximately $4 billion of AUM. So that's another area of growth that will contribute.

Ron Kruszewski (Chairman and CEO)

On our platform I think those advisors are going to be much more productive. I want to say that we do. We will see in the productivity of those advisors, you'll see the strength of our platform. Go ahead, Jim. I did not mean to interrupt.

Jim Marischen (CFO)

That was it.

Ron Kruszewski (Chairman and CEO)

Yeah, Devin, I think it's a great question. It's always the question and every quarter, you know, that's we're focused on continuing to build the firm to our, you know, to our goals.

Devin Ryan (Director of Financial Technology Research)

Yeah, that was great, appreciate it. Good to hear you're feeling well. The just quick follow up for Jim. I guess on the wealth commissions, those were a bit softer than we had modeled. Was that just trailing, commissions declining or some hesitancy with the volatility? We're just trying to get a little bit of a sense of what happened in the first quarter and then kind of a trajectory as we look out over the course of the year.

Jim Marischen (CFO)

I think it was a little bit of both. I think some of it was trailing or the trail as well is just limited activity early in the quarter. You remember, a lot of the volatility that occurred happened after the end of March. We have seen somewhat of a pickup there in some of the client engagement in client repositioning of portfolios. Again, that happened after the end of the quarter.

Devin Ryan (Director of Financial Technology Research)

Got it. Okay. All right, I'll leave it there. Thank you both.

Operator (participant)

Thank you. Our next question will come from Mike Brown with Wells Fargo Securities.

Mike Brown (Managing Director)

Great morning and thanks for taking my question. Ron, just to maybe follow up on the organic growth question from Devin. You alluded to a change in the shift. Shift in the approach to recruitment, and that does seem like it's been supporting success with big teams and from the wirehouses. Maybe just in light of this, can you just expand on what that shift has meant and do you expect to see continued success from some of those bigger teams? Thank you.

Ron Kruszewski (Chairman and CEO)

I think that if you look at, I think our view on it is that if you look at our margins in wealth management, look at our footprint and the scalability of that model and where we have capacity, these are all factors that went into our thought process in various cities. We just went back to our model and just said, look, with this profitability and scale, we can be more competitive on our transition packages and yet still easily clear our return requirements. You know, we've been pretty disciplined as the markets moved away from us, and we've said, you know, some of these deals are crazy. We went back and looked at, you know, our advantage, which in many ways it's classic business, right?

If you have a pricing advantage, which we do in terms of our margins, and it gets really competitive, let's just compete a little bit more because we have the ability to do that. You couple that with nearly 400 offices and some empty desks that are sitting there underutilized. You put all that together, and we've said, oh, let's just be a little more competitive and that we can see that that's going to pay. You know, that'll help the recruiting. I can still say to all of you, look, we're not mortgaging the future to show short term growth. That's always my concern, you know, these deals get amortized over a long time and if you consistently do bad deals, it won't show up immediately, but it'll show up in a few years. We're cognizant of that.

I like where we are.

Mike Brown (Managing Director)

Okay, great, makes sense. If we just maybe change gears and unpack your comments on the M&A activity in the bank space, that's an area where the deregulation is happening. The Capital One Discover deal has gotten approval that seems to remove a regulatory overhang. We are seeing lower share prices, shifting interest rate backdrop, those present headwinds. What's the view there in terms of that consolidation trend? Is it perhaps as strong, is it as strong as it was coming into the year? Do you think we can see those announcements coming through in 2025 and just given that deregulation tailwind, are you expecting a shorter time frame between announce and close on those deals?

Ron Kruszewski (Chairman and CEO)

Your second question first. The answer is yes, we believe that Discover Capital, and we believe that even deals that could be announced now could close this year. If you'd asked me that two years ago, I'd have said no, there will be no more closings on deals that get announced in April. Yes, we believe that from announcement to close has shortened even to the point where I would say I'm not, but it would not be unreasonable to announce a deal and still close it this year. At least that's what my bankers are telling me and I'm listening to them. The ones that are going through the process. That is the second question. First, as it relates to overall activity, it's a great question and it will be driven in many ways.

It's sort of, I don't want to say a self-fulfilling prophecy, but there is a, there's a lot of reasons that consolidation needs to occur and there were a number of headwinds in terms of accounting and mark to market and a number of things. What you'll see, I think, all right, and you're just going to have to take me at it because I'm not going to point to anything. I think you'll get a couple of transactions when they do or if they do get announced or whatever that will begin to drive what happens when someone says oh, that was how that was done and oh, we gotta look at this deal.

You know, banking M&A is often, you know, a crowd sport, you know, if you will. One does it and another one does it and another one reacts to the competitive things. That is what happens. I can see that happening all right now. We'll see. Okay, but that is what I would say. I would say if I overall looked at our segments, I would still think that our FIG segment, at least on the advisory side, will be one of our better segments and would be, as I sit here today, will be stronger than last year. Other segments, I think are more tariff, you know, tax policy, number of uncertainties that need to be cleared up to allow of that. Even, even there is more debt financing in some other segments.

I feel that that's a little softer, but financials, I think, will be a little stronger.

Jim Marischen (CFO)

We've seen bank deals approved in as little as four months. You know, there's obviously some positive feedback we're getting from the regulators and their receptivity to approving transactions. That's very positive given the rationale that Ron laid out, the need for banking.

Ron Kruszewski (Chairman and CEO)

Right. I think a lot of the regulators understand that there's risk. There's a lot of risk between, you know, between announcement and closing that regulators recognize now and they're trying to minimize because that is a risky time frame for shareholders.

Mike Brown (Managing Director)

Great. Thank you so much for all the color there.

Ron Kruszewski (Chairman and CEO)

Yeah.

Operator (participant)

Thank you. Our next question comes from Alex Blostein with Goldman Sachs.

Alex Blostein (Managing Director)

Hey, guys, good morning. Thank you. Another one on recruiting, just again, related to the sort of adjustments you made to your approach to stay more competitive. Is there any particular section in the market that's more receptive to sort of the changes you made and the changes you see in your recruiting pipeline? I know you talked about building out the independent channel in the past. I'm not sure if that's sort of part of the changes you're making or you're still largely focused on the employee channel.

Ron Kruszewski (Chairman and CEO)

Largely focused on the employee channel, first of all. Second of all, yeah, I think we're. I think where we focused is on the higher, you know, productivity, more holistic teams that, you know, that do work with family offices, work on both sides of the balance sheet, not only managing money, but utilizing our bank to provide banking and holistic services. I would say, you know, the advisors team. Not just single advisors, but attracting teams that approach the business on the employee side, albeit, but approach the business from a holistic, you know, advice and planning model. Look, we have a lot of advisors do very well just, you know, advising clients.

There is a segment of employee channel that we've adjusted to to be more attractive to because that same segment is probably also being more heavily courted by the RIAs. We are adjusting to both our inherent pricing advantage and the competitive nature that comes from the RIAs.

Alex Blostein (Managing Director)

Got it. Okay, understood. In terms of the outlook, obviously appreciate the challenges with trying to predict the next several months given all the uncertainty. Maybe out of it. When it comes to NII, maybe give us your updated thoughts on sort of near term outlook for Q2 and for the full year. As part of that, I was hoping you can hit on where cash balances stand in April. Obviously lots of volatility, but there's also tax season, so maybe some of the core buckets sweep deposits as well as third party bank sweeps, kind of where that stands so far in April.

Ron Kruszewski (Chairman and CEO)

You know, Alex, this is a great time for me to say Jim.

Jim Marischen (CFO)

I mean I think we gave a range for NII for the second quarter of $260 million-$270 million. I think given the fact we've talked about our balance sheet being rate neutral, the outlook is really going to be dependent on the mix and volume of loan growth. Ron gave some commentary of continuing to evaluate the trade-off between repurchases and loan growth. We're going to look at that every day based upon the best risk-adjusted return. More to come there based upon how the market continues to evolve. That's going to be the primary driver. In terms of cash sweeps, we've still seen some continued outflows since the end of March, sweeps probably down another $150 million. We've seen a couple $100 million+ in terms of Smart Rate.

Again, I would say the vast majority of that is typical seasonality related to tax payments. I think the key with the inflection point in the sweep in Smart Rate balances is what happens now that we're after tax season and where balances go from here.

Ron Kruszewski (Chairman and CEO)

Yeah, I mean I can say when I look at it, the relative size of tax payments following two years of really strong market gains and some profit taking that was occurring is high. Okay, relatively high. There is a lot government coffers are getting some cash. At least from this part of the economy that I see. You know, I think just to go on what Jim just said, I want to reiterate, it should be obvious to everyone on this call that in the environment that we are in, especially with the drawdown in share valuations, especially in financials and at Stifel, that the math changes on the return on investment vis a vis allocating capital to building balance sheet growth via loans or repurchasing shares. At these levels, the math changes.

Also, the loan demand in this environment is also somewhat muted relative to what we were expecting. We do not necessarily like trying to grow loans in without a lot of loan demand because that sometimes leads to adverse selection. The combination of all that just has us trying to say to you, look, today as we sit here today, we can see instead of saying we are going to grow our assets by $3 billion-$5 billion, we could say that will be lower but we will up our share repurchases because we are still generating a lot of capital. That is maybe the shift in tone a little bit, Alex.

Jim Marischen (CFO)

In one other follow up comment on Cash, I should also mention we've continued to see nice increases across the venture and fund banking deposit. You know, the last two quarters have been well above that kind of $300 million run rate of net additions and we're continuing to see that nice level of increase in the first, you know what we've seen so far in April.

Alex Blostein (Managing Director)

Yep, it's a balance. Totally get it. Thanks guys.

Ron Kruszewski (Chairman and CEO)

Thanks Alex.

Operator (participant)

Thank you. We will take our next question from Steven Chubak with Wolfe Research.

Steven Chubak (Managing Director)

Hi, good morning Ron and Jim. Hi. Hope you're both doing well. Wanted to ask a follow up on some of the trends that we saw at the bank specifically around the NIM. The contraction was admittedly probably the highest among the banks that we track. It looks like the primary culprit was securities yields and was hoping you could unpack the timing related impacts that you were alluding to earlier. Just want to get a sense as to how big of a drag that was on the NIM in the quarter and how you're thinking about just managing duration. Bigger picture just given some of the expectations for increased deepening of the curve.

Jim Marischen (CFO)

Obviously within the bond portfolio. The CLO book is by far the largest piece. Those reprice over 90 days. You are still getting the lag effect baking in on the asset side there. In terms of the last two rate cuts in the fourth quarter, you also saw a pretty sizable drawdown. If you look on the yield chart on CNI loans, I think it was down 75 ish, somewhere around 75 basis points. Again, I mentioned on the call both this quarter and last quarter, the impact of some of the success fees that we had related to venture clients, that was a couple million dollars in the fourth quarter. Obviously those are episodic, kind of one time in nature and hard to predict. When you think about that impact on NIM, that is annualized into the NIM calculation and has a bit of an outsized impact.

You combine, you know, the day count, you combine the repricing lag, you know, you look at loan growth being lower than we originally anticipated and then you layer on top the success fees, that is really what is driving it. You know, while the decline may have been more than you have seen in some other places, we are still very happy with a 310 Bank NIM in this environment. I think that that return is very strong. I would also say if you look at our results, they were also within our forecasted range of $260 million-$270 million, although at the lower end of that range. I think this is not unexpected from where we were trying to guide to last quarter on our call.

Ron Kruszewski (Chairman and CEO)

Yeah, I think, look, it's a great question and looking at the raw numbers, I agree with what you're saying, but when we unpack it, we're very comfortable, primarily these success fees and the impact that that has. You know, Steve, and I hear you, but I would caution you to not think that that's some permanent compression.

Jim Marischen (CFO)

Yeah, I mean, we're more asset sensitive than most banks. Right. And so we also have the ability to adjust that on the liability side in terms of rate cuts. And so, you know, that gives us the ability to be relatively rate neutral outside of these kind of timing effects, whether it be the fees or the lag on certain items on a quarter to quarter basis.

Steven Chubak (Managing Director)

No, it's a fair point and certainly did see that on the liability side, you guys did a nice job of managing deposit pricing. Just for my follow up, I did want to drill down into public finance and maybe fixed income more holistically, the public finance outlook. Just given the murky policy picture, how much of the strength in activity do you believe is durable versus temporary? On fixed income brokerage, just given the strength in volumes and volatility, the revenues there were a little bit lighter than we had anticipated and was hoping you could unpack that as well.

Ron Kruszewski (Chairman and CEO)

You know, on public finance. Yep, it's murky. There are a lot of things that are murky with respect to, you know, the tax bill and what's, you know, what's on the table, you could actually see a big, big, big, big spike in activity depending on, you know, what happens if you say private activity, bonds or stadium bonds or things like that. College, you know, tax-exempt status for certain large colleges, a lot of things on the table here. I think that that coupled with just the murkiness has led that to, you know, to be a little choppy. That said, there are a lot of infrastructure that needs to be done. We see it especially at the community levels where we are highly active in terms of just normal infrastructure, whether it's schools, sewers, you know, development housing.

We see that business remaining healthy. Anytime you're floating around tax bills, you know that's going to create some uncertainty. That's what I would say on public finance.

Jim Marischen (CFO)

We certainly hit and things kind of ground to a halt in public finance in March, certainly hit an air pocket. I'd say our calendar right now, our underwriting calendar, is as busy as it's ever been. The outlook there is very strong.

Ron Kruszewski (Chairman and CEO)

Not just it's steep on the street. Just look at the volume.

Jim Marischen (CFO)

Certainly. In regards to rates or in regards to fixed income trading, the thing I'd point out is we had a decent quarter in our rates business. 1Q is typically our seasonally slow period for our rates business. You add on to the fact in the comparable period last year, particularly with our credit book, we had a lot of trading in the Visa B shares that is somewhat episodic as well and did not repeat itself to anywhere near the level we saw in the prior year. You combine those things that had an impact on the first quarter. I think from here forward, when you think about fixed income trading, I think the second quarter would be relatively flat to up from here with a relatively optimistic outlook.

Steven Chubak (Managing Director)

That's great, color. Thanks so much for taking my questions.

Ron Kruszewski (Chairman and CEO)

Absolutely.

Operator (participant)

Thank you. Our next question will come from Bill Katz with TD Cowen.

Bill Katz (Senior Equity Analyst)

Great. Thank you very much for taking the questions this morning. Good morning, everybody. I am just trying to come back to some of the math, if that's okay. If I simply annualize your first quarter revenues, I get sort of below the low end of your initial guide, your current guide, which you're not changing at the moment. I certainly appreciate all the moving parts, but as I think about your commentary into the second quarter and what's been going on, the macro perspective, it seems like revenues may tip down potentially just given the different business component pieces, if you will. I am just trying to understand what's your macro framework as you get to the second half of the year, particularly if you still think the S&P 500 is going to hover at current levels here.

I'm just trying to figure out where the incremental drivers of opportunity might be. Thank you.

Ron Kruszewski (Chairman and CEO)

First of all, I don't know this exactly, so I should be careful. I think if you go back like almost every year and annualize our first quarter, you would end up less than what we end up with. I mean, that's just the seasonality in our business. You know, the fourth quarter is always strong, but revenue gets pulled into the fourth quarter. The first quarter tends to be relatively slower, as does the third quarter usually. Okay. Our, we have adjusted our internal forecast to account for lower equity markets. We've adjusted it for our pipeline, we've adjusted it for what the deals are. When I say that we're not revising our guidance, it's not on the hope of some miraculous turnaround. It is on the belief that the equity markets may hover around here.

We do think that on the institutional side of business and on the advisory side, which is probably the biggest fluctuation always, we believe that this short term lull in activity, all of the things we believe is not for the rest of the year thing. Now, as I said in my remarks, if it turns out that we're going to take tariffs in China to 250% and, you know, and do some other things that have been talked about, then we'll revisit it. Right now, as we sit here today, I'm comfortable with what we have said and I believe, I believe from here that market conditions will improve. That's looking into a crystal ball. I want to say that our need to get within our guidance range though does not require some recovery in the markets here of any magnitude.

It would help, it'll definitely help on the institutional side to take some of the volatility out of this market.

Jim Marischen (CFO)

I would add it's really hard to annualize investment banking results in any quarter in any economic environment that's really lumpy and particularly on the underwriting side. That can change very quickly if the market gets some stability to it. On the advisory side, we talked about the strength in KBW at length here already. We have also seen a strong outlook within our tech practice, with our industrial services practice. There are pockets of strength there that we see things improving over the back half of the year.

Bill Katz (Senior Equity Analyst)

That's very helpful. Maybe just on capital management, I appreciate the interplay between the decision to repurchase stock versus grow the bank balance sheet. How are you thinking about M&A more broadly for the firm at large? Just given a lot of volatility and some deals around you. Any areas of particular focus that might be of interest as you think about inorganic opportunities? Thank you.

Ron Kruszewski (Chairman and CEO)

Yeah. You know, back to the first part. I do. I also want to say that on the street and I would echo this, you know, activity especially is usually back-half weighted. Okay. That is true in almost every year. When I listen to the commentary and what people say and as I said in my remarks, a lot of things that have been delayed, I think have not been canceled. There is increasing demand for services, assuming we do not drive the U.S. economy off the cliff. Okay. I do not think we are going to. Now as it relates to M&A, we are always, you know, we are always looking at things and we will continue to do so.

I feel that a lot of the pricing, which is primarily driven by firms that do not have the capital levels that we have as a regulated institution that fund deals with debt and do not really need tangible equity, has really made pricing of these deals difficult for us in the last few years. We are always looking again. B. Riley was a nice bolt-on and I am always open. Okay. I get a lot of the calls. I do not feel like we are missing anything. As I said in my opening remarks, I do rely on that calculator on return on investment and that is always going to be a governing factor.

Bill Katz (Senior Equity Analyst)

Okay. Thank you for taking both questions.

Operator (participant)

Thank you. Before we take our next question, just one final reminder to our audience that it is star one to join our queue. Our next question will come from Chris Allen with Citi.

Ron Kruszewski (Chairman and CEO)

Hey, Chris.

Chris Allen (Managing Director)

Morning, guys. Thanks for taking the question. Most topics have been covered. One thing I wanted to ask on is just the FICC brokerage outlook, in 2Q if you could remind us what level of business FICC brokerage is tied to FICC underwriting and what is kind of the separate buckets there. Munis, I think, is a key driver of trading, but I think rates is most important and just to try to think about the different outlooks and what is tied to underwriting, underwriting recovery and what can continue to perform without underwriting coming back in the near term.

Jim Marischen (CFO)

From a FICC underwriting perspective, obviously the vast majority of that is going to be public finance. Outside of public finance, a lot of what you'll see is investment grade type activity. We had a reasonable year last year there. It's been a little bit slower activity earlier in this year. I think we referenced that in some of our comments here earlier. Those are really kind of the main drivers there. You know, we touched on kind of the other kind of FICC transactional drivers with 1Q kind of being generally a softer, the softer quarter in the year. I don't know if you have anything.

Ron Kruszewski (Chairman and CEO)

No. No.

Chris Allen (Managing Director)

Thanks, guys. Appreciate it.

Operator (participant)

Thank you. It appears that we have no further questions at this time. Mr. Kruszewski, I will turn the call back to you for any additional or closing remarks.

Ron Kruszewski (Chairman and CEO)

Thank you, operator. I'll just close by saying, these are volatile times and uncertain times. Stifel is well positioned from a balance sheet, from a liquidity, from a diversification of business to not only perform well in markets like this, but we are well positioned with respect to the rebound in markets. I will end maybe on an optimistic note that I believe the recent volatility and all the uncertainty is short term. It is unique negotiating styles, but the economy remains strong. When we get a little more certainty on some of these very disruptive policies, we will, we are well positioned, and I think the industry is well positioned to take and monetize some of the deals that have frankly been delayed. We will see. Hope springs eternal here and we are well positioned to continue our historical growth. I look forward to talking to everyone on the second quarter call.

Everyone, have a great day. Thank you.

Operator (participant)

This concludes today's call. Thank you for your participation. You may now disconnect.