Stifel Financial Q1 2025 Earnings Report

Good day, and welcome to the Stifel Financial First Quarter twenty twenty five 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.

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 $1,300,000,000 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 and P 500, we adopted a more conservative market outlook. As I previously stated, Stifel entered the year with the lowest S and P 500 forecast on the street at 5,500. Yesterday, it closed at 5,002 and 88, 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 the 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 twenty seven years, I've witnessed numerous market crises from the Russian debt crisis in the late nineties, the technology meltdown in February to 02/2001, the 02/1958, '2 thousand and '8 financial crisis, the most recent global pandemic. Each time, 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 US 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 challenges 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 and 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, but 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 on 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 1,260,000,000 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 twenty twenty one where all categories in our revenue bridge have shown positive contributions. Looking at the specific line revenue lines, commissions and principal transactions increased 3% with both wealth management and institutional growth share 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 pretax margin exceeded 20%, consistent with the fourth quarter and first quarters of twenty twenty four. Operating EPS, as I stated, was $1.65 While our operating results improved year over year, our bottom line on both 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 $180,000,000 for the quarter, resulting in a 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 for 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 $3,300,000,000 in 2024. This growth is a testament to our unwavering commitment to providing exceptional service to our advisers and equipping them with the tools necessary to deliver tailored investment advice to their clients.

Our adviser centric culture has been a significant driver of our recruiting success. Over the past five calendar years, we've added 464 experienced advisers with trailing twelve month production exceeding 365,000,000. 20 4 alone, we recruited a hundred financial advisers, including 34 experienced employee and 12 experienced independent advisers, contributing a total trailing twelve month production of 37,000,000. As we focus our recruiting efforts on higher producing advisers, we've seen a continued increase in the percentage of our revenue coming from recurring sources, such as asset management net interest income, contributing to greater stability in this segment. The strong upward trend in markets over the last few years led many advisers 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 built. The recent market pullback has prompted more advisers to act, and we've adjusted our approach to remain competitive while staying disciplined on our return on investment. We are seeing early success in this initiative, and our second quarter is off to a strong start as we've added seven experienced advisers with trailing twelve month revenues of 14,000,000 and more than 3,000,000,000 in client assets. To reiterate, our recruiting pipeline remains robust, and I'm confident as I've ever been in our ability to continue attracting highly productive advisers.

And with that, let me turn the call over to Jim.

Thanks, Jim. So 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. So 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 proved invaluable during periods of market volatility. Our seasoned advisers 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.

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

Well, largely focused on the employee channel, first of all. And second of all, yeah, I think where I think where we focused is on 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. So I I would say, you know, the the the the adviser's team, so not just single advisers, but but attracting teams that are are approach the business on the employee side, albeit, but approach the business from a holistic, you know, advice and planning model. And that look. And we have a lot of advisers who do very well just, you know, advising clients, but there is there is a segment of of employee channel that we've adjusted to be more attractive to.

Because that that same segment is probably also, you know, being more heavily corded by the RIAs. And so we're we're adjusting to both our inherent pricing advantage and the competitive nature that that comes from the RIAs.

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

Yeah. I mean, there there's I can say when I look at it, the the relative size of tax payments can following two years of really strong market gains and some profit taking that was occurring is is high. Okay? Relatively high. There's there's a lot government coffers are getting some cash, well, at least from the this part of the economy that I see.

So and, you know, and I and I think just to go on what Jim just said, I wanna reiterate. I it should be obvious to everyone on this call that in the environment that we're in, especially with the drawdown and share valuations, especially in financials and staying at Stifel, that the math changes on the return on investment vis a vis allocating capital to building balance sheet growth via loans Mhmm. Or repurchasing shares at at these levels. The math changes. But, also, the loan demand in this environment is also somewhat muted relative to what we were expecting.

And we, you know, we don't necessarily like trying to grow loans in without a lot of loan demand because that sometimes leads to adverse selection. So the combination of all of that just has us trying to say to you, look. Today, as we sit here today, we we can see, instead of saying we're gonna grow our assets by Three to five. Three to five billion, we could say that'll be lower, but we'll up our share repurchases because we're still generating a lot of capital. But that that that's maybe the the shift in tone a

little bit, Alex.

Yeah.

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

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

So, obviously, within the bond portfolio, the CLO, the CLO book is by far the largest piece. Those reprice over ninety days, so you're still getting the lag effect baking in on the asset side there in terms of the last two rate cuts in the in the fourth quarter. You also saw a pretty sizable drawdown if you look on the yield chart on c and I loans. I think it was down 75 ish, somewhere in 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. And, obviously, those are episodic kind of one time in nature and hard to predict. But when you think about that impact on NIM, that's annualized into the NIM calculation and has a bit of an outsized impact. So 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's really what's driving it.

And so, you know, while the decline may have been more than you've seen in some other places, we're still very happy with the three ten bank, a NIM in this environment. I I think that that return is is very strong. I'd also say if you look at our results, they were also within our forecasted range of 260 to 270,000,000, although at the lower end of that range. So I think this is not unexpected from where we were trying to guide to last quarter on our call.

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 the fees or the lag on certain, items on a quarter to quarter basis.

You know, on on public finance, yep, it's murky. It's 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 inactivity depending on, you know, what happens if you say private activity bonds or stadium bonds or things like that, college, you know, taxing up status for certain large colleges. A lot of things on the table here. And so I think that that coupled with just the murkiness has has led that to, you know, to be a little choppy.

That said, there are lots 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, sores, you know, development, housing. So we we see that business remaining healthy. But but anytime you anytime you're floating around tax bills, you know, that's gonna create some uncertainty. That's that's what I would say on public finance.

Well, it's not just steeple on the street.

And then look at the volume.

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

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

Well, first of all, I I I so I don't know this exactly, so I should be careful. I'm I'm thinking 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, it's just that's just the seasonality in our business. It's you know, the fourth quarter is always strong, but revenue gets pulled into the fourth quarter. The first quarter tends to be tends to be relatively slower as does the third quarter, usually.

Okay? But, 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 things the deals are. So when I say that we're not revising our guidance, it's it's not on the hope of some, you know, miraculous turnaround.

It is on the belief that, you know, the equity markets may hover around here. But we do, you know, we do think that on the institutional side of business and on the advisory side, which

is probably the biggest

fluctuation always, we believe that this short term low in inactivity, the advance, all of the things, we believe is not an for the rest of the year thing. Now as I said in my remarks, if if it turns out that we're gonna take tariffs in China to 250% and, you know, and and do some other things that have been talked about, then we'll revisit it. But right now, as we sit here today, I'm comfortable with with what we have said. And I believe I believe from here that market conditions will improve. But you're that's looking into a crystal ball, and I would I wanna say that our our need to to get within our guidance range, though, does not require, you know, some recovery in the markets here of any, you know, magnitude.

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

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

Okay. Thank you for taking both questions.

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

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