STIFEL FINANCIAL CORP Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Net Revenue: Net revenue of $1.23 billion in Q3, up 17% year-on-year, second highest quarterly revenue. Year-to-date net revenue $3.6 billion, up 13%.
• Segment Performances: Commissions and principal transactions up 15%, investment banking up 66%, asset management up 15%. Net interest income increased 4%, reaching the high end of guidance.
• Advisors and Assets: Global Wealth Management added 28 total advisors, ended Q3 with record fee-based assets and total client assets.
• Balance Sheet: Sweep deposit balances increased, net interest margin improved, and there are opportunities for balance sheet growth with a neutral to 100 basis point rate movement insensitivity.

Segment Performance

• Global Wealth Management: Record revenue of $827 million. Asset management revenue was up 15%, and it added 28 total advisors during the quarter. It ended the quarter with record fee-based assets of $191 billion and total client assets of $496 billion. Revenue contribution is significant.
• Institutional Group: Total revenue for the segment was $372 million in the third quarter, up 45% year-on-year. Investment banking revenue increased 66%, with capital raising and advisory revenue showing growth.
• Net Interest Income: Totaled $260 million, which was at the high end of guidance. Average interest earning asset levels increased by nearly $650 million, and the net interest margin increased by 5 basis points to 3.09%. Sweep deposit balances increased by nearly $370 million, the first quarterly increase since Q1 2022.

Guidance

• Expect momentum in the business to continue building with further upside as the operating environment improves.
• Target over $5 billion in revenue and $8 of EPS in 2025.
• Fourth quarter net interest income expected to be in the range of $255 million to $265 million.

Risks

• Uncertainty around the upcoming elections and geopolitical risks impacting the operating environment.

Question and Answer

• Q: On lending, demand and net interest income outlook A: Jim mentioned the ability to build the balance sheet with risk-adjusted returns, having limited balance sheet growth purposefully in uncertain rate environment, and being less dependent on general loan market with captive audience base for generating loans.
• Q: Fixed-income brokerage outlook A: Ron noted some seasonality in Q3, but is optimistic about the business as interest rate curve normalizes aiding client portfolio activity.
• Q: $8 EPS target, buyback moderation A: Ron stated the three levers (bank growth, M&A, stock buyback) are on the table, with balance sheet growth having an impact on EPS, and buyback being measured against other alternatives.
• Q: Cash trends, rate cuts impact A: Ron said rate cuts had minimal impact on deposit inflows, Sweep program up $100 million in Q4 thus far, and bigger impact from yield curve normalization and alternative competitiveness.
• Q: Sponsor M&A recovery A: Ron said conditions are conducive for sponsor M&A activity, with election uncertainty being a potential factor but overall environment good.
• Q: FA count, profit contribution A: Ron is optimistic about recruiting, seeing increased productivity per advisor, and many productive teams being talked to.
• Q: Tax rate, stock price impact A: Jim explained the excess tax benefit from stock-based compensation, larger impact in Q4 due to stock price increase, which runs through as a decline in effective tax rate