Stifel Financial Corp. Q2 FY2025 earnings call

• Market sentiment improved significantly in the last 2 months of the quarter due to clarity on tariff and tax policy, fueling record client assets in wealth management and M&A/capital markets activity.
• Second quarter net revenue grew 6% year-over-year, with gains across most areas except modest decline in advisory. Commissions and principal transactions rose 11%, asset management revenues rose 6%, net interest income up 8%.
• Global Wealth Management had strongest second quarter ever, ranked #1 in J.D. Power Advisor Satisfaction Study for third year, added 82 new advisers.
• Institutional business resilient with 7% revenue increase, strong fixed income and late quarter investment banking pickup. Acquired Bryan Garnier to reposition European operations.
• View AI as platform to enhance client service, data management, and insights, with early wins in investment banking analytics and adviser support.

In the second quarter, Stifel Financial had strong performance. Global Wealth Management posted its strongest second quarter ever with record client asset levels and higher net interest income. The Institutional business had a 7% year-over-year revenue increase, record fixed income revenue, and a late quarter pickup in investment banking. Net revenue for the second quarter was over $1.28 billion, core EPS was $1.71 (best second quarter in history), and return on tangible common equity was 22%. Global Wealth Management ranked #1 overall in the J.D. Power Advisor Satisfaction Study for the third straight year. The firm completed the acquisition of Bryan Garnier, a European boutique investment bank. Global Wealth Management had 82 new advisers added, including 36 through B. Riley and 21 experienced advisers. Institutional segment total revenue was $420 million, up 7% from prior year. Investment banking revenues totaled $233 million, fixed income underwriting revenue was $54 million, up 18% sequentially. Equity transactional revenue was $61 million, up 16% year-on-year, and fixed income revenue was $129 million, up 21% year-on-year.

• Annualized net revenue on track for another record year, second half expected to be strong. Full year 2025 results expected within guidance range.
• Full year effective tax rate anticipated in 20% to 22% range.
• Anticipate additional bank growth in second half, over 8.2 million shares remaining under repurchase authorization, pursue organic and inorganic growth in Global Wealth Management and Institutional Group.
• Monitor market uncertainty including tariff impact, market valuation risks.

• Macro uncertainty around tariffs and their impact on the economy.
• Market reemergence of mean stock behavior, sharp rise in margin debt, pockets of speculation disconnected from fundamentals.
• Valuations pricing in near perfect outcomes, potential for brief pullback.

Q: About KBW and bank M&A reacceleration, what's the expectation for activity?

A: The environment for bank M&A is conducive due to improved factors like economic, rate, and regulatory, and need for banks to combine for competition. KBW Stifel is well positioned but not giving revenue numbers.

Q: On NII outlook, interpretation of second half run rate and path to guidance?

A: 2Q benefited from fee income and deposit mix shift. Guidance for 3Q NII $265 million to $275 million, with path to full year NII via loan growth, deposit mix shift.

Q: On AI profitability and efficiencies, how to measure?

A: AI seen as amplifier for productivity in administrative tasks like advertising, compliance, etc., with focus on training and scaling, not replacing human element.

Q: On new assets growth, what's driving it?

A: Overall platform, culture, systems, technology, and large productive teams brought in, leading to recruitment and then NAA growth.

Q: On capital allocation priorities, bank growth vs buyback?

A: Focus on bank growth relatively more now, still doing stock buybacks, linked to equity valuation perspective.