Stifel Financial Corp. Q3 FY2025 earnings call

• Stifel achieved record net revenue of over $1.4 billion, record client assets, and a record third quarter EPS of $1.95. Return on tangible common equity exceeded 24%.
• Global Wealth Management had record revenue of $907 million, pretax margins nearly 38%, transactional revenue at a record $203 million, and asset management revenue at a record $431 million. Added 33 advisers during the quarter.
• Institutional Group had revenue of $500 million, up 34% y-o-y, with investment banking totaling $323 million, equity capital raising $79 million (best since late 2021), fixed income underwriting $59 million, and strong trading revenue.
• Integrated banking model strengthened wealth platform with net interest income $276 million, forecast NII $270-280 million for Q4. Credit metrics solid.
• Tax rate for Q3 was 26.1%, full year effective tax rate expected 20-22% due to excess tax benefit from stock-based comp. Balance sheet well capitalized with Tier 1 leverage capital at 11.1% and Tier 1 risk-based at 17.6%, excess capital $421 million.

Stifel's Global Wealth Management segment had a record quarter with revenue of $907 million, pretax margins nearly 38%, and ended the quarter with record total client assets of $544 billion and record fee-based assets of $219 billion. The Institutional Group had revenue of $500 million, up 34% from the prior year, with strength in investment banking and transactional revenues. Wealth management represents about 64% of revenue, and institutional about 36%.

• Q4 NII forecast $270-280 million.
• Adjusted non-comp ratio expected similar to Q3 in Q4.
• Institutional Group margin target 20-22%.
• Expected strong second half due to lower taxes, reduced regulatory burdens, and higher capital spending in technology.

• Government shutdown impacting IPOs.
• Credit market idiosyncratic issues, but Stifel's loan book and CLO exposure are low risk with AAA and AA CLOs, 60% in AAA class, 40% in AA class, weighted average credit enhancement 32%.

Q: Question on investment banking, depository space, and credit backdrop A: Ron and Jim discussed investment banking pipeline, market environment, regulatory attitude, and credit, noting Stifel's loan book and CLO exposure are low risk Q: Question on investment banking margin and bottom line A: Ron and Jim talked about institutional margin (13.6% year-to-date) and potential for 20-22% margin, leading to incremental leverage and bottom line flow Q: Question on capital uses A: Ron stated capital allocation based on best risk-adjusted returns, including dividends, buybacks, growing the bank, and acquisitions when accretive Q: Question on FICC brokerage, recruitment, and sweep deposits A: Ron and Jim discussed FICC brokerage strength from integration and relevance, recruitment trends as robust due to platform and culture, and sweep deposit trends with $640M increase in quarter and $1B+ from venture banking Q: Question on valuation, selling the firm A: Ron stated Stifel is a great asset with no need to sell other than short-term share price pop, and emphasized growth and market share gain Q: Question on advisory trends and sweep deposits A: Ron mentioned advisory revenue above public data due to small and mid-cap deals, and Jim updated sweep deposit balances with $500M+ drop from quarter end but expected growth through year-end Q: Question on corporate M&A and segment exit A: Ron stated no specifics on announced segment exit, and it's immaterial to Stifel's growth outlook Q: Question on balance sheet growth outlook A: Jim discussed $1B loan growth goal in back half, with fund banking, family residential loans, and venture balances contributing