- Net Revenue: $1.22 billion, up 16% from 2023.
- Commissions and Principal Transactions: Increased 24%.
- Investment Banking Revenue: Increased 40%.
- Advisory Revenue: Up 50%.
- Capital Raising Revenue: Up 29%.
- Asset Management Revenue: Up 19%.
- Net Interest Income (NII): Declined $40 million or 14%.
- Pre-Tax Margin: 21%.
- Operating Earnings Per Share (EPS): $1.60, up 33% from the prior year.
- Return on Tangible Common Equity: 22%.
- First-Half Net Revenue: Nearly $2.4 billion, up 10%.
- Senior Notes Retirement: $500 million, reducing $21 million in annual interest expense.
- Global Wealth Management Revenue: $801 million.
- Pre-Tax Margins for Wealth Management: More than 37%.
- New Advisors Added: 42 advisors.
- Total Client Assets: $474 billion.
- Institutional Group Revenue: $391 million, up 41% year on year.
- Investment Banking Revenue: $233 million.
- Equity Underwriting Revenue: $48 million, up 59% from the same period in 2023.
- Fixed Income Underwriting Revenue: Increased 8% from 2Q '23.
- Advisory Revenue: $131 million.
- Equity Transactional Revenue: $53 million, up 16% from the second quarter of 2023.
- Fixed Income Transactional Revenue: $107 million, up 58% year on year.
- Net Interest Income (NII) Guidance for Q3: $250 million to $260 million.
- Non-Performing Asset Ratio: 29 basis points.
- Credit Loss Provision: $3 million for the quarter.
- Tier 1 Leverage Capital: 11.1%.
- Compensation Ratio: 58%.
- Non-Comp Operating Expenses: $260 million.
- Effective Tax Rate: 25.8%.
- Share Repurchases: 229,000 shares in the quarter.
- Excess Capital: More than $415 million.
- GAAP Net Income: $156 million.
Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Stifel Financial Corp (SF, Financial) reported a 16% increase in net revenue for Q2 2024, totaling $1.22 billion, marking the second-best quarter in the company's history.
- Investment banking revenue surged by 40%, with advisory revenue up 50% and capital raising increasing by 29%.
- Record asset management revenue grew by 19%, driven by organic growth and market appreciation.
- The company achieved a pre-tax margin of 21% and an annualized return on tangible common equity of 22%.
- Stifel Financial Corp (SF) retired $500 million in senior notes, reducing long-term liabilities and eliminating $21 million in annual interest expense.
Negative Points
- Net interest income (NII) declined by $40 million or 14%, falling short of Street estimates, although it remained within the company's guidance range.
- The compensation ratio was 58%, which is at the high end of the company's full-year guidance.
- Non-compensation operating expenses were $1 million above consensus, totaling $260 million.
- The company incurred nearly $10 million in severance costs tied to efficiency initiatives and international operations.
- Average interest-earning asset levels declined by nearly $1 billion, impacting net interest income.
Q & A Highlights
Q: Ron, you spoke about the potential for more cash sorting. Do you think we're close to the end with transactional cash at such low levels? And why do you think wirehouses made recent moves regarding cash sorting?
A: (Ronald Kruszewski, CEO) We believe we have managed cash sorting correctly prior to it becoming a hot topic. Our sweep deposits don't have a 0.01% rate, unlike some institutions. Clients need options for higher cash yields, and we have provided those. The average operational cash balance is around $9,000, which is low due to the rate environment. The metrics are similar between brokerage and advisory.
Q: Can you provide an update on the balance sheet and appetite for new loans? What are you seeing in the market?
A: (James Marischen, CFO) We have the capacity to generate additional loans. This quarter, we grew loans by a couple hundred million dollars, reallocating from cash into loans. We are seeing attractive risk-adjusted returns in fund banking, mortgage, and CLO portfolios. Our appetite to grow the balance sheet is increasing as we see the cash sorting issue becoming less significant.
Q: Are you confident that a deficient sweep yield is not a competitive disadvantage relative to recent moves at wirehouses?
A: (Ronald Kruszewski, CEO) Yes, we are competitive. We offer a competitive product for our clients, considering all aspects of the client's experience. We are already offering 2% on our sweep program, which is competitive with recent moves by larger peers.
Q: What are the drivers of upward pressure on the compensation ratio? Are there other factors?
A: (Ronald Kruszewski, CEO) The reason we're tightening our comp-to-revenue range is that we are on track with our expectations. We are rebuilding from a decline in revenue and maintaining our platform. NII plays a big role in comp leverage, and we have absorbed a decrease in NII while maintaining stability in our diversified business model.
Q: What drove lower deposit costs quarter on quarter?
A: (James Marischen, CFO) The decline in deposit costs was related to moving higher-costing deposits off balance sheet and using more sweep deposits. This flexibility allowed us to manage costs effectively.
Q: How does the Smart Rate product address the issue of sweep deposits in advisory accounts?
A: (Ronald Kruszewski, CEO) Smart Rate cannot be held in advisory accounts due to regulatory rules, but we offer equivalent yields through ticketed money funds. The balance of ticketed money funds in advisory accounts is almost identical to the balance of advisory sweep cash accounts.
Q: What is the outlook for loan growth from here? Are there any constraining factors?
A: (Ronald Kruszewski, CEO) We have tremendous demand for loans. The constraining factor has been the foundational basis of funding and the economic environment. We are now more confident in growing the balance sheet in a profitable, risk-adjusted way. We focus on relationship lending rather than just spread lending.
Q: Can you provide color on the marks during the quarter for FIC trading and the outlook moving forward?
A: (Ronald Kruszewski, CEO) Our rates trading is correlated to bank balance sheet activities, and we see that activity picking up. The trend in that business is good, but we typically see some seasonality in the third quarter. We had some gains during the quarter that played into the results.
Q: What are your capital priorities now that the debt is retired? How should we think about the pace of buybacks?
A: (James Marischen, CFO) We have $415 million of excess capital and the capacity to deploy capital in buybacks. The buyback will be price-dependent and not linear. We will be opportunistic and active in the buyback at some point in the future.
Q: What is your perspective on the competitive nature of sweep deposit rates and the regulatory aspects?
A: (Ronald Kruszewski, CEO) We believe we have a competitive and fair product. The regulatory aspects are complex, but we are confident in our approach. We have managed this issue appropriately and competitively.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
