Stifel Financial Corporation

2024 conference call. As a reminder, today's call is being recorded. At this time, I'd like to turn the call over to Mr. Joel Jeffrey, Head of Investor Relations of Stiefel Financial. Please go ahead.

Thanks, Operator. I'd like to welcome everyone to Stiefel Financial's first quarter 2024 conference call. I'm joined on the call today by our Chairman and CEO, Ron Koshefsky, our Co-Presidents, Victor Nisi and Jim Zemlack, and our CFO, Jim Marichan. Earlier this morning, we issued an earnings release and posted a slide deck and financial supplement to our website, which can be found on the investor relations page at www.stiefel.com. I would note that some of the numbers that we state throughout our presentation are presented on a non-GAAP basis, and I would refer to our reconciliation of GAAP to non-GAAP as disclosed in our press release. I would also remind listeners to refer to our earnings release, financial supplement, and our slide presentation for information on forward-looking statements and non-GAAP measures. This audio cast is copyrighted material of Stiefel Financial and may not be duplicated, reproduced, or rebroadcast without the consent of Stiefel Financial Corp. I will now turn the call over to our chairman and CEO, Ron Krzyzewski.

Thanks, Joel. To our guests, good morning, and thank you for taking the time to listen to our first quarter 2024 conference call. The momentum we had exiting 2023 continued as we generated the second highest quarterly revenues in our history. We benefited from market conditions that included strong equity markets, recovering capital markets, and an improving US economy. Total net revenue of more than $1.16 billion was driven by record global wealth management revenue, as well as the continued improvement in our institutional group. As revenues improved, we maintained a focus on expense discipline, and this approach resulted in a 20% pre-tax margin, operating earnings per share of $1.49, which was a 6% increase year on year, as well as a return on tangible common equity of 21%. This resulted in another quarter of substantial excess capital generation, which we deploy primarily via share repurchases. Even with the substantial share repurchase activity and our increased dividend, our tier one leverage ratio increased by 10 basis points during the quarter. I'd also note that the strength of our business was recognized by the credit agency upgrade we received from Standard & Poor's earlier this month. Slide two is a variance table to consensus estimates. Our EPS of $1.49 was three cents higher than consensus and was the result of net revenue that came in 20 million above expectations. We beat on all revenue items except net interest income, which I note came within our guidance range. I think it's important to note that our NII for the quarter of 252 million may very well be the low point of the year as we anticipate balance sheet growth and less impact from cash sorting during the remainder of the year. In terms of where we beat consensus, I'd note that investment banking came in nearly 30 million above expectations on stronger advisory and underwriting revenue, both as compared to consensus, as we are beginning to see increased activity levels. Transactional revenue came in $5 million above the street on stronger wealth management and institutional equity revenue. Total expenses were higher than consensus. However, much of that was reflected in compensation expense as a result of higher revenues. I would note that the comp ratio remained consistent at 58% and was slightly below expectations. Non-comp expenses were $8 million higher than expectations, which Jim will discuss in greater detail later in the call. But I'd point out that excluding credit provision and investment banking gross-ups, our non-comp operating ratio was essentially in our guidance. Slide three compares operating metrics since 2019. Starting with net interest income, I would note that this has increased over 100%. This is noteworthy because it represents a consistent source of revenue that, along with our other fee-based revenues, offset the volatility of our institutional business. In 2019, global wealth management revenue was $2.2 billion, which compares to approximately $3.2 billion based on our annualized first quarter 2024 global wealth revenue. On a percentage basis, global wealth management is up 45% since 2019. This growth offset a deep industry-wide recession in capital markets that reduced the pre-tax income of our institutional group. from $560 million in 2021 to essentially break even in 2023. Our results in the first quarter indicate the onset of a rebound in investment banking, but it is far from a normalized run rate. As market conditions improve, we anticipate returning to more historical levels of profitability in this segment. For example, in 2022, we generated $254 million in pre-tax income, which I would note was not even a particularly strong market for investment banking. As revenue and margins continue to return to more historical norms, we will also benefit from the investments we've made in our wealth management segment. One item I would like to note is the benefits we've seen from our smart rate product, which enabled us to maintain our client cash within Stifel as interest rates rose. The increased levels of cash and smart rate makes TIFO less sensitive to the impact of lower interest rates when the Fed begins to cut. Last year, we noted that a 100 basis point decline in rates would result in a $65 million reduction in net interest income. Given the growth in smart rate, which carries a higher deposit beta, our updated disclosure in 2024 reduces the impact on net interest income to $15 million on the same 100 basis point decline in rates. So as we look to the future, we see improving results from our institutional group, consistent growth from our wealth management franchise, and elevated levels of NII contribution. This combination leads me to believe that we will continue to generate strong performance for 2024 and as we transition to 2025. With that, let me turn the call over to Jim Marish to discuss our most recent quarter results.

Thanks, Ron, and good morning, everyone. Looking at the details of our first quarter results on slide four, our quarterly net revenue of $1.16 billion was up 5% year-on-year. The increase was driven by stronger client facilitation, trading, and underwriting revenue that was partially offset by lower net interest income and advisory revenue. Our EPS was up 6% from the prior year, as higher revenues and a lower share count more than offset modest expense growth. Moving on to our segment results, global wealth management revenue was a record $791 million, and our pre-tax margins were 37% on record asset management revenue and strong growth in transactional revenue. We continued to add new advisors to our platform. During the quarter, we added a total of 22 advisors. This included 15 experienced advisors with trailing 12-month production of $6.8 million. We ended the quarter with record fee-based assets and total client assets of $177 billion and $468 billion, respectively. The sequential increases were due to higher equity markets and organic growth, as our net new assets grew in the mid single digits. We highlight our longer-term growth drivers of our wealth management business on slide six. Our focus on recruiting and supporting our advisors with best-in-class service has been the approach to our long-term success. Not only has our revenue contribution from this segment continued to increase, but the percentage of revenue generated by recurring sources, such as asset management and net interest income, has increased significantly and now stands at 77%. Moving on to slide seven, where we highlight the solid trends at the bank. Net interest income of $252 million was in the lower half of our guidance range, as bank net interest margin was impacted by higher deposit costs, larger average cash balances, and the movement of sweep deposits back into third-party banks. Given the timing of the move to third-party banks at the end of the fourth quarter of 2023, we recognize the bulk of this impact on NII and asset management revenue in the first quarter, as asset management revenue from third party banks increased $7.5 million sequentially. As we had forecasted, cash sorting was impacted by seasonality in the first quarter, but continues to slow. Bank sweep deposits increased during the quarter by $130 million, but were more than offset by the reduction of third party sweep balances by $872 million. Given our expectations for similar cash sorting and modestly higher bank NIM, we expect that NII in the second quarter will be similar to our first quarter results. And as such, we're forecasting a range of $250 to $260 million. Our credit metrics and reserve profile remain strong. The non-performing asset ratio stands at 20 basis points. Our credit loss provision totaled $5.3 million for the quarter, And our consolidated allowance to total loans ratio was 89 basis points, which was impacted by the decline in loan balances as a result of paydowns in fund banking. Lastly, our balance sheet continues to be well capitalized. Tier 1 leverage capital increased 10 basis points sequentially to 10.6%. And also note that the unrealized losses in our bond portfolio continue to improve as credit spreads tightened in the CLO market. On the next slide, I'll discuss our institutional group, where we saw continued improvement as the operating environment continues to recover. Total revenue for the segment was $351 million in the first quarter, up 6% year on year, led by a strong increase in capital raising and transactional revenue. Firm-wide investment banking revenue totaled $213 million, a substantial growth in capital raising, more than offset a decline in advisory revenue. In terms of equity underwriting, the $40 million we generated was our strongest quarter since the fourth quarter of 2021 as we had a meaningful contribution from our healthcare vertical where we've made significant investments in recent years. Advisory revenue was $119 million as we had solid results in our industrial and healthcare verticals. We were again impacted by the delay in deal closings. However, our pipelines are improving as the US M&A market is showing signs of strength. Equity transactional revenue totaled $54 million, which was up 3% from the first quarter of 2023, which was a tough comparison as last year's commissions were positively impacted by the volatility that resulted from bank failures during that quarter. We continue to gain traction in our electronic offerings, as well as strong engagement with our high-touch trading and best-in-class research. Fixed income generated net revenue of $139 million, an increase of $36 million year on year. We experienced strong growth in transactional and capital raising revenues as both increased $18 million from 1Q23. I would note that we continue to see strong flow activity in our transactional business, but our trading gains in fixed income were significantly lower than what we experienced in the fourth quarter. Fixed income underwriting revenue increased 57% from 1Q23 as we continue to be a leader in the municipal underwriting business as activity increased and we continue to be ranked number one in the number of negotiated transactions as our market share was greater than 15% in 2024. We're also seeing improved traction in our taxable capital raising activities, which improved year on year. On the next slide, we go through expenses. Our comp-to-revenue ratio in the first quarter was 58%, which is at the high end of our full-year guidance as we accrue conservatively early in the year. Non-compensation operating expenses, excluding the credit loss provision and expenses related to investment banking transactions, totaled approximately $245 million. Our non-comp-op X as a percentage of revenue was 21.1%. The effective tax rate during the quarter came in at 25.2%. The tax rate was positively impacted by the excess tax benefit related to stock-based compensation, but was offset by non-deductible foreign losses. Before I turn the call back over to Ron, let me discuss our capital position. In the first quarter, we repurchased approximately 2.3 million shares through both net settling of equity-based compensation and open market purchases. As of the end of the quarter, we have 11 million shares remaining on our authorization. We have approximately $210 million of excess capital based on a 10% Tier 1 leverage target. Additionally, we continue to generate substantial amounts of excess cash as illustrated by our first quarter net income of $154 million. We remain focused on generating strong risk-adjusted returns when deploying capital, and we've done this through reinvesting in the business, making acquisitions, as well as through share repurchases. Absent any assumption for additional share purchases and assuming a stable stock price, we'd expect the second quarter fully diluted share count to be on 109.9 million shares. And with that, let me turn the call back over to Ron.

Thanks, Jim. At the end of last year, I said 2024 would be a transition year and that my outlook for 2024 was optimistic. I stand by those statements. I would add that so far in 2024, we're off to a good start as both revenue and EPS in the first quarter exceeded consensus estimates. Simply looking at our annualized first quarter revenue, we are already near the midpoint of our full year guidance, despite market conditions that aren't overly accommodating. The outlook for the remainder of the year is certainly not without risks, as our performance could be negatively impacted by the ongoing geopolitical crises, the uncertainty of the US presidential elections, potential credit market deterioration, and persistent elevated inflation, just to name a few. Speaking of inflation and Fed policy, I would note that at the beginning of 2024, the market anticipated six to seven rate cuts. Stiple was not in this camp, and we projected two to three rate cuts. We stand by this view, although now believe that zero to one rate cuts and even a rate increase are also in the cards. Look, the Federal Reserve finds itself in a precarious position, navigating the tightrope between controlling inflation and preventing recession. It's not an easy task. The Fed's unprecedented series of rate hikes in 2022 were successful at slowing the inflation that reached 40-year highs. Yet the market has numerous reasons to justify the Fed to begin a cycle of rate reductions, chief among them a desire to achieve a soft economic landing. While we and everyone, it seems, would like lower rates, the Fed should recognize that reducing rates now is both unnecessary and risky for the economy. We believe that inflation will prove sticky, and cutting rates too soon may reignite inflationary pressures, undoing the progress made so far. Simply, ensuring that inflation is at or near the Fed's stated target of 2% is more important than trying to ensure a soft landing. The Fed has plenty of rate flexibility if the economy slows significantly and, in our opinion, should not attempt preemptive rate cuts at the risk of invigorating inflation. That said, we are seeing market conditions continue to improve. Specifically, I'd point to improved sentiment for investment banking, strong year-to-date equity market performance, and increased client transactional activity. If these trends continue, we'd expect to see increased revenue growth and improved operating efficiency throughout the remainder of the year. This would put Stiefel in a very strong position heading into 2025. Let me conclude by saying that we are committed to create value and maximize returns for our shareholders through all market cycles. We have and will continue to do this by reinvesting in our business through strategic hiring and acquisitions, deploying capital based on generating the best risk-adjusted returns, and always putting our clients' needs first. This approach is essential to steeple reaching our near term targets that I've discussed of over $5 billion in revenue and about $8 of earnings per share. I would note that this is essentially 2025 consensus analyst projections. Additionally, you've heard me talk about our longer term goal of $1 trillion in client assets under management. While at that level of asset growth, I believe our business would be at the scale to generate roughly $10 billion in annual revenue. I recognize that this is essentially twice our current size. However, my confidence in reaching these levels is bolstered by our historical growth rates. As recently as the period between 2015 and 2021, we doubled our annual net revenue. As we continue to attract high-quality individuals and as we as an organization continue to adapt and constantly think like a growth company, I believe that over the next decade, these revenue and client asset milestones are achievable, if not exceedable. And with that, operator, please open the lines for questions.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions.

We will take our first question from Devin Ryan with Citizens JMP.

Good morning, Devin. Thanks so much. Good morning.

How are you, Ron? Good. First question, just want to take a step back and look at the investment banking business that you guys have built here. And we're just really thinking about kind of the evolution in recent years. And it'd be great just to maybe give some perspective around how you guys have increased the size and capabilities of that business relative to where you were in pre-COVID, because revenues have clearly been anything... you know, from normal the last few years from 2021 extreme, you know, good to the last couple of years and maybe on the other side of that. And so just trying to think about what kind of a normalization for Stiefel could look like because of all those investments, it would seem that you don't need a 2021 like environment to get back to something into that ballpark of revenues. Thanks.

You know, I think it's a great question. It requires a little bit of a crystal ball, Devin. But what I'm confident in saying is that as you look and compare to 2019, the capabilities of the firm across our institutional business, not just in investment banking, but are significantly greater in terms of senior producing people, managing directors, products. services and just the evolution of the business. As you continue to do more business and are more relevant to your clients, that leads to more business. That's just a cycle of the business. I don't think there's any question that we'll look, I think, for a little while as 2021 being a high watermark. Everything that came together at that time INCLUDING THE PHENOMENON OF SPACS AND EVERYTHING THAT HAPPENED, THAT WILL BE A HIGH WATER MARKET REVENUE AT LEAST FOR A LITTLE WHILE IN MY OPINION. as we've looked at it, we can get back to acceptable margins in this business. And we've said that instead of 2021 being $2.2 billion, we say more like $1.7 to $1.8 billion. I think that that's easily attainable. And the important thing is going back to some profitability from a business where we essentially broke even last year and yet still achieved great corporate results as that business improves, the profitability improves. And, of course, that will be part of getting to the targets that I mentioned in my remarks.

So Ron talked about increased capabilities, more managing directors. Just put some numbers behind that. We've increased the number of managing directors by 65 people from 2018, so it's a fairly significant investment. They talk about a lot of our capabilities we've added. I would say we've also made investments in some of our key verticals. We've got, you know, a best-in-class product in our financials group with KBW. And you've heard us reference multiple times on this call some of the investments and the results being generated by the investments we've made in our healthcare and our industrial franchises. So I just add to that.

Okay. Great call. Thank you both. Just a real quick follow-up here for Jim. In the bank, you know, obviously loan balance has declined a bit from last quarter. I'd love to just get some flavor for kind of the environment you're seeing around the loan book or appetite to grow the loan book from here, what type of risk-adjusted returns in the market today, and then just also kind of an interplay between kind of growing the balance sheet versus just leaning in on buybacks as you guys have been doing. Thanks.

Yeah, I mean, I think we kind of hinted to this in the prepared remarks as well, is that we do anticipate seeing some balance sheet growth, specifically in the loan portfolio. I think you will see more loan growth in the areas we've historically grown. If you think about fund banking and venture banking, as well as our mortgage portfolio, those are all areas we're going to continue to invest in. And I think you can look at the yield table and see the kind of returns we can generate there. And I think As we sit here in balance today, we are generating a lot of excess capital, and thinking about balancing some of the buyback versus balance sheet growth is part of that consideration. It does take some time to start to generate and get those things going in terms of adding loan balances, but that's something we're definitely focused on.

All right. Thanks very much.

We will take our next question from Bill Katz with TD Cowen. Thank you.

Okay, thank you very much. I appreciate it. Just following up on those last sets of questions, as you think through the interplay between your NAI guide, how do we think about, to the extent that if rates are sort of higher for longer, the interplay between the NIM looking ahead versus the opportunity to grow the balance sheet to sort of calculate through to that NAI outlook? Thank you.

I think the answer to that is a little bit hard to predict because understanding and predicting client behavior in that environment is going to have an impact on the NIM. As we've said, we continue to see cash sorting continue to slow, but obviously there was an impact associated with tax season that we see every year. I think the key thing to think about there is we continue to monitor this, what happens to these balances, not just at Steve across the industry, as we continue to get further and further away from tax season. That said, even if we saw additional sorting pressures, the capabilities we've built and the yield opportunity on the loan portfolio would allow us to continue to grow and make the reasonable risk-adjusted returns that we target. So even if there is continued pressure there, we do feel comfortable with what that environment looks like.

Yeah, I would just add that You know, I always am cautious in an inverted yield curve environment, both as it relates to the behavior on cash client sorting activities, and frankly, you know, is that the SOPA rate is, you know, significantly inverted and the pressure that can put on various, you know, credit metrics. So, you know, we see, though, from this point, we have been limiting our balance sheet growth And we see a lot of quality demand. So, as I said in my remarks, you know, we believe that whatever cash sorting is left, as it impacts our NII, will be offset by balance sheet growth. So that we think that we're at a, you know, we're at a low point at NII.

Great. Just sticking with that theme, just one level deeper, as you sort of think through April, I sort of wanted you to comment on behaviorally how clients are funding any tax liabilities. And then as you look in a world where rates sort of stay here and we stay sort of in your framework of maybe plus or minus one rate move, how do you think the mix of client assets might migrate from here? That is, what percent might stick in the sweep vehicles versus what might stay in more of the money market, higher cost vehicles? And when might you start to see more favorable inflection to that? Thank you.

Well, two things. First of all, every year, you know, the clients, you know, they deal in tax season by wiring money to the federal government, generally out of our accounts and out of every brokerage account. And that can be exasperated in years where, you know, you also have to make estimated tax payments. So you had a strong first quarter. You might have some more capital gains. So, you know, we see what I would say normal activity whereby, Clients just take it out of our various cash products and wire it to the federal government. Thank you very much. So, you know, it's just taxes. As it relates to client behavior, it'll be interesting because when and if, at some point, the Fed will begin to cut rates. You know, I'll say as an aside, you know, if I could, you know, be Fed chairman for the day, I don't really think that we need rates. cuts as much as we need a rate adjustment, meaning that if you could just snap your fingers and not signal to the market that you're beginning a rate cycle, you'd probably want the Fed funds rate to be about 475, which would be flat to the two-year. It wouldn't be inverted. That'd be ideal, I think, but probably not going to happen. But what'll happen as rates do start to decline as clients like the 5% handle on short-term rates, and they might reach for some duration to maintain rates, we've been thinking about that and have some products to make sure that we have that alternative for our clients. Just like we got ahead of the curve of smart rate, we will, in terms of what the yield curve might, what our clients might want to do as the yield curve begins to normalize.

One other thing I think would add to that is we already have about $18 billion of client assets that have moved into short-term treasuries and money market mutual funds. And obviously that number can go up some from here, but that's a pretty big allocation relative to historical norms. And obviously if rates stay higher for longer, those are probably going to stay somewhat elevated. If we turn around at some point and see rates come back down, that's a fair amount of investable dollars that aren't really earning much today. that's potential revenue within our private client group that's kind of sitting on the sidelines today.

Thank you so much.

We will take our next question from Steven Chubach with Wolf Research.

Hey, good morning, Ron and Jim. It's Michael, and our talk is on for Steven. I wanted to start off with one on the DOL fiduciary rule. Ron, you had been relatively cautious versus some of the peers on the implications of the rule back at the conference in November. With the final rule now published, maybe you can remind us your views there, what this means for the industry, any implications that you would highlight for Stiefel's earnings as well. Thanks.

Yeah, look. I mean, it was published yesterday. It's about 500 pages with numerous preambles and various things. As a first blush, I want to say I was somewhat maybe surprised that at least an initial review of the rule appears to be less restrictive than what was proposed. I think that a number of people in the administration are trying to not create a rule that is so similar to the one that was struck down by the Fifth Circuit back in 2018 or whatever it was. I would say that the rule really targets, just to say that as is primarily fixed index annuities, which we don't really sell at Stiefel. However, I would say that that probably is going to draw a legal challenge from the insurance groups the rule probably is still susceptible to legal challenge. You know, but they did some things like you can continue to have education for IRA rollovers. And, you know, I thought that it was interesting that they expanded the principal transaction, which was always a concern of ours, mostly from investor choice. that you should be able to do an IPO in your IRA if you wanted to. And it appears they put that back in. So on balance, I think the rule has an implementation period of about a year. I think it's going to get challenged. But as I see it today, I think it doesn't really significantly impact our business as I've seen it now. We've done a lot to implement BI, Reg BI, Overall, I always say the same thing, that to the extent that it has a lot of variance to Reg BI, then that just becomes very difficult to manage. Most of our clients have retirement IRAs and they have taxable accounts, and we can't be operating under two standards. I'll continue to be looking at that. I know the industry is going to look at that. But I guess my first blush reaction was that it appeared to dial back from the proposal that came out a month or so ago.

Right, that's very helpful. And then just one on bank M&A. Following the close of the Lakeland merger that had lingered for quite a while, are dialogues among potential deal candidates in the bank space picking up, or is the view that the current administration will continue to cause headwinds there? And then maybe just to round it out, Can you give us a sense of how you expect the environment for Bank M&A to evolve depending on the election outcome? Thanks.

I don't know. Maybe you gave me some information. I wasn't sure that Lakeland had closed. That deal's been sitting around for a while. I think we think it will close.

Maybe I misspoke. I'm sorry about that. That's all right.

That's all right. I think we do expect it to close. In general, look, I think the Overall, the guidelines and what's been put out and the FDIC and a number of guidelines and having different, this administration has clearly put a delay in transactions. That'll continue. I don't see why that's not going to continue. And if it does anything, as it relates to M&A, If I'm on a board, I'm considering and putting a risk factor into my thought process as to how to manage a delay in closing. That's part of assessing price and the ability to do transactions. So I'm hopeful that the administration, whichever it could be after November, will recognize that a lot of mid-sized banks need to combine to meet enhanced regulatory, enhanced liquidity, and everything else. We don't need over 4,000 banks. We need more than 10, but there is a lot of M&A activity that's going to occur, and I'm hopeful that the administration will encourage bank mergers because it's good not only for shareholders but also communities and for the fabric of United States capital markets, which has at its foundation community and regional banks.

I think one thing to add there is obviously the timeline from announcement to close has extended significantly. We are hearing from clients that we feel like they've gotten to the point where they don't feel like that's going to get any longer from here. And I think I would just say that if the environment switches to be more conducive for you know, financial M&A, we're very well positioned to take advantage of that.

Got it. Thank you for taking my questions.

We will take our next question from Brennan Hawken with UBS.

Good morning. Thanks for taking my questions. Hey, how are you, Ron? So, Jim, in your prepared remarks, you commented that you added, I believe, 22 advisors in the quarter, but the FA headcount dropped by about 30 quarter over quarter. Can you speak to what drove that drop despite the healthy gross adds?

Yeah, it was primarily driven by retirements. I think you see that early in the year often. I think, generally speaking, the pace of recruiting has slowed a little bit, and so some of the natural attrition from retirements was more of a similar number to what we added in terms of net new advisors. And that is really the trend we're seeing there. I think when you see markets moving like they have moved, typically advisors take a little time to make the decision to transition. And I think that's something you're seeing kind of across the industry today.

When you have those FA retirements, Do you have any stats around what portion of those retiring advisors' books you are able to retain or maybe finance to move to a younger advisor or anything like that?

We don't have stats that we publish. We obviously look at that. I would say with retirements, most advisors, we have programs for them to transition their books. We give them incentives to do so. And And those assets are generally retained at the firm. If there's a challenge, it's that those assets, like our advisors that are going through retirement, those assets are often going through intergenerational changes, too. And so, you know, there's sometimes a higher challenge as you go from parents to kids. But we have programs to do that, too. So net-net, we believe that when someone retires at steeple, that's a good thing. When you want to look at what's not necessarily a good thing, it's our regrettable attrition, which has been low. You know, when someone's leaving to retire somewhere else or something, that's not good. But when they retire here, that's a good thing.

Got it. If I could squeeze in one more, just somewhat maybe technical or nitty-gritty, but It seems as though the other deposits were net of $1.3 billion at third-party banks. Are those balances that are at third-party banks reflected elsewhere in the supplement? And what drove the decision to move those off balance?

So if you look at page nine of the supplement, you can see the roughly $2 billion of other bank deposits. So in essence, late in the quarter, we moved about 1.3 of primarily venture deposits over to third party banks. Some of that was a function of just the cash on hand at the bank and the lack of growth that we saw in the first quarter. So we can move deposits off balance sheet either through the suite program or through these venture deposits. This is the first time we did that. I would just say if you think about that, you add the billion three back to the two, you, yes, or 1.3 to the two, you, in essence, you can see that we were up about $500 million. Venture deposits drove about $300 million of that increase, and there were other corporate deposits drove about $200. That's probably more unusual in nature, but the $300 has been a fairly consistent pace over the last few quarters in terms of growth in venture deposits.

Yeah, that's more in line with trend. Great.

Thanks very much.

We will take our next question from Alex Blosstein with Goldman Sachs.

Hey, guys. Good morning. Just a question around your comments as far as loan growth demand goes. So it sounds like for the last couple of quarters, and we've seen that you guys have been sort of reluctant to extend the balance sheet a little bit. Now it seems like you want to lean in a little more. Can you just characterize a little bit on your comments surrounding sort of the high-quality demand that you referred to? which buckets is that likely to drive growth? And then around the same topic, the bank, the fund banking loan, I know has been an area of focus, but that's been down. So what's kind of been driving the decline and how do you guys expect this to bridge the gap to loan growth? Thanks.

Yeah, I'll let Jim give a little detail. From my perspective, we've had and continue to have strong loan demand, primarily in you know, our consumer-type areas. And yet what we said that we were going to do was remix our balance sheet a little bit. So while you see some loan growth, we've been not, quote, renting our balance sheet as much. You know, we have sold some broadly syndicated loans. We don't renew deals that we're – necessarily just part of a group. We want to be lending more holistically and achieving more fee income, not just net interest income from our relationship. So you've seen a sort of remixing of that. I think that we're getting, we've seen a lot of that and maybe we'll see now just net loan growth. which has been going on, it just won't be as offset as much by the fact that we just, frankly, haven't renewed some loans, I would say.

I think it's fair. Obviously, we've made a number of investments across both fund banking and our venture banking efforts, and those are still bearing fruit. On the fund banking side, we have been transitioning more to lending on a bilateral basis, as Ron had mentioned, basically allowing us more opportunities for other fee income or other deposits. And that's been a driver of more of the short-term changes you've seen there. And I think as we go forward, we see a fair amount of capacity from both the fund and venture banking teams.

I got you. Thanks. And on the FASE side of things, there's been maybe a little bit more chatter around rising competition for recruiting and the pay packages. And I know that's always part of the framework and it's always competitive, but have you noticed any directional change in just the degree of of competition and economics that are provided in the channel. And as you sort of think about Stiefel's net new asset contribution, can you help us characterize the mix between recruits versus same-store sales? Thanks.

You know, obviously, we have not broken out a mix between recruits and same-store sales. I think it's one of those things where at what point do you consider someone no longer being recruited? Is it after six months? Is it after nine months or 12 months? Where do you break it and where do you look at that? Obviously, we think we are holding our own in terms of net new assets, particularly when you look at your total assets and your total fee-based assets and the way those percentages change period over period, both sequentially and year over year. Others are reporting higher net new asset numbers, but total assets that are managed, which drive fees, generally are moving in very competitive directions with peers there.

Yeah, and look, I always look at, I've commented before that, I don't want to say the obsession, but a lot of the net new asset metrics, you know, I can't always draw a line between that and revenue growth and profitability. I'll stick by our growth, like I said, almost in our view, double our assets under administration to a trillion, and our historical growth and our historical improvement and productivity by person are the metrics that I really look at, and I feel very good about those.

Got it. And just to clean up for Jim on the back of Brenna's question as well, the $1.3 billion that moved to sweep, what's the revenue yield on that, and just where does that show up? Because I don't think it's in your wealth.

Well, it shows up within global wealth management because it's going to show up in the asset management line. It was de minimis for the quarter. The fee capture rate on that is significantly lower than what we get on third-party sweeps, just given the inherent interest rate on those deposits relative to the sweep. So you're talking something around 10 basis points or so because it's basically an amount you're taking off the top of the yield. And there's a lot less room there to do that on venture deposits relative to sweep deposits. Got it. But you can move it back to the bank.

It's in fee income. Yeah.

Got it.

Okay. But the point being is like you can move it back to the bank whenever you want if there's loan growth. Correct.

Correct. We just wanted to make sure people understood that's an additional $1.3 billion in not shown on page nine of the supplement to fund loan growth as we go forward.

I have a feeling next quarter it's not going to be in that footnote, okay?

All right. Thanks, guys.

We will take our next question from Chris Allen with Citi.

Hey, Chris. Hey, Morty. Good morning, everyone. Maybe just a quick one on global wealth management, brokerage revenues, obviously a nice quarter, both commissions and principal transactions. Maybe just some colors on the commissions, what was driven by mutual fund trails, and kind of what's the outlook in principal transactions, more appetite for credit or rate-related products there?

Most of the increase we saw on the sequential basis was driven by equities activity and mutual fund trails. Those were built up nicely. I think you saw people engaging in the market as we saw some pretty attractive returns in the market, and I think that spurred a lot of client behavior.

Yeah. I mean, look, it's... correlated to market levels and both trails and activity. So, you know, that's good markets generally will result in that line item transactional improving, and this was no different.

Thank you, Seth.

We will take our next question from Bill Katz with TD Cohen.

All right, thanks for squeezing in the follow-up. So, Ron, you had me do a new little round with my calculator a little bit on your $10 billion revenue number that you laid out, and I appreciate that's rather aspirational. So just a couple questions underneath that, all interrelated. What kind of time frame – Does the model compound a little more quickly today, just given the commentary just about having a stronger platform versus the last couple years, number one? And then underneath that, relatedly, what kind of aspirational margin target should we be applying against that sort of thing through the earnings power of the company?

Yeah, look, I appreciate the question, Bill, and I hope you'll appreciate that I'm not really going to answer it. But, I mean, you know, that's forward thinking. First of all, I don't know how aspirational I'm going to say that that is. I've had these aspirational comments back when we had $200 million of revenue that went to $400 in 2009. We were at $900 million. I said we doubled the firm, and we got to $1.8 billion. And then I said we doubled the firm, and people said, oh, my gosh, by when? And we'd say, well, we wouldn't. And we've done that, and we've continued to do that because our – ability to gain market share across all of our businesses is still a lot of open runway. And so when I look at our historical growth rate, you know, to put not an aspirational goal but a milestone in the ground, which in this case is $10 billion of revenue and $1 trillion of assets, they are correlated as to if you take that calculator you were talking about and go back and look at our wealth management, our asset center management, and our institutional business, and you plot those, you'll see that $10 billion and a trillion are correlated. So I just want to underscore the fact that we believe that we're a growth company, and we have been a growth company, and we're not at the end of this journey. So I'm confident that at $10 billion and a trillion dollars of assets are in proper capital management. Our margins will be higher just from scale. Our returns will be higher. And our shareholders will be happy. Much more than that, I'm really not going to get into.

I gave it a shot. Thank you very much. Appreciate the comment.

Yeah, well, hey, look, I appreciate it, okay? Send me your calculator. I'll look at it.

We will take our next question from Stephen Chuback with Wolf Research.

Hey, Stephen. Hey, guys. It's Michael again. Just one more question here on capital. You know, it's nice to see improved repurchase activity during the quarter. You know, is this like 150 to 160 million zone more reasonable in the near term? You know, your capital ratios are still very healthy, free cash flow gen's. Still quite strong, but at the same time, you guys are planning to grow the balance sheet a decent amount more this year. So I just wanted to understand whether or not we should expect it to return maybe to the 2023 run rate. Thank you.

So obviously, the buyback activity is all price dependent. And we've obviously talked about allocating more capital to balance sheet growth. So you may see that slow sum in the near term. That very well might be the case. We do have a senior debt offering that comes due in July. At this point, we may fully just pay that off. So some of that may play into this as well. But I think as we look at the back half of the year, I would anticipate that that buyback activity probably returns to those more normalized levels.

Great. Thanks for taking the follow-up.

We currently do not have any questions. Again, it is star 1 to ask a question.

We do not have any questions in the queue. I would like to turn the call back over to our speaker today for closing remarks.

Well, I would, again, as always, thank everyone for taking the time to listen to our first quarter results. I'm optimistic about the markets in general and look forward to reporting our second quarter results this summer. So with that, everyone have a great day. Thank you very much.

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