Stifel Financial Corporation

Good day and welcome to the Stifel Financial First Quarter 2025 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Joel Jeffrey, Head of Investor Relations. Please go ahead.

Thanks, Operator. I'd like to welcome everyone to Stifel Financial's First Quarter 2025 Conference Call. I'm joined on the call today by our Chairman and CEO, Ron Krzyzewski, our Co-Presidents, Victor Nisi and Jim Zemlack, and our CFO, Jim Marisham. 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 you 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 other 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. We'll now turn the call over to our Chairman and CEO, Ron Krashevsky.

Thanks, Joel. Good morning, and thanks to everyone for taking the time to listen to our first quarter earnings conference call. Stiefel's core operating strength was evident in generating roughly $1.3 billion in net revenue during the first quarter, despite a volatile market environment. This marks our highest first quarter revenue and third strongest quarter overall, driven by record asset management revenue in our global wealth management segment and robust advisory and transactional revenue from institutional equities. While our bottom line was impacted by a significant legal charge, which I will discuss later, excluding this charge, our operating EPS was $1.65, an 11% increase over the same period a year ago, and it does represent record first quarter earnings per share. Our revenue performance is particularly noteworthy considering the market conditions throughout the quarter. Although we were optimistic about CFO's prospects in 2025, we also were conservative in our general market outlook. Following two consecutive years of better than 20% gains in the S&P 500, we adopted a more conservative market outlook. As I previously stated, Stifel entered the year with the lowest S&P 500 forecast on the street at 5,500. Yesterday, it closed at 5,288, down roughly 10% on a year-to-date basis. The combination of tariffs, uncertainty over global capital flows, and disagreement between the administration and the Federal Reserve on monetary policy has contributed to increased market volatilities. Meanwhile, counterweights that usually strengthen when stocks fall, such as the government bonds and the U.S. dollar, are also under pressure, leaving investors with few havens to wait out the storm. This backdrop has clearly weighed on investor confidence and slowed activity across certain segments of the market. Having served in this role for over 27 years, I've witnessed numerous market crises since. From the Russian debt crisis in the late 90s, the technology meltdown in 2000 to 2001, the 2008 financial crisis, and the most recent global pandemic. Each time, U.S. financial markets have demonstrated resilience and remained a global benchmark. While the current environment has introduced volatility, we do not believe a recession is likely. In our view, the disruption surrounding tariffs is not the new normal. part of a high-stakes policy negotiation strategy by the White House. Considering the underlying strength of the U.S. economy and efforts to address trade and fiscal imbalances, we remain optimistic about long-term growth. In the near term, while volatility presents challenges, we are cautiously optimistic. Indeed, periods of uncertainty highlight the value of our advice-centric business model. We are seeing high levels of engagement between our investment bankers and their clients. That said, the greater challenge lies in converting these pipelines into realized revenue, particularly giving ongoing market uncertainty. Now, there are pockets of strength within banking, as illustrated by KBW's strong quarter, as we are seeing a growing appetite for bank M&A, and we continue to project a strong year for our financials vertical. In wealth management, our asset management revenues were up 11% versus last year, but this line item is closely tied to market levels. And if equity markets do not rebound, that could have a negative impact on these results in the future quarters for 2025. Overall, while the market conditions have certainly slowed, we believe that Stiefel's diversified business model is well-positioned to navigate through short-term volatility and drive significant growth as the market normalizes. Moving on to slide two, I'll review our first quarter operating results. The table on the left illustrates our performance, excluding the legal charge incurred during the quarter. Presenting our results this way offers a clearer view of our core business performance compared to prior quarters. I'll address the impact of the legal charge separately. We generated net revenue of $1.26 billion, marking the strongest first quarter in our history and an 8% increase year-over-year. This growth reflects strength in both global wealth and our institutional group. Notably, this is the first quarter since the end of 2021 where all categories in our revenue bridge have shown positive contributions. Looking at the specific revenue lines, commissions and principal transactions increased 3% with both wealth management and the institutional growth showing year-over-year growth. Investment banking revenues rose 11%, driven by increases in both capital raising and advisory. Asset management revenue reached a record high, up 11%, reflecting organic growth and market appreciation. Net interest income increased 4% compared to the same period last year. Our compensation ratio stood at 58%, aligning with the high end of our full-year guidance as we maintain a conservative approach to compensation accruals early in the fiscal year. Operating pre-tax margin exceeded 20%, consistent with the fourth quarter and first quarters of 2024. Operating EPS, as I stated, was $1.65. While our operating results improved year over year, our bottom line on both a core and gap basis was negatively impacted by a legal charge related to a recent federal arbitration panel ruling, which we are currently appealing. As shown on the table on the right, the legal accrual totaled $180 million for the quarter, resulting in a $1.16 negative impact on our EPS. Due to the ongoing nature of this matter, We are limited in our ability to discuss it further. However, we believe that we are appropriately accrued to the recent judgment as well as the remaining outstanding cases. Before I turn the call over to Jim, I want to highlight the critical role our global wealth management business plays in Stifel's long-term growth strategy. Over the past decade, we've more than doubled our revenue in this segment, reaching a record $3.3 billion in 2024. This growth is a testament to our unwavering commitment to providing exceptional service to our advisors and equipping them with the tools necessary to deliver tailored investment advice to their clients. Our advisor-centric culture has been a significant driver of our recruiting success. Over the past five calendar years, we've added 464 experienced advisors with trailing 12-month production exceeding $365 million. Twenty-four alone, we recruited 100 financial advisors, including 34 experienced employee and 12 experienced independent advisors, contributing a total trailing 12-month production of $37 million. As we focus our recruiting efforts on higher-producing advisors, we've seen a continued increase in the percentage of our revenue coming from recurring sources, such as asset management and net interest income, contributing to greater stability in this segment. The strong upward trend in markets over the last few years led many advisors to delay transitions, hoping to maximize their trailing production for recruiting packages. Additionally, competition among RIA platforms has driven transition costs higher across the industry. That said, we are seeing real momentum build. The recent market pullback has prompted more advisors to act, and we've adjusted our approach to remain competitive while staying disciplined on our return on investments. We are seeing early success in this initiative, and our second quarter is off to a strong start as we've added seven experienced advisors with trailing 12-month revenues of $14 million and more than $3 billion in client assets. To reiterate, our recruiting pipeline remains robust, and I'm confident, as I've ever been, in our ability to continue attracting highly productive advisors. And with that, let me turn the call over to Jim.