Stifel Financial Corporation

Please stand by. Good day and welcome to the Stiefel Financial Q126 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Joel Jeffrey, Head of Investor Relations. Please go ahead.

Thank you, Operator. Good morning and welcome to Stiefel's first quarter 2026 earnings call. On behalf of Stiefel Financial Corp., I will begin the call with the following information and disclaimers. This call is being recorded. During today's presentation, we will refer to our earnings release and financial supplement, copies of which are available at Stifel.com. Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Stifel Financial Corp. does not undertake to update the forward-looking statements in this discussion. Please refer to our notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release. I will now turn the call over to our Chairman and Chief Executive Officer, Ron Krzyzewski.

Thanks, Joel. Good morning, and thanks to everyone for joining us. In the first quarter, we delivered very strong performance. Net revenues of $1.48 billion were up 18% from a year ago. That includes a non-recurring gain from the sale of Steeple and Independent Advisors, which closed in February, which was partially offset by interest on a legal judgment. We've excluded both from our core results. Excluding the SIA gain, revenue grew 15%. Either way, it was a record first quarter, and regardless, it's a growth rate comparable to the best firms on the street. Earnings per share were $1.48 on a gap basis and $1.45 on a non-gap basis, compared to $0.33 last year. That's a significant improvement, so I want to be transparent. Last year's results were impacted by $180 million legal accrual, which was unusual, to say the least. Adjusting for that, EPS was up 32% on a comparable basis. Our annualized return on tangible equity was nearly 25%. We expect 2026 to be a good year, and the first quarter reflects that. Yet the environment has become more uncertain. Against a backdrop of escalating geopolitical risk, energy prices have risen, credit spreads have widened, and interest rate uncertainty has increased. The wild card remains the conflict in Iran and its potential impact on energy prices, inflation, and ultimately growth. But I'd like to note that unlike some of our larger peers, people's business model isn't built around trading volatility. We have a trading business, but it's client-driven and relationship-oriented, not structured to capitalize on market dislocations. Delivering these results in a volatile quarter tells you something important about the durability and diversification of what we've built. Our growth was broad-based. Global Wealth Management delivered record first quarter net revenue, driven by record asset management revenues and growing advisor productivity. We also generated record first quarter investment banking revenue, producing a record first quarter for our institutional business. Our firm-wide pre-tax margin was more than 22%, reflecting continued robust wealth management margins coupled with an institutional pre-tax margin of nearly 20%. It is noteworthy that this metric improved nearly 1,300 basis points from last year, benefiting from both revenue growth and our international equities restructuring. Jim will provide more detail on that. Look, if the risk I cite remain within a range of market expectations, we are confident in a strong 2026. That confidence is grounded in something more than one quarter. Let me put these results in the longer context. Chief of the company that both grows and understands the concept of return on invested capital. We've scaled revenue from about 100 million in 1996 to roughly 6 billion today. and we're targeting $10 billion in revenue and $1 trillion in client assets. We grow, and we grow the right way. That long-term philosophy also informs how I think about some of the questions dominating every earnings call so far this season. For each one, I want to tell you what Stifel is doing and share my observations about what I'm seeing in the market around us. The first is AI. Across Stifel, we're seeing real benefit from our AI investments. The technology enables our advisors, our investment bankers, our commercial lenders, and support teams to work faster and smarter. In every case, we're working to enhance client relationships with AI, keeping our professionals at the center of the value proposition. The opportunity here is significant. We are in the early process of linking our data to these new tools. and there is a lot of work ahead, but the early results give me confidence that we're on the right path. But I'd be less than candid if I didn't raise a concern about frontier models like Mythos that are becoming an entirely new category of technology. As recently as a few weeks ago, I'm not sure any of us really fully understood what Mythos was, possibly even those that created it. And the next version, as I understand it, is already in development. Models this powerful increase capability on both sides of the table, for those defending and for those who would do harm. And if you ask me what our industry needs to get right before anything else, the answer is cyber, not just for Wall Street. This requires a national response. I have consistently said that this is an issue of national security. The second is credit. At Steeple, our lending philosophy has never been built around chasing yield. We treat lending as a relationship-oriented business, not a volume-driven growth engine. The headlines this season involve specific credit situations. First brands, Tricolor, Medallia, were aggressive structures, weak collateral monitoring, and in some cases, fraud drove the losses. Steeple had essentially zero exposure to any of them. As an aside, the more recent concern has been about liquidity in private credit vehicles. Some funds are limiting withdrawals, and we're seeing secondary market participants offering liquidity at significant discounts to NAV. It reminds me of the scene in It's a Wonderful Life where Potter is trying to buy Bailey Billingham loan shares at 50 cents on the dollar during a run on the bank. The underlying assets haven't changed, but when everyone rushes for the exit at once, The gates come down. That's a structural issue. The third consistent question surrounds software loans. I read the predictions that every software loan is essentially worthless given AI disruption. To put some numbers to steeple, our software loan exposure is approximately $500 million on a $43 billion balance sheet, not a material number. But the more important point is that we have reviewed our software exposure carefully. And while there are always normal pockets of stress, we don't see the broad credit issues that the headline suggests. The fourth is legislation and market structure. Two questions are dominating this debate right now. Stablecoin yield and tokenized equities. Let me tell you where Staple stands on both. On stablecoins, we will offer them. But in my opinion, if a stablecoin pays yield, that's a deposit. Subject to capital requirements, AML, BSA, and the full framework of bank regulation. Or if the yield comes from investing in the underlying fund, then it's a money market fund. Follow those rules. Legislation should not create a third option that avoids both. On tokenized equities, we will build the capability to offer, settle, and trade them. But in my opinion, the regulatory framework should follow the underlying asset. A tokenized Apple share is still Apple stock. Every rule that applies to that stock, disclosure, best execution, settlement finality, investor recourse, applies to the token. The technology changes the delivery. It doesn't change the obligation. And for those who say this is about protecting the incumbents, if that was true, we wouldn't be building the capability at all. But we are building this capability. The principle is simple. A deposit is a deposit. A security is a security. Custody is custody. Nearly a century of investor protection wasn't built to apply only to some participants. The technology doesn't change that. I've discussed AI and software disruption, credit markets, and legislation and market structure. In each case, I wanted you to understand both where Stifel stands and my observation about what's happening around us. Over the last 30 years, we have shown a consistent ability to adjust to economic and technology change. Global wealth management is growing, our institutional pipelines are strong, and our investments in the innovation economy through venture lending and deposit generation are paying dividends. Bottom line, what I see is a firm that is very well positioned.