Stifel Financial Corp. 2026 Q3 Earnings Call

Good morning and welcome to Stifel's third quarter 2026 earnings call. On behalf of Stifel 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'll now turn the call over to our Chairman and Chief Executive Officer, Ron Kruszewski.

Thanks, Joel. Good morning, everyone, and thank you for joining us. Our results year to date and for the third quarter again underscore the strength of Stifel's diversified business model. We're on track for another record year. Year-to-date revenue of $4.3 billion, up 9%, earnings per share of $4.33, which is up 57%. If you exclude the impacts of last year's legal charge, EPS is up 22%, with return on tangible common equity up 24.1%. Revenue and pre-tax margins in both of our operating segments are up year to date as investments we've made in our efficiency initiatives continue to generate strong returns. The third quarter began with healthy client activity, but conditions got choppier in September as geopolitical tensions, rising energy prices, and renewed inflation concerns led to the Federal Reserve's first rate increase in three years.

It was the speed of the moving rates more than their absolute level that unsettled markets. Through it all, corporate earnings and employment stayed supportive, and the underlying U.S. economy continued to show real resilience. Against that backdrop, we delivered our highest ever third quarter earnings per share of $1.46, up 12% versus the prior year. Net revenue of $1.43 billion was in line with our guidance as another record quarter in our Global Wealth Management segment offset market-driven slowdown in our institutional business. Our bottom line growth was the result of improved operating leverage as we posted our lowest compensation ratio since the fourth quarter of 2022, which in turn drove a pre-tax margin of 22.5%. The strength of our business allowed us to continue to generate and deploy significant excess capital.

In the third quarter, we increased loans by $1.3 billion and net interest income exceeded our guidance, setting a third-quarter record that was essentially in line with our highest-ever quarterly total. Additionally, we repurchased 1.6 million shares as our strong capital position enables us to support clients, return capital to shareholders, and invest in growth even when markets are volatile. That brings me to our recent strategic investment in Meow Technologies, one of the leading business banking fintechs in the U.S. Along with our investment, we entered into a long-term licensing agreement with the company. Under this agreement, we will have access to all current and future capabilities of the Meow platform. This will provide our bank with a leading-edge white label treasury management platform for our venture fund banking and other commercial clients. This transaction accelerates the build of one of our fastest-growing businesses, our venture banking platform.

Additionally, this technology broadens our capabilities across our institutional and wealth segments, giving Stifel an AI platform and bringing family office capabilities into our wealth management platform. We believe it is a significant enhancement to our growing venture and fund banking platform. Slide 2 should look familiar since we used it about four years ago to point out that we saw the disconnect between our performance and our valuation compared with, in this case, Raymond James and Morgan Stanley, two firms I respect and whose business models look a lot like ours. Since the end of 2016, our earnings per share are up 406% and tangible book value is up 154%, which is better than either of these peers. Our return on tangible common equity over the last 12 months is more than 26% and is the highest of the three on this page.

Even so, we trade at 9 times forward earnings compared to 10.2 for Raymond James and 13 for Morgan Stanley. Look, even through challenging times, we are growing and have an elite ROTCE. Simply, the numbers don't support the valuation gap that I see. With that, I'll turn it over to Jim.

Thanks, Ron, and good morning, everyone. Non-GAAP earnings per share of $1.46 came in ahead of consensus as stronger investment banking revenues, higher net interest income, and well-controlled expenses more than offset softer transactional revenue. Total non-GAAP revenues of $1.43 billion were flat with a year ago and 1% below consensus. Investment banking revenue exceeded expectations by $12 million or 4%, as both advisory and underwriting revenue surpassed street expectations. Net interest income of $302 million came in above the high end of our guidance and $4 million above consensus, primarily due to strong loan growth and higher loan fee income.

Transactional revenue came in 10% below expectations and decreased 17% from the prior year. I'll cover the components in more detail when we get to the institutional segment. Asset management revenue increased 14% from the prior year, driven by market appreciation and net new asset growth. It was essentially in line with consensus. Expenses were again well controlled, and we continue to see the benefits of the efficiency initiatives of the past few years. Our comp ratio of 56.6% was in line with consensus and improved from 57% in the second quarter. Non-compensation expense declined 4% sequentially and beat the street estimate by 3% as lower credit provisions, travel and entertainment, and non-bank reserve expenses contributed to the decline. The effective tax rate was 24.4%, which was slightly below consensus, but within our guidance. Turning to slide 4. Global Wealth Management generated record net revenue of $980 million, up 8% year-on-year.

Results were driven by record asset management revenue and record third quarter net interest income, partially offset by a decline in transactional revenue. We ended the quarter with total client assets of $576 billion and fee-based assets of $240 billion, up 6% and 9% respectively, as we benefited from stronger equity markets and net new asset growth. Excluding the impact of the assets associated with SIA, total client assets and fee-based assets increased 8% and 12%, respectively. Net flows were slightly negative in the quarter, but our recruiting pipeline remains very strong, even with competition for advisors running high. Over the prior 12 months, we've added 90 total advisors, including 28 experienced advisors with trailing production of $19 million.

We increased our loan book meaningfully in the quarter as we generated nearly $1 billion in incremental fund banking loans and more than $200 million in residential mortgages. Based in part of this incremental growth and a stable NIM, in addition to the higher loan fee income in the third quarter, we expect fourth quarter net interest income to be in a range of $295 million-$305 million. As you can see on slide 4, we have significantly grown our net interest income since the beginning of 2024 through balance sheet growth as our net interest margin has remained relatively consistent. For the year, we've already grown our loan book by roughly $3.6 billion, which is just shy of our full year guidance of $4 billion. Our strong deposit gathering capabilities continued as our combined deposit channels are up roughly $1.6 billion.

Given our mix of assets and liabilities, we are relatively rate agnostic, and we've been able to maintain a consistent NIM as our funding mix has shifted. As we look forward, our ability to fund further growth is supported by approximately $2.9 billion of deposits held off balance sheet and roughly $18 billion of money market funds and $7 billion in short-term treasuries. Turning to slide 5. Through the first three quarters of 2026, institutional revenue is up 8%, driven by an increase of more than 23% in investment banking. In the third quarter, the segment generated $430 million in revenue, down 14% year-on-year. In the quarter, investment banking revenue in the segment totaled $300 million, down 6% year-on-year. Advisory revenue of $173 million increased 10% sequentially with continued strength in financials, industrials, consumer, and healthcare.

Equity capital raising revenue was $69 million, down 13% from a year ago, though issuer engagement is increasing, led by financials and healthcare. Fixed income underwriting revenue of $58 million was in line with last year's third quarter results. While higher interest rates weighed on new issue volume in the third quarter, fourth quarter activity is off to a strong start. We remain the number one negotiated issue manager in public finance by deal count, with more than 13% market share year to date. Overall, we are optimistic about investment banking as our pipelines remain very strong and we're seeing increased engagement from sponsors and improved expectations for depository M&A.

Fixed income transactional revenue of $80 million was down from approximately $123 million last year, primarily due to $9 million in trading marks in the quarter as a result of the sharp move in interest rates in September and $32 million in restructuring and aircraft gains in the prior year quarter. Equity transactional revenue was $41 million, down from $59 million a year ago, primarily due to our European restructuring, lower equity volumes, and approximately $7 million of trading marks in our equity facilitation inventory. Absent another rate move like September's, we'd expect fourth quarter institutional transactional revenue to be in a range of $145 million-$150 million. Year to date, our pre-tax margin of 18.9% is up 530 basis points from the same period a year ago as we've meaningfully reduced our comp and non-comp ratios primarily as a result of our international restructuring. Moving on to expenses. Our improved operating efficiency showed up again in a lower comp ratio for the quarter, which was our lowest since the fourth quarter of 2022.