Stifel (SF) Q3 2026 Earnings Call Transcript

Motley Fool Transcribing, The Motley FoolWed, October 21, 2026 at 10:43 PM UTC

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Wed, Oct. 21, 2026

CALL PARTICIPANTS -

Head of Investor Relations - Joel Jeffrey

Chairman and Chief Executive Officer - Ronald J. Kruszewski

TAKEAWAYS -

Non-GAAP EPS -- $1.46 per diluted share, representing a 12% increase from the prior year driven by record results in Global Wealth Management and improved operating leverage.

Net Revenue -- $1.43 billion, reflecting record asset management revenue and net interest income that offset a market-driven slowdown in the Institutional business.

Global Wealth Management Revenue -- $980.3 million, increasing 8% year over year due to higher fee-based asset values and third quarter record net interest income.

Institutional Group Revenue -- $430.3 million, declining 14% primarily because of lower transactional revenue and a 6% decrease in investment banking.

Net Interest Income -- $302 million, exceeding guidance due to strong loan growth and higher loan fee income.

Total Client Assets -- $576.5 billion, representing a 6% increase driven by market appreciation and net new asset growth, which offset the impact of the sale of the Stifel Independent Advisors business.

Non-GAAP Compensation Ratio -- 56.6%, decreasing from 58.0% in the prior-year quarter due to improved operating efficiency and higher net interest income.

Non-GAAP Pre-tax Margin -- 22.5%, reflecting improved operating leverage and cost discipline across the firm.

Share Repurchases -- 1.6 million shares, totaling $124 million in the quarter as part of a strategy to return capital to shareholders.

Loan Growth -- $1.3 billion in the quarter, bringing year-to-date growth to $3.6 billion, which is nearly 90% of the full-year target of $4 billion.

Investment Banking Revenue -- $300 million, exceeding internal expectations by $12 million despite a market-driven slowdown in September.

Advisory Revenue -- $173 million, increasing 10% sequentially behind strength in the financials, industrials, consumer, and health care sectors.

Asset Management Revenue -- $492.2 million, growing 14% year over year driven by market appreciation and net new asset inflows.

Q4 Net Interest Income Guidance -- $295 million to $305 million, based on expected loan growth and a stable net interest margin.

Institutional Transactional Revenue Guidance -- $145 million to $150 million for the fourth quarter, assuming stable interest rates and excluding potential trading marks.

Tier 1 Leverage Ratio -- 10.8%, which is above the 10% target even after significant capital deployment into loans and buybacks.

Tier 1 Risk-based Capital Ratio -- 17.0%, reflecting the deliberate deployment of capital into the bank's loan book.

Fixed Income Transactional Revenue -- $80 million, decreasing from $123 million in the prior-year quarter due to 9 million in trading marks and the absence of prior-year restructuring gains.

Equity Transactional Revenue -- $41 million, down from $59 million a year ago because of the European restructuring and lower overall trading volumes.

Recruitment -- 90 total advisors over the prior 12 months, including 28 experienced advisors with trailing production of approximately $19 million.

Excess Capital -- $360 million, based on a 10% Tier 1 leverage target, providing the firm with strategic flexibility.

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RISKS -

Kruszewski stated, "geopolitical tensions, rising energy prices and renewed inflation concerns led to the Federal Reserve's first rate increase in 3 years," which unsettled market conditions in September.

Marischen noted that fixed income transactional revenue was impacted by "$9 million in trading marks in the quarter as a result of the sharp move in interest rates in September."

Management reported that Stifel Financial Corp. (NYSE:SF) is on track for a record year, driven by record performance in Global Wealth Management and improved operating leverage. The company announced a strategic investment in Meow Technologies to enhance its venture banking platform and treasury management capabilities. Management noted that while market conditions became more volatile in September due to interest rate moves, corporate earnings and employment remained supportive. The firm prioritized capital deployment through $1.3 billion in loan growth and 1.6 million share repurchases while maintaining a Tier 1 leverage ratio of 10.8%.

Management noted that the recent investment in Meow Technologies will provide a white-label treasury management platform for venture fund and commercial clients.

The company reported that the European restructuring reduced institutional transactional revenue by approximately $7 million year over year.

Management indicated that they remain the top negotiated issue manager in public finance with a 13% market share year to date.

Marischen noted that $2.9 billion of deposits are held off-balance sheet and $18 billion are in money market funds, supporting future bank growth.

Kruszewski stated, "Global Wealth Management has been and will continue to be the foundation of Stifel's business and its recurring revenue provides us consistent, predictable growth even in volatile markets."

Management expects fourth quarter net revenue to match the all-time record of $1.56 billion set in the prior year.

INDUSTRY GLOSSARY -

Advisory Revenue: Fees generated from providing financial advice, primarily in mergers and acquisitions (M&A).

Meow Technologies: A business banking fintech company in which Stifel made a strategic investment to enhance treasury management and AI capabilities.

Net Interest Margin (NIM): A measure of the difference between the interest income generated by banks and the amount of interest paid out to lenders.

ROTCE: Return on Tangible Common Equity, a financial ratio that measures a company's profitability relative to its tangible common equity.

Tier 1 Leverage Ratio: A core capital measure used by regulators to assess a bank's financial strength relative to its total assets.

Full Conference Call Transcript

Operator: Good day, and welcome to the Stifel Financial Q3 '26 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.

Joel Jeffrey: Thank you, operator. 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.

Ronald J. 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 was $4.3 billion, up 9%; earnings per share of $4.33, which is up 57%. And if you exclude the impacts of last year's legal charge, EPS is up 22% with return on tangible common equity of 24.1%. Revenue and pretax margins in both of our operating segments are up year-to-date and 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 3 years. It was the speed of the move in 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 at 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 pretax 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 United States. 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 4 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, 2 firms I respect and whose business models look a lot like ours. Since the end of 2016, earnings per share are up 406% and tangible book value was up 154%, which is better than either of these peers and our return on tangible common equity over the last 12 months is more than 26% and is the highest of the 3 on this page.

Even so, we trade at 9x 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.

James Marischen: 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 and 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 advisers running high.

Over the prior 12 months, we've added 90 total advisers, including 28 experienced advisers 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 loan and more than $200 million in residential mortgages. Based on 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 to $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 3 quarters of 2026, Institutional revenue was 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 health care.

Equity capital raising revenue was $69 million, down 13% from a year ago, though issuer engagement is increasing, led by financials and health care. 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 #1 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, 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, we'd expect fourth quarter institutional transactional revenue to be in a range of $145 million to $150 million.

Year-to-date, our pretax margin of 18.9% is up 530 basis points from the same period a year ago as we've meaningfully reduced our comp and noncomp ratios primarily as a result of the -- 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. For the full year, we are projecting our comp ratio to be at the low end of our full year comp guidance. Non-compensation expenses totaled $298 million, flat with the same period a year ago, as lower provision and investment banking gross ups were offset by higher operating expenses.

Our operating non-comp of 19.4% was within our full year guidance of 18% to 20%. Further, assuming a stable stock price, we expect to see a fourth quarter effective tax rate in the range of 19% to 22% based on the excess tax benefit related to stock-based compensation. Turning to Slide 7. Our capital position remains strong and provides meaningful strategic flexibility. The Tier 1 leverage ratio came in at 10.8%, while the Tier 1 risk-based capital ratio was 17% reflecting the deliberate deployment of capital into loan growth.

Based on a 10% Tier 1 leverage target, we ended the quarter with nearly $360 million of excess capital, and that's after funding $1.3 billion of loan growth and buying back 1.6 million shares during the quarter. Finally, we have 6.2 million shares remaining under the current buyback authorization, assuming no additional repurchases and a stable stock price. Our fully diluted share count for the fourth quarter is expected to be approximately 158.8 million shares. And with that, Ron, back to you.

Ronald J. Kruszewski: Thanks, Jim. Before I turn the call over to the operator for questions, let me comment on our outlook. In our Wealth Management segment, competition for advisers is running at elevated levels. And while our recruiting pipelines remain robust, we're staying disciplined to make sure that our growth generates the appropriate return. We believe AI will make our advisers more productive, not replace them because clients want experienced advisers and a broad set of investment options in uncertain times. Global Wealth Management has been and will continue to be the foundation of Stifel's business and its recurring revenue provides us consistent, predictable growth even in volatile markets.

We're on track for another record year in this segment, remain on target to reach our goal of $1 trillion in client assets. A key component of our Wealth segment is Stifel Bank & Trust, which supports our Wealth and Institutional clients. We've significantly grown our loan and deposit gathering capabilities in recent years as we continue to execute on our long-term strategy to grow net interest income with a stable net interest margin without taking undue credit risk. Our Institutional business is a meaningful driver of top and bottom line growth in strong markets.

In the third quarter, September's sharp move in rates produced trading marks on our securities inventory, which we don't expect to repeat in the fourth quarter. In advisory and capital raising, we have strong backlog and improving client engagement. And going forward, we see increased activity levels across our diversified investment bank. Putting everything together, last year's fourth quarter was an all-time record at $1.56 billion in revenue, and we expect to match it this year even with volatility that slowed what was a very strong investment banking market in the first half. We also expect earnings per share to be higher as we've kept our cost discipline and repurchased 6.8 million shares.

So let me close by saying that as I look forward, I'm optimistic. We're mindful of geopolitical risk, higher interest rates and energy prices and elevated asset valuation. But healthy client engagement, strong wealth management fundamentals and an active pipeline of strategic and sponsor-led transactions give us real reason for confidence. Stifel's diversified model, recurring revenue, disciplined capital management have us positioned to keep compounding value for shareholders regardless of market conditions. Operator, with that, please open the line for the questions.

Operator: [Operator Instructions] We will take our first question from Mike Brown with UBS.

Michael Brown: Ron, I guess you talked a little bit about the recruitment environment. As you look at the quarter here, it looks like to us the implied growth was a little bit softer this quarter, but obviously, the environment remains very competitive. So maybe could you just touch on some of the recruitment trends you're seeing in the market today and then maybe give us kind of an update on the real-term hiring activity? You talked about the pipeline as robust. And maybe how does that compare to recent quarters? And what's your kind of view on converting that pipeline as we look at the balance of the year and into early '27?

Ronald J. Kruszewski: I feel that a lot of things -- recruiting is strong, and it has been strong for us. I mean, not only over quarters, over years. I mean that it's hard to look at quarter-to-quarter. It always has been. But when I look at our recruiting numbers, outlook, what we're hearing and who we recruit, I feel very good about that business, that is very competitive. Coupled competition with a choppy market, that always slows people down. Clients get nervous, markets become more volatile. And we're -- we take a long-term view. So I get this question every quarter and every quarter, I'd say that we're a firm that we had net positive recruiting and we'll continue to do so.

And I'm optimistic about who we're talking to. I would say that there's a change over the years, it's that we've probably lowered the absolute number of advisers that we talk to while increasing the trailing 12 coming in, meaning we're recruiting higher teams. And I think that's very productive and good. And finally, as I said for every quarter, I'm continually amazed at one question, [ Meow ] is going to replace all our advisers. On the second meeting I have, I talk about the recruiting competition, packages are higher than they've ever been. So -- but overall, it's a positive for us and positive for our growth rate going forward.

Michael Brown: Great. Yes, certainly conflicting messages out in the market. Ron, I guess I wanted to ask about the comp ratio and the pretax margin. So very strong results this quarter. And Jim gave a guide for the year. As we think about the shift in the business mix at Stifel, you've got really strong growth in the venture and the fund finance business. You've repositioned Europe. So should we kind of view this as evidence that there's a structurally lower comp ratio at Stifel and a higher margin profile going forward? Obviously, in a normalized environment, can you kind of sustainably operate at this lower comp ratio level?

Ronald J. Kruszewski: Well, look, first of all, we're going to pay our people competitively. We're going to provide -- Stifel is a place where you can do business, but we can also do well for our bankers and advisers and everyone else. And the comp ratio is a result of, frankly, driving efficiencies and not being inefficient on a number of things. So as we grow our business and become more productive, one of the things that's going to happen is it's going to lower your comp ratio. And then finally, as you -- grow our net interest income, frankly. That also drives the comp ratio.

It's always at this time of the year that I'd like to point out that we're pretty consistent of not only driving the comp ratio lower throughout the year, that's generally been conservative at the beginning of the year, and we're driving shareholder returns and margin whereas oftentimes, you'll see what I always view as fourth quarter [indiscernible] comp ratio in the quarter, that is going to be much higher because we under accrue. But next year, it will be much better. And so this is very consistent.

Stifel, as we go over the years, you'll see comp ratios generally decline and reach their levels -- their best levels in the fourth quarter, which often usually is our best quarter of the year.

James Marischen: We'll come back next quarter and provide some more granular detail on our 2027 outlook. But given our guide that we're going to get to the lower end of the range for 2026 and you think about some of the dynamics that play into 2027, we're generating a lot of deposits today. We're having a lot of loan demand. We're going to continue to grow the bank balance sheet. We're going to continue to grow net interest income. And so that going forward is going to be the biggest driver of where the comp ratio could go.

But I would say the jumping-off point of where we get to for 2026 is a good kind of thought process on how you think about that going forward in 2027.

Operator: We will take our next question from Devin Ryan with Citizens Bank.

Devin Ryan: Wanted to ask a question on loan growth and kind of the book broadly. Obviously, you guys are tracking really well relative to the $4 billion objective, and we all see the momentum in fund banking. So I want to dig in just a little bit more on that component. And can you talk a little bit about the growth there. How much is like cyclical, just meaning it's a good environment. There's larger draws and that can maybe bounce around versus structural with everything you're doing to bring in more clients.

And as we think kind of bigger picture, like how big are you comfortable this part of the book getting to as a percentage of the overall loan book? And maybe within the strategic benefits that maybe are outside of just NII that you're seeing from growing fund banking?

Ronald J. Kruszewski: Fund and venture banking together, I feel we're -- it's a sports analogy, but we're early innings into this growth rate. I talked about some of the things we need to do. Overall, the overall market, especially in fund banking, I think the market is increasing. There's a lot of money that's being raised and refinance now -- and so I see that just structurally within the market as a growing platform. Within -- our focus has been not only there, but on the venture side is to be providing technology that gets us the business to begin. And that's why we did this transaction that I mentioned, Meow Technologies.

If you want to look at something similar, you'll see where Valley acquired Bluevine, and I think Brex as well was acquired. Brex?

James Marischen: Capital One.

Ronald J. Kruszewski: Capital One. We've taken a different approach in that we want to white label this. But when we looked at our ability to generate significant -- I'm talking about significant deposits to drive this business, we needed this technology, agentic account opening, USD, get stable and crypto back to USD, cross-border, corporate credit cards, payroll, all of these things we have what we believe is going to accelerate our ability to get clients and build this business. I've talked about in an investor call and saying we're going to be doing something on this. So this is what I was talking about.

And so I'm very optimistic about this business, and it will grow faster, at least in venture, certainly faster on the deposit side, 4 to -- 5:1 in deposits. And then we deploy some of that more in fund banking where the ratios almost flip, loans to deposits. But it's a business, and we track and measure referrals to wealth, referrals to banking, mortgages that we're giving to founders, et cetera. So it is a business where we feel we bring all the capabilities and people to this segment of banking.

James Marischen: The investments we've made here and not just in technology but in people, it's helped us take market share across both fund banking and on the venture space. And you think about a direct output of this, we've been talking about generating around $1 billion a quarter of deposit growth with the technology investment in Meow and the capabilities that has to offer, we should see that number increase as that goes live, and we have a more competitive treasury product. And I think that is a very scalable deposit generation channel as we look forward.

Ronald J. Kruszewski: And it's across our business, all right? We -- AI, what we're talking about is being able to service clients. In this particular case, we talk about more of a narrow aspect of fund and venture banking. But when you think about what we're going to do and how we're going to grow this business, we're going to do that without opening a single branch or putting any bricks and mortar. None of this. This is all going to be incremental NII on top of what we've already built. So we've built the foundation. We just are putting some technology on it, and we're going to gain market share.

Devin Ryan: Okay. I appreciate all that background. As a follow-up, I want to dig in a little bit on the investment banking commentary. Sounded, I think, relatively constructive in fourth quarter off to a good start, which is good to hear. Can you talk a little bit more about what you're seeing in the specific businesses? And like what for example, you mentioned depositories seeing additional activity. Like what do you -- what's the catalyst for that? You talk about enthusiasm into 2027. And then obviously, technology has been an area, particularly in software that's been challenged. Are you seeing that stabilize? So to any additional flavor for like what's actually happening beneath the surface that's driving activity across your businesses?

And then if you can just hit on some of the sectors that we all know you have strength in.

Ronald J. Kruszewski: Look, I think what happened was we had a very strong quarter and a lot of engagement, a lot of things that people are talking about and not just at Stifel, across the Street. And not just at Stifel, but across the Street, you ran into a quarter where rates, inflation rates and geopolitical all converged late August into September and that slowed activity down significantly, which is to be expected. You throw that uncertainty into the mix, add a little bit now that we're within a few weeks of an election that may change some outlook in the short run. So we've seen what I view as a financial condition induced pause, if you will, in activity.

But when we look at the fact that things are getting canceled and we're not -- it's not that things are getting done because of financial conditions, I'm optimistic about the business in specific areas. We've had a slowdown in some of the health care, capital markets that we've seen. We expect that to pick up. Depository M&A, I think, as secular trends because of technology, deposit beta, the need for scale and the political realities of being able to get something done between now and '28, if there were to be a change in administration, that's going to drive activity, and we will see that change. So I think this quarter will tell a little bit more.

It's off to a good start as we see it. It felt like you had to turn the calendar page out of September. But that's how it would finish.

Operator: We will take our next question from Steven Chubak with Wolfe Research.

Steven Chubak: Wanted to start just on sweep cash. The growth had lagged some of the metrics we had seen at your wirehouse peers, just to understand what drove some of the more pronounced declines that we saw in the quarter and your outlook for the sweep cash trajectory and just customer behavior in general as we enter a higher rate backdrop with potentially multiple hikes from the Fed?

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James Marischen: Right. So I'll touch on sweep cash. One item we didn't touch on this in our prepared remarks, but one thing we'd highlight. With the sale of SIA, we still kept those assets on our platform and serviced them over a period of time. So that cash was still within our ecosystem and our balances of cash. That's probably $0.5 billion that came out of our sweep balance in terms of activity in the third quarter. So I did highlight that when you're looking at the -- when we closed and fully moved those assets off our system. So the other thing I would say, just generally speaking, we typically see a seasonal uptick in deposits in the fourth quarter.

We'd expect that trend to continue. We talked about other things that are going to drive deposit growth in the future. Obviously, Ron already touched on the investment in Meow, what we can do there in terms of generating additional deposits in that channel. But overall, we got nearly $3 billion of deposits available to fund future growth. We've got $18 billion sitting in money market funds. We've got $7 billion in short-term treasuries. We can go attack those and bring those. So those are all the cash and cash equivalents within our ecosystem.

Now some of those things on money funds would be a little bit more -- a little bit higher cost, but those are deposits in our ecosystem that we can go get. And so we feel very comfortable overall where we're at from a deposit generation strategy and perspective. I think the other thing I'd say is, as we've seen a remix of our deposits, our NIM has been relatively stable. We've grown NII and at a stable NIM, even though we've seen this kind of reshuffle or remix of deposits. I think that fact is a little underappreciated at times.

Ronald J. Kruszewski: Yes. And I would underscore that. I just -- I feel that as there's a lot of focus on a small part of our funding base, we could fund this business. We see tremendous ability to generate deposits and deploy loans and maintain a NIM. Some of the repricing that's going -- going to be on as the deposit -- just everyone knows this, it's economics as the deposit base reprices, so is the asset side going to reprice. And you're seeing it through our stable NIM, and you're going to see that throughout the industry.

There's -- somehow there's a belief that you reprice cash, the industry is just going to collapse because you can't make any more net interest income. And I find that to be somewhat not consistent with economic theory. But that's for another day.

Steven Chubak: Understood. And for my follow-up, I did want to ask on the brokerage commentary. So you spoke to the headwinds in the quarter. You were certainly not alone in experiencing that, especially on the muni side. You also indicated that we should see a recovery based on the guidance in transactional fees to $145 million to $150 million. Since equities is seasonally better in 4Q, it does imply continued softness in fixed income. I just wanted to better understand how much of it is structural versus cyclical and whether we could see transaction fees get back to that $160 million legacy run rate even after adjusting for some of the business exits.

Ronald J. Kruszewski: Look, I think it can. I think we've been trying to say that we have -- at least in fixed income, we have transactions that we -- that are nonrecurring. That's the way I say it. They just don't seem to recur quarterly, okay? But -- so we, last quarter had almost $32 million in restructuring and aircraft. Those departments are up and running. They're doing business. The rate environment, as you can imagine, in any time you're restructuring, doing aircraft, that impacts getting something done during that quarter. So that leaves fixed income $95 million to $100 million today at run rate. We're growing that business.

We're growing businesses, equities around $50 million -- I think equities tends to be more challenging, but I think we can grow. You're seeing a decline because we completely restructured Europe. But I don't -- $160 million, I mean that's a blink of an eye. That's nothing. $10 million or $40 million on a $6 billion revenue base. And we've got a lot of people. I find that to be rounding error.

Operator: We will take our next question from Michael Cho with JPMorgan.

Y. Cho: I just wanted to touch on the valuation slide that you put up and reminded us about. I mean, it feels like a larger deployment of capital toward -- M&A is off the table for now. I guess, one, is that fair? And then, two, I think repurchases stepped down a touch quarter-to-quarter. I get the volatility in stock price, but is there more -- maybe a more aggressive approach to buybacks that you might consider if the disconnect continues to persist?

Ronald J. Kruszewski: Well, I think as it relates to your first question, yes, we're going to be very thoughtful about paying market multiples that are significant multiples of ours in terms of EBITDA and capital required to run businesses. So I just would think that, that's shareholders when they want us to look at the acquisition landscape, we want to grow, but we want to grow and be the firm that has higher than 20% ROTCE, which isn't common in the banks, certainly the bank holding company and margins that are robust. We're running this for shareholder value, not just for growth.

As it relates to your second question, I think it's a good one in that when we are looking at acquisitions, there is an attractive one out there. It's called our own stock. Jim, in terms of how much we're doing, I'll leave that to you.

James Marischen: Right. So the pace of buyback did decline some in the quarter. The thing I'd highlight is we did grow loans, it was $1.3 billion in the quarter in addition to buying back 1.6 million shares. So we deployed a fair amount of capital. We brought our capital ratios down. Our excess capital still stands at a strong level of about $360 million. So we have flexibility to do both, to grow the loan book as well as buy back our shares. We've got plenty of authorization left on what we currently are authorized to buy back. So you continue to see us very active on that.

You just look at the share count on a year-to-date basis and get a sense of how many shares we've taken out, and it's been pretty meaningful to that number.

Ronald J. Kruszewski: Yes. But that's a good point. We -- just looking at numbers, if you use a 10% leverage ratio, we could have not grown our loan book and bought back another, yes, $200-something million. But our loan growth, we think, is adding to our franchise and our return on tangible and all of that. So that's a good use of capital. Dividends is a good use of capital. The investment we made in technology, which isn't an acquisition, it was an investment, that's a great use of capital.

But as an absolute acquisition of something, I just feel that if I came out and told you we're buying something at 15 to 18x EBITDA, you would not -- the Street wouldn't react well. No, we're not, but we're aligned there.

Y. Cho: Fair enough. I appreciate the color. I guess just along the similar conversation around capital priorities, Ron, in the past, you talked about increasing allocation toward recruiting, I guess, in terms of dollars and resources. I mean within this conversation on capital priorities, does that also impact how you're thinking about allocating or adviser recruitment going forward?

Ronald J. Kruszewski: Yes. I mean in a lot of ways, it's a different math and adviser recruiting as it relates to capital and capital ratios are -- we look at that more from a return on invested capital. We're hiring people. We're amortizing acquisition costs over 10 years, call it. And sometimes it's easy just to do that because you're kicking a lot of that expense down the road. And so you -- I'm coming up and saying, "well, based on our recruiting, our comp ratio is going up." Well, then that might signal that we're either being aggressive in recruiting or maybe we're overpaying a little bit. So -- but that's hard to see in the short run.

We have done this for nearly 30 years, and we've built this firm from $100 million in revenue, and we're at $6 billion with a 24% ROTCE. And that's because we're capital disciplined. And I'm going to keep saying that. And if that means that we pass on things that don't meet our capital returns, well, the shareholders should be -- that should be a premium, not a discount to shareholder valuation, my opinion.

Operator: We will take our next question from Bill Katz with TD Cowen.

William Katz: Just like to stay on the FA recruiting discussion, if we could. I think you mentioned in your prepared remarks, you had negative growth in the quarter. I was wondering if you could maybe unpack that a little bit, maybe by channel, what you might be seeing, I think, Ron, you mentioned that competition is still pretty elevated. And underneath that, one of the things we're hearing is that these PE platforms are leveraging AI to really reduce the back office costs and then drive up the recruitment and TA packages. Where are you in terms of potentially including such technology in your own footprint which maybe allow you to be more competitive on pricing if needed?

Ronald J. Kruszewski: Well, I think we are utilizing AI more -- productivity tools, I got something on back office and using AI tools to settle trades or something like that. I haven't seen that. But none of them are self-clearing, so that's not possible anyway. So -- but in terms of tools and being able to help advisers maybe have less assistance, I guess, that's possible. We're not taking that approach. We're using AI as a tool to help us, and it's a powerful tool for meeting prep, meeting follow-up, analysis discussion. There's a whole bunch of things. But we're combining that with humans, and I actually see the need for more people, not less. So I don't know.

I don't -- just not sure if I'm in a recruiting pitch and I say, "Hey, look, I can add a little bit more of your recruiting, but you can't have an assistant because you got to use this AI bot." I think I'm going to go down in my recruiting ability. I just do. But that's just, again, the private equity firms are dealing more in the independent and RIA space. So I don't really know. But AI is clearly a productivity enhancer. We're making significant investments. We're reskinning a lot of our tools. We're putting new tools in place. And I think it's a tailwind to what we're doing.

I'm not going -- we're not going to reduce people and recruit -- up recruiting, but we're not doing that now. Not now, we're just not.

James Marischen: Everything within our Wealth business is also in the employee channel. I mean [ the channel of SIA, ] but we're no longer in the independent space at all.

William Katz: Okay. That makes sense. And just maybe coming back to your guidance. So it seems like you're going to be south of the $6 billion number for the full year on your top line net revenue number and you guided to NII bouncing -- rising a little bit more and that you have a little bit of a recovery on the transaction side due to lack of mark-to-market and you talk to the better investment banking backlog. So can you talk a little bit about where the residual weakness might be relative to expectation at this point in time? And then how long is the lead lag between the pipeline and actually revenue recognition through the advisory line?

Ronald J. Kruszewski: Yes. Well, look, let's -- I said we're going to -- we expect to have -- we had a record, record quarter in the fourth quarter that's -- we expect that to be in that range. This is still not a hugely robust environment. That can change. Let's see how the elections go and what happens after that. There are going to be a lot of repositioning of things that will happen post the election. But look, as it relates to the guide, there are a couple of things we did, a lot -- some of it is accounting. For instance, we were conservative on the sale of SIA.

We recorded a $50-plus million gain on that, and we call it -- we put it noncore because we just thought that probably shouldn't be in core but we were doing it at the beginning of the year, that was in our thought process of revenue. Same with our restructuring of Europe that we were doing off run rate revenues. Both of those items increased our margins, increased our return on tangible equity, but probably took out of our run rate $70 million, $75 million of revenue. So if you add that in, you're back close to $6 billion of our range. Now why weren't we above that range?

I would point -- I think we thought the fixed income would have a better year. The rate environment, everything that's happened, some of the marks we took muted those returns, but I'm optimistic about that business, too. So I feel we're at the low end of the range of what we said in January and about -- rounding. If you look -- I mean, look at our GAAP numbers, our GAAP numbers, we reported some of the revenue in GAAP and not -- we took them out of non-GAAP.

Operator: We will take our next question from Brennan Hawken with BMO Capital Markets.

Brennan Hawken: Ron, just start with a follow-up. I believe when you were answering Steve's question on trading, you mentioned $50 million for revenues in the -- in equities in the fourth quarter. Normally, we see a seasonal pickup. So was the seasonality that you historically have seen tied to Europe? Or is just the core operating environment softer, and so therefore, the seasonality is just not going to provide the same sort of uplift that we would normally see versus typical run rate?

Ronald J. Kruszewski: When I say -- and I think this is good, and I'll let Jim go ahead, but I don't see if he disagrees with me, looks to be good. But when we say $145 million to $150 million, that's kind of our run rate absent these marks on the inventory, absent the -- we've tried to tell you isn't always recurring. So that's not necessarily the fourth quarter. That's just trying to say, look, we've got a little bit of noise here, and this is what we see settling out. The fourth quarter generally is seasonally better. We'll see that seasonality often depend on the election.

We also -- we get checks for our -- the old MiFID type thing where we get research checks that always helps, too. So that wasn't meant to be just a fourth quarter look. That's just trying to reset the your all's expectations of what sort of the normal, if there is such a word, run rate in institutional transactional revenue.

James Marischen: First of all, I agree with what Ron said. I'd add to that. The European restructuring has an impact on this, on what is a normalized run rate. That probably took out $5 million or $6 million of year-over-year comparison when you look at the fourth quarter. And so that's going to have an impact on that absolute number on what we did with those restructuring activities. So you have to take that in consideration when you're looking at these numbers year-over-year.

Brennan Hawken: Okay. I mean the transcript does say that you'd expect fourth quarter rev, but okay, fine. Got it. Follow-up question on the Slide-2 point and some of the discussion around net new. So one thing I'd point out is that both of those comps do disclose net new assets. So that might be something to consider. Maybe -- you said that net new was helpful. Was that quarter-over-quarter, year-over-year? And if it was year-over-year, was it positive quarter-over-quarter? And then for maybe a subpart of the consideration, one part that could result in this delta in the metrics could be scale.

So would you consider looking to partner to be part of a larger, more powerful, more scaled organization, potentially, which might allow for that realization and valuation to be gapped or bridged?

Ronald J. Kruszewski: Did you ask -- did you just ask me [ about myself? ]

Brennan Hawken: That is a very indirect way of doing it, yes.

Ronald J. Kruszewski: I just give you a very direct clarification, okay? So that's -- I don't mind. Look, that's a fair question. That's just a long way of asking it, but it's a very fair question. Look, where, okay, so you -- wherever it is, we're going to -- with those 2, I don't want to say because I'm not doing anything, but most financial institutions, we're going to scale into someone that has a lower growth rate and a lower return on tangible equity. And because of scale, that don't make sense to me. If I'm going to scale, then I'm going to scale into someone that's got higher margins, higher returns, higher growth rate.

So I understand a quarter can stand on its own, but we've put on that slide since 2016. So those -- check those numbers. So why -- who's growing faster? So I hear you. I -- now your question is, do we get a higher multiple even though we combine with someone with lower financial metrics? The answer is no, but I understand the question. And it's fair. I don't mean to suggest it's not a fair question.

Brennan Hawken: Okay. Thanks for tolerating me.

Ronald J. Kruszewski: No, that's all right. I'm going to come on your earnings call and ask the same question. So that will be fun. But no, that's fair. But what is it? Most -- and I'm just taking a moment here because most institutions that try to combine for scale in a people business and in a culture business and a business that's long and established as Stifel with our growth rate, it's not like we're not growing, we'll find out that those lead to diseconomies of scale, not economies of scale. So I'll leave you with that thought, okay?

Operator: There are no further questions at this time. I will turn the conference back to Mr. Kruszewski for any additional or closing remarks.

Ronald J. Kruszewski: That -- well, I mean, the -- we appreciate everyone. I really -- I want to compliment all of our analysts. I like thought-provoking questions. I like questions that I want people to be comfortable asking. I want you also be comfortable in my answers if you ask the questions, but I really do appreciate the fact that our analyst community takes the time to think about things that are outside the box. And to our shareholders, what I would say is that our business model at Stifel really can be put almost in -- its 3 buckets.

First and foremost, we want to serve our clients, and we want to put all our resources to providing the best products, services and advice that we can on the table. The benefit of serving our clients well falls into 2 buckets. One, that our associates and partners can do well. And the second is that our shareholders -- not second, but equally, our shareholders do well. And that's how we manage the play. So we do not manage it to maximize employees at the expense of shareholders. And frankly, we're not going to maximize shareholders at the expense of employees. Both of those are not good long-term ways to run a human capital financial services firm.

But with that, I look forward to reporting in the fourth quarter, and thank you for your time.

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

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