Good day, and thank you for standing by. Welcome to the First Quarter Earnings Call 2022. At this time all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Joel Jeffrey, Head of Investor Relations. Please go ahead, sir.

Thank you, operator. I'd like to welcome everyone to Stifel Financial's First Quarter Financial Results Conference Call. I'm joined on the call today by our Chairman and CEO, Ron Kruszewski; our Co-Presidents, Victor Nesi and Jim Zemlek; and our CFO, Jim Marischen. 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.stifel.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 slide presentation for information on forward-looking statements and non-GAAP measures. This audio cast is copyrighted material by Stifel Financial Corp. and may not be duplicated, reproduced, or rebroadcast without the consent of Stifel Financial Corp. I will now turn the call over to our Chairman and CEO, Ron Kruszewski.

Thanks, Joel. To our guests, good morning and thank you for taking the time to listen to our first quarter results. 2022 is off to an interesting start to say the least. The war in Ukraine, surging inflation, and the post-COVID reopening have resulted in increased volatility, higher rates, lower equity markets, and a favorable recession in the United States. This contrasts markedly with 2021 when the yield on the 10-year treasury was 1.6%, oil was $60 a barrel. The VIX was 18 and the Fed's forecasted zero rate hikes in 2022. Last year, we generated record revenue and earnings per share led by our institutional business and more specifically, our investment banking businesses. Fast forward today and the environment couldn't be more different. 10-year treasury yields are around 2.8%, oil is above $100 a barrel. The VIX as of this morning is above 30%, and the market is forecasting the Fed to raise short-term rates to 2.5% by year-end. One of the objectives of this call is to highlight the diversity and balance of our business model, which has proven over time to generate consistent growth despite ever-changing market conditions. Simply, all else being equal, rising short-term rates are good for most banks and very good for Stifel. As I look to the remainder of 2022, the expected benefits from increases in short-term interest rates will be substantial to our net interest income. As Jim Marischen will elaborate, our net interest income is now expected to increase by $300 million to $400 million over 2021. This, coupled with the growth in other global wealth management revenues and our fixed income businesses can help to offset the impact of some of our more market-sensitive revenue lines. In short, we expect 2022 to be another strong year for Stifel. So with that said, let's look at our first quarter results. Stifel recorded our second-highest net revenue and EPS for a first quarter, which is no small feat considering the difficult market environment, especially for our equities business. Much like our forecast for the full year 2022, our results in the first quarter illustrate why it's important to have a diversified business model that can provide balance. To illustrate, Global Wealth Management revenue increased 8% to a record $682 million, as our fee-based revenue and net interest income had record quarters. On the other hand, our institutional revenue declined 15% to $431 million, yet we are also balanced within our institutional business, as the strength of our advisory and fixed income revenues helped offset a roughly 80% decline in industry-wide equity issuance. Taken together, Stifel's first quarter revenue totaled $1.12 billion, only slightly down from the prior year. This underscores the balance of our businesses. The next slide contains more detail on our quarterly results. As I said, our revenues were down modestly. However, our bottom line benefited from our variable expense model that resulted in pretax margins of 22% and return on tangible common equity of 24%. A measure of our profitability as compared to the same period last year is to compare pretax, pre-provision income. So let's compare. Our pretax, pre-provision income of $250 million was up 5%, excluding the impact of our credit provisions, which I would note, are related to loan growth, our earnings per share would have increased by $0.10 per share this quarter. Driving this improvement in operating margin, our compensation ratio declined from the first quarter of last year to 59.5%, as our operating leverage continues to improve. Additionally, our operating expense ratio was 18.1%. And excluding the investment banking gross ups, totaled 17.7%, which was just above our full year guidance. Taken together, our EPS of $1.49 represented our sixth-best quarterly result and second strongest first quarter. Moving on to our operating segments and starting with Global Wealth Management. Our record net revenue increased 8% and was driven by the addition of productive financial advisers, as well as the growth in our balance sheet, coupled with improving net interest margin. Asset Management revenue was up 7% sequentially and 23% from last year. When we discussed our 2022 outlook back in January, we projected that the market would be down in the first quarter. I guess we were proven right, as the S&P 500 finished the quarter off about 5%. However, the impact of the decline in equity valuation was partially offset by continued strong inflows as our fee-based assets ended the quarter at $158 billion, and total client assets were $421 billion. On the next slide, we highlight our strong recruiting activity, client asset growth, and an increased loan portfolio. For the quarter, we added 39 advisers with total trailing 12-month production of $18 million. This includes 16 recruits with trailing 12-month production of $18 million. The remaining advisers were added through Stifel's training program, as well as advisers that achieve minimum productivity standards. Although market volatility was a bit of a headwind in terms of overall recruiting, we continue to see extremely strong interest in our platform, and we anticipate increased additions as the year goes on. The consistency of our revenue continues to benefit from our growth in fee-based revenue and net interest income. This resulted in nearly 75% of wealth management revenue coming from recurring sources during the quarter. Lastly, we grew our loan portfolio by $1.1 billion during the quarter, up 6% sequentially. If you annualize our first quarter, it would represent a 25% increase in loan balances from the end of 2021. Our growth was driven by both our commercial and consumer lending. The commercial growth was spread across a number of verticals as we continue to invest in people and capabilities across multiple commercial lending challenges and channels, including fund and venture banking, sponsor finance, CRE, and broadly syndicated lending. Our consumer growth continued to be the result of increases in our retained mortgage portfolio. While we anticipate that the second quarter will be strong, we also expect higher interest rates to moderate the pace of growth in our retained mortgage book in the second half of the year. The increase in our loan portfolio helped drive the 13% sequential increase in net interest income. As Jim will discuss, our projections for net interest income are strong and highlight the asset sensitivity of our balance sheet. Moving on to our institutional group. Let me start by saying that at Stifel, we view this segment, our institutional segment, as a growth business, albeit with some cyclicality. As you can see from the chart on the bottom of the slide, we have consistently grown our institutional revenue. Through 2021, our five and ten-year compound annual growth rates were 18% and 15%, respectively, despite some minor down years. While our first quarter net revenue of $431 million was down 15% versus last year's record first quarter, we are still on track to generate the second highest institutional revenue in our history. Our advisory and transactional revenue increased year-over-year, while the decline in underwriting activity resulted in lower net revenue. Our institutional business generated a pretax margin of 22.4%, reflecting the operating leverage in this business. Moving on to the components of the institutional group. Our fixed income business generated net revenue of $161 million, up $15 million or 10% from last year, helping to offset the fact that our equities business was down $140 million or 62% and came in at $86 million. As I've done in the past, I will speak to our transactional revenue on this slide and leave the capital raising discussion for the next one. In terms of the trading businesses, combining equity and fixed income, we had the second strongest quarter in our history, as record fixed income revenue offset declines in our equity business. Fixed income trading revenues were a record $122 million, up 24%, driven primarily by the addition of Vining Sparks and increased overall activity in our rates business. Equities trading revenue was down 29%. Remember that last year's first quarter benefited from strong global volumes tied to increased retail activity and strong issuance markets. In addition, the S&P 500 was up 6% in the first quarter of 2021 compared to a 5% decline in 2022, which impacted our trading gain. On slide seven, we look at our investment banking business. For the quarter, we posted revenue of $255 million, which was down 25%, as our record first-quarter advisory revenue was more than offset by the weakest equity underwriting market we've seen in some time. We continue to be pleased with the strength of our advisory business, as our revenue of $181 million was up 40%. Our advisory business is diverse across business segments. At KBW, a proxy for Financials, posted a record quarter, while we also got strong contributions from industrial, consumer, technology, as well as our Miller Buckfire restructuring practice. We continue to see strength in public backlogs, and we are also benefiting from the investments we've made in our ability to do private transactions. Overall, while timing can always impact deal closings, we feel very good about the outlook for our advisory business. In terms of underwriting, despite our 62% decline in equity underwriting, according to our internal calculations, Stifel gained market share. This was again a result of the investments we've made in the business. Our fixed income underwriting business posted $40 million of revenue, a decline of 17% from last year. But again, our market share in the municipal finance business in terms of number of transactions increased to 15.8% from 12.9% and helped to partially offset the impact of a greater than 20% decline in industry-wide activity. Overall, we experienced the cyclicality of our institutional business this quarter, as primarily a transactional business; this is to be expected from time to time as market conditions can be volatile. However, the diversity of our revenues within the institutional business mitigated that volatility. We've demonstrated our ability to consistently grow this business over the past ten years and we anticipate that it will continue to grow as markets stabilize in the coming periods. And with that, let me turn the call over to our CFO, Jim Marischen.

Thanks, Ron, and good morning, everyone. I'll start by addressing net interest income. Our NII came in above our guidance at $156 million, which is up 13% sequentially. The growth was driven by an 8% increase in our interest-earning assets, as we continue to grow our loan portfolio and from an increase in bank NIM to 244 basis points. We benefited from the recent rate increase in March. We anticipate the majority of the impact from this rate hike to occur in the second quarter. With that said, assuming we see two 50 basis point rate hikes in the second quarter, we would project net interest income in the second quarter in a range of $190 million to $200 million and a bank NIM of 285 to 295 basis points. As you recall, our full year guidance for NII was in the range of $650 million to $750 million. This was based on balance sheet growth of $4 billion to $6 billion, zero to three increases in the Fed funds rate beginning in March. Well, after one quarter's results and market expectations for significantly more rate increases, our initial guidance appears to be conservative. Given our current asset composition, total balance sheet growth of $4 billion for the year, an additional 100 basis points of rate hikes expected in the second quarter and a 50% deposit beta, the low end of our guidance range will increase to $800 million. When we model the impact of an incremental eight rate hikes, $6 billion of asset growth and a 25% deposit beta, this would drive the high end of our NII range for the year to $900 million. Moving on to the next slide. I'll highlight the bank's loan and investment portfolios. We ended the quarter with total net loans of $17.8 billion, which was up approximately $1.1 billion from the prior quarter. Our commercial portfolio increased by $430 million with particular strength in the industrial and financial sectors. On the consumer side, our mortgage portfolio increased by $500 million and our securities-based loan portfolio was up modestly, as recruiting remained strong. Moving to the investment portfolio. Total investments decreased by $220 million sequentially as a result of lower Agency MBS and CLO holdings. That said, we are beginning to see increased opportunities in CLOs given the increased rate environment and current yields. Turning to credit metrics. The loan loss provision totaled $8.2 million due to the aforementioned loan growth and allowance to total loans ratio remained at 75 basis points. Our non-performing assets as a percentage of total assets remained at 7 basis points, indicating continued strength in our credit metrics. Moving on to capital and liquidity. Our risk-based and leverage capital ratios declined to 18.6% and 11.3%, respectively. The modest decrease in our capital ratios was the result of loan growth and the seasonal impact on equity from stock-based compensation. During the first quarter, through the net settlement of vested shares, we repurchased $87 million of shares from employees. Our book value and tangible book value per share experienced slight declines, as our quarterly earnings were offset by the aforementioned impact of stock-based compensation, as well as the impact of an unrealized loss recorded in accumulated other comprehensive income. This unrealized loss was due to relatively monetized positions in our Agency MBS and corporate bond holdings. Given our plans to continue to grow our loan portfolio, we received a number of questions about our bank funding capabilities. As you can see, we've added a chart to illustrate the funding that is not only utilized by the bank currently but also available to our bank. At quarter end, Stifel Bancorp was utilizing $22.2 billion of deposits from the Sweep Program with an additional $5.5 billion available that is currently swept to third-party banks. Through deposit generation efforts outside of the Sweep Program, the bank has grown $2 billion of other direct commercial and retail deposits from clients over just the past few years. These deposits were primarily generated through our fund and venture banking groups, as well as through other retail deposit programs. Further, our PCG clients hold an additional $6.2 billion in money fund balances, and the bank has access to other secured borrowing facilities totaling $4.5 billion. Lastly, I wanted to highlight that our recent doubling of our annual dividend from $0.60 per share to $1.20 per share resulted in a 20% payout ratio in the quarter. On the next slide, we go through expenses. Our comp-to-revenue ratio of 59.5% was down 140 basis points from last year, but above the high end of our full year guidance. As we stated in the past, we typically accrue compensation expense conservatively earlier in the year. Later in the presentation, Ron will comment on our updated comp ratio guidance. Non-compensation operating expenses, excluding the credit loss provision and expenses related to investment banking transactions totaled approximately $197 million and represented 17.7% of our net revenue. The effective tax rate during the quarter came in at 23.6%, and we expect the second quarter effective rate to be between 25% and 26%. Finally, our average fully diluted share count was in line with our guidance. Absent any assumption for additional share repurchases and assuming a stable stock price, we'd expect the second quarter fully diluted share count to be 118.3 million shares. And with that, I'll turn the call back over to Ron.

Thanks, Jim. So far in 2022, we're off to a strong start as we generated record wealth management and institutional fixed income revenue that drove our second strongest first quarter in our history. That said, it's also fair to say that the market environment has not been exactly what we had initially projected, and 2022 is shaping up to be very different from 2021. This is why we've consistently emphasized the importance of the diversification of our business model. You can see from the top of the slide, we have a long track record of consistent growth through various market conditions, much of which is due to the diversity of our revenue lines. As such, we believe that we are well positioned to weather the market volatility and potential economic headwinds that could emerge in 2022. As such, we are maintaining our full year revenue guidance of $4.9 billion to $5.2 billion. Looking at our Global Wealth Management segment, revenues will be driven by a number of factors that include increased net interest income, continued strength in recruiting, and solid asset management revenue. In terms of net interest income, as Jim mentioned earlier, we've raised our guidance to account for increases in the Fed funds rate. The lower end of our guidance is based on rates only increasing 100 basis points, as we believe the Federal Reserve may be limited in how much they can increase rates if the economy begins to slow. That said, our revised low end of our guidance is still $50 million above the high end of our prior guidance and the revised high end would represent an 80% increase in NII from 2021. The increase in our guidance underscores the meaningful asset sensitivity in our business, which I believe has been underappreciated by the market. Our institutional group revenues are more volatile, and our results in the first quarter illustrated how they can be impacted by changes in the market. That said, we continue to believe that 2022 will be a solid year for our institutional group. Our investment banking revenue should improve as we expect consistent contributions from our advisory practice, as our pipelines are robust and improvement from our capital raising business from the low levels in the first quarter. Additionally, transactional revenue should increase due to seasonal improvements in volume, as well as increased trading gains. Lastly, we lowered our guidance for our compensation ratio to 56% to 58%, primarily due to the additional revenue from NII. While we try to be conservative in how we accrue compensation early in the year, we anticipate that the additional expected revenue from this relatively low compensatory revenue source will allow us to enhance our already increasing operating leverage. So in conclusion, we do not expect 2022 to resemble 2021, especially considering the war in Ukraine and the increase of inflation, the latter of which requires a tightening of monetary policy and a reduction of fiscal stimulus. With respect to inflation, its emergence reflects too much money created through the combination of vast federal spending and easy monetary policy chasing too few goods. U.S. economist Milan succinctly observed, the inflation can only be produced by a more rapid increase in the quantity of money and output. I think it is safe to say that the increase in broad U.S. M2 money supply in 2020 to 2021 to a growth rate that peaked at over four times the rate that existed during the pre-COVID years laid the foundation for inflation in 2022. With respect to the current war in Ukraine, above all, it's a humanitarian tragedy, and our thoughts are with the people of Ukraine. Regardless of a diplomatic solution, it's hard to imagine that these events do not impact the world order, the global economy, free trade, and the position of the U.S. dollar in that hierarchy. Taken together, these factors introduce significant uncertainty, and as a result, more inherent risk. That said, as Stifel has demonstrated for over 25 years, we are a company that is both well positioned and capable of adapting to changing environments. The balance of our business model, augmented by acquisitions creates continued opportunities for growth and gives us confidence in our ability to generate strong results. With that, operator, please open the line for questions.

The first question comes from Steven Chubak from Wolfe Research. Your line is open.

Hi. Good morning, Ron. Good morning, Jim.

Good morning, Steven.

Good morning.

Wanted to start off with - which may be a hot topic at the moment, cash sorting. Last cycle, you had very low deposit betas on the first 100 bps of hikes. That ramped pretty significantly, and you even started to raise some CDs as cash sorting headwinds started to manifest. This time, it does feel admittedly different just because you're coming into the cycle with better organic growth. You noted there's a larger pool of available funding of roughly $16 billion. But I wanted to get a sense as to how much of that $16 billion can be readily swept to Stifel Bank to support growth? And how do you see cash sorting impacting cash balances? And is there a credible case for growing sustainably from here even beyond 2022?

A lot of questions in that, Steve.

I would consider it a heavy two-part.

Heavy two-part, yeah. First of all, we have and will continue to source deposits through recruiting. I mean we've done it consistently, as we've grown AUM. I talked about our AUM targets and the way we can grow both through organic recruiting and acquisition. When I look at it, we're going to continue to build our funding base. We've also - instead of just looking at retail, we've been building funding through our commercial build-out too, in fund banking, and you've seen that. So I believe we have adequate funding. We're talking this year about $4 billion to $6 billion of growth, plus if you take that into next year, we have funding to easily do that. So I think that was the first part of the segment. Maybe I'll let Jim jump in here a little bit. I think you're talking a little bit about deposit base.

Yeah. From a cash sorting perspective, I think one thing that's different this time around—maybe there's a couple of things. We're starting from a higher yield on our asset base. So we can be more competitive on a deposit beta and still make an acceptable return. That said, we've also put in some deposit programs to deal with more rate-sensitive deposits to hold on to more of the cash that sorts searching for higher-yielding deposits. I think those factors put us in a vastly different position. When you think about some of the guidance we put out on our net interest income, we're talking about on the low end, a 50% deposit beta, which is significantly higher than what we experienced in the last cycle.

Thanks for that color, Jim. And maybe just one on the fee guidance. Certainly, more conservative fee guidance. I don't think it's taking anyone by surprise given the tougher backdrop for the market-sensitive businesses. I was hoping you could provide just some granularity on what you're assuming for equity markets for full year '22, as we think about that mark-to-market of the guidance? And just speak to your outlook for the advisory and ECM businesses over the next few quarters. The macro is challenging admittedly, but you also cited a record backlog in advisory, which should convert at least over the next couple of quarters from here?

Yeah. Look, I'll take, if you—our advisory business and all of the things that drive that business are still in place. Okay? We see the environment as something we need to monitor. But the overall environment is in place. We're optimistic about our advisory business. That said, we had a good first quarter as well of $180 million. In respect to the fee-based, I think our base case was we had expected a decline in the first quarter. And then Jim, what was...

In terms of asset management, it was low mid single-digit increases in the S&P 500 through the end of the year.

Yeah. And so that's the basis on which we were forecasting asset management. So this recent pullback isn't the thought, but it is recent, so.

Fair enough. And if I could just squeeze in one more just on the organic growth outlook. Despite the volatility in the quarter, certainly nice to see the adviser adds and even a large client win for the nascent independent platform. I was hoping you could disclose the level of organic growth that you saw in the quarter, recognizing it was a challenging recruitment backdrop. And over the long term, what do you see as a sustainable level of organic growth and whether that contribution from the independent channel while still early, could help buoy the long-term algorithm?

Our organic growth—you're talking about assets or advisers—I mean...

Yeah. No. I would say, obviously, the first quarter is probably a little bit more challenging in terms of net new assets. It was probably low mid single digits. But I still think the dynamics for growth there mirror more of that 6% or 7% or 8% that we've experienced historically over kind of multiple operating cycles. That's what we would guide to.

Yeah. And I—look, our recruiting is historically, I mean, years-long successful. The independent channel is as green shoots. We see it. We're approaching the business a little bit different in what we're looking at in terms of recruiting into that channel. But it's certainly something that we are optimistic about in terms of augmenting our historical employee channel recruiting.

Hey, thanks.

Hey, Kevin.

Kevin Ryan. If you get that one. How are you guys?

I don't know if your middle name was Kevin Devin Ryan...

Exactly. Yeah. I think Steven asked all the questions with these three parters there, but let me try to take a different route. So I want to think a little bit about the bank growth and appreciate the capacity there, and you guys have had a lot of success. Can you maybe just parse through a little bit more around kind of competitive dynamics? Obviously, as rates are going up, there's more interest in other firms, obviously, expanding bank capacity as well. And Jim, you mentioned CLOs obviously have been in the market a long time. I'm curious kind of what you're seeing there, what type of yields and how attractive that is as well. So just kind of a high level on competitive dynamics in the bank and then where you're looking?

Yeah. Look, first of all, we've not seen the rapid increase in money supply that we saw last year, 25% in M2. That factor makes me believe that as much as people want to say there's going to be a lot of demand for deposits. So that would argue against that. The unknown factor here a little bit, Devin, is we've also not seen a scenario where the Fed is shrinking its balance sheet to the tune that they're being talked about. That could be a factor that goes the other way. But the world of wash and liquidity, there's deposits all over the place. I'm not sure how much different it will be this time.

Yeah. Maybe pivoting a little bit back specific to the categories of growth. I think the reason that we feel confident in our ability to grow is that we've diversified into a number of different lending channels. Ron kind of spoke to that, whether it's residential lending, securities-based, fund banking, venture, private banking, CRE. There have been a number of teams and people and capabilities we've invested in over the last few years that are really helping us diversify that growth. The comment about the CLO portfolio, that's just additional capacity there. We're seeing CLOs yielding in the 260 range. That's an attractive floating rate asset as we continue to see rates rise that we would happily add as part of our overall asset mix.

I just want to say, as it goes to funding, we're going to continue to grow. We'll grow our funding sources. We've shown our funding. If you look at $4 billion to $6 billion of growth, do it again, $4 billion to $6 billion. I don't see us constrained by funding while we're growing our balance sheet 15% a year. That's kind of what I think is sometimes underappreciated also, Devin, is our ability to organically generate loans and the deposit funding for that. We've grown the bank, I think, 30% a year for the last five years, and we're going to continue to grow the bank, and the building blocks to do that, both to generate loan demand and fund are in place.

Okay. Great. Thanks for all that color. And then maybe to round out from Steven's question earlier on the institutional side, you hit on kind of the advisory outlook and ECM to some degree. I'm curious, it's been a pretty healthy backdrop for fixed income. As rates go up, just maybe talk a little bit about the implications on—and I appreciate your rate outlook isn't that we're going to some new high level. What the implications are on either fixed income capital raising or the fixed income brokerage business, particularly, obviously, now you have Vining Sparks in there as well. So just some of the puts and takes as we transition a bit maybe in that business as well?

Yeah. I think I'll comment on both fixed income and equity; fixed income trading, as we look forward, both as I've said, some seasonal factors and the additions that we've put in. We see that business as positive and improving from the first quarter, just to give a sense. The public finance business has also been challenged by just what's been happening in the high-yield market in public finance. That's a market that's been under some stress. Overall, we think that public finance is relatively flat to last year, which was a very good year, but also up from the first quarter. Our advisory on the equity side is a very, very good backlog. As I said, the factors, the PE firms have a lot of firepower, and that's going to help the advisory business, and we'll benefit from that. Equity capital markets, the first quarter that was an 80% decline in equity-linked issuance and the volatility that we're seeing in the market and what I mentioned in the mix, that's going to certainly impact new issue, but the volatility also will help our trading businesses. Overall, I'm trying to paint a picture of improvement in our institutional business as we sit here today going forward.

Great. I appreciate it, Ron. Thanks, Jim as well. Appreciate it.

Thanks.

Our next question comes from the line of Alex Blostein with Goldman Sachs. Your line is open.

Hey, guys. Good morning.

Good morning, Alex.

I'll probably add to the multi-parter on top of the multi-parter. So we'll keep talking about the bank for a second. I guess I was hoping maybe you could frame out of the $28 billion of customer cash that you guys have right now. Is there a way to frame sort of a stress level in terms of what's sort of truly operational, right? So things that are set aside to pay fees for some kind of exhaust cash in the accounts versus something that could ultimately chase higher yields, given the fact that money market fund yields will yield a pretty attractive alternative shortly. So that's kind of the first part. And then on the deposit beta side of things, I just want to make sure that we're talking to 25% to 50% is really kind of the average over the course of 2022. So potentially, we could be entering 2023 and north of 50% deposit beta. Is that potentially the message?

Maybe I'll take the first one first. In terms of operational cash, obviously, we're not in a regulatory regime where we're classifying those cash balances in the manner that you're talking about. That's a significantly larger bank classification to get there. But I will say the vast majority of that cash is the sweep program is operational in nature. The average balances are relatively small. There's million-plus clients in that group. So there's a lot of money movement going back and forth. You'll see over time there's a lot of consistency in that balance. The bigger item to focus on there is just the continued growth in the overall program based upon the continued success in recruiting. That's going to continue to drive that balance higher. We're going to have access to the vast majority of the cash available held by clients. Second item on the beta. Again, this was for pure illustrative purposes. We were talking about a 50% beta for the full cycle on the low end. So that $800 million NII guide includes a 50% beta. The 900, we were talking about 25%. We're just trying to frame up where that could - what the impact of the beta could be on the overall NII guide. At the end of the day, we're going to be competitive, and we're going to be moving with the market and we'll be competitive on our deposits. We'll see where the actual betas end up going.

Yeah. I mean I would just add that based on any - within any range of the beta, the impact on our NII, which I think you've actually modeled pretty well, Alex, is significant.

Yeah. Makes sense. Thanks, guys. The other question comes up, obviously, every call, but the stock had a rough go here, earnings power is improving. I think you guys are trading sub-eight times earnings at this point. Any updated thoughts around ramping up the buyback?

We're always mindful of that. I would—the weakness in the stock historically will—at these levels and these pricing levels will result in us historically speaking, to be when we buy back stock. We're always looking at the utilization of capital to the highest returns. Obviously, the stock price decrease that return, by the way we look at it increases. So we're not out of the market.

I mean the other thing I would highlight, there's always a seasonal impact of 1Q, which I referenced. We net settled $87 million of shares, and that's a 1Q phenomenon. That won't continue going forward. You'll see probably a little bit more appetite in terms of just open market share repurchases.

Understood. Thanks so much.

The next question comes from Chris Allen from Compass Point. Your line is open.

Morning, guys. Thanks for taking my question. Maybe some cleanup questions. In your trading books, were there any negative marks during the quarter? Obviously, you talked about the potential for seasonal improvement moving forward, and the backdrop in certain areas looks pretty decent. Just wondering if the market movements result in any negative marks out there in the first quarter?

There were no negative marks. I think when you look back a year ago, there were some positive trading gains and some warrants that we took, and that's really causing some of the fluctuation from a trading P&L perspective, not necessarily losses this quarter, but the gains from the first quarter of 2021.

And then it's been—on a comparative basis, it's been a difficult fixed income market as well, but not material in terms of losses—a significant look year-over-year.

Understood. And then just maybe if you could provide some color on the outlook for securities-based loans here. If I recall correctly, I think they typically see some headwinds and just in the higher rates and obviously more volatile environment. So how are you thinking about that component of the loan book is going to drive growth there?

I think there's still definitely good growth there. A lot of that is going to be driven by recruiting. I will say we generated new loan balances of $275 million, which just experienced some pay downs in the first quarter. That's really what led to kind of a modest increase in this quarter. But we still see a lot of activity there and a lot of potential capacity to use that vertical to continue to grow the loan book.

Understood. And the last one for me. Just looking at the other operating expense line, down sequentially and down year-over-year. Just any color there. There were pretty decent declines?

Total expenses you're saying?

No, other operating expenses, the $66.6 million on an adjusted basis?

The total...

On a total basis, it's going to be—the investment banking gross ups are down significantly. Obviously, given the decline in ECM activity, you saw investment banking gross is probably down about $10 million. That was the biggest driver there. I would say also year-over-year, the T&E did decline a little bit in the first quarter when the Omicron variant kind of came out. Those were the two main factors there. Apologize. I thought you were talking about the other segment when you were saying that.

So I wasn't seeing the fluctuation. So that’s it from me guys. Thank you.

There are no further questions at this time. I would now like to turn the conference back to Mr. Ron Kruszewski.

Well, I want to thank everyone for joining us, and we look forward to delivering on our growth as we have over the years. Look forward to seeing everyone on the next call. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.