Good day, and welcome to the Stifel Financial First Quarter 2024 Conference Call. As a reminder, today's call is being recorded. At this time, I'd like to turn the call over to Mr. Joel Jeffrey, Head of Investor Relations of Stifel Financial. Please go ahead.

Thanks, operator. I'd like to welcome everyone to Stifel Financial's First Quarter 2024 Conference Call. I'm joined on the call today by our Chairman and CEO, Ron Kruszewski; our Co-Presidents, Victor Nesi and Jim Zemlyak; 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 our slide presentation for information on forward-looking statements and non-GAAP measures. This audio cast is copyrighted material of Stifel Financial 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 2024 conference call. The momentum we had exiting 2023 continued as we generated the second highest quarterly revenues in our history. We benefited from market conditions that included strong equity markets, recovering capital markets and an improving U.S. economy. Total net revenue of more than $1.16 billion was driven by record global wealth management revenue as well as the continued improvement in our institutional group. As revenues improved, we maintained a focus on expense discipline and this approach resulted in a 20% pretax margin, operating earnings per share of $1.49, which was a 6% increase year-on-year as well as a return on tangible common equity of 21%. This resulted in another quarter of substantial excess capital generation, which we deploy primarily via share repurchases. Even with the substantial share repurchase activity and our increased dividend, our Tier 1 leverage ratio increased by 10 basis points during the quarter. I'd also note that the strength of our business was recognized by the credit agency upgrade we received from Standard & Poor's earlier this month. Slide 2 is a variance table to consensus estimates. Our EPS of $1.49 was $0.03 higher than consensus and was the result of net revenue that came in $20 million above expectations. We beat on all revenue items except net interest income, which I note came within our guidance range. I think it's important to note that our NII for the quarter of $252 million may very well be the low point of the year, as we anticipate balance sheet growth and less impact from cash sorting during the remainder of the year. In terms of where we beat consensus, I'd note that investment banking came in nearly $30 million above expectations on stronger advisory and underwriting revenue, both as compared to consensus as we are beginning to see increased activity levels. Transactional revenue came in $5 million above expectations on stronger wealth management and institutional equity revenue. Total expenses were higher than consensus. However, much of that was reflected in compensation expense as a result of higher revenues. I would note that the comp ratio remained consistent at 58% and was slightly below expectations. Non-comp expenses were $8 million higher than expectations, which Jim will discuss in greater detail later in the call. But I'd point out that excluding credit provision and investment banking gross-ups, our non-comp operating ratio was essentially in our guidance. Slide 3 compares operating metrics since 2019. Starting with net interest income, I would note that this has increased over 100%. This is noteworthy because it represents a consistent source of revenue that along with our other fee-based revenues offset the volatility of our institutional business. In 2019, Global Wealth Management revenue was $2.2 billion, which compares to approximately $3.2 billion based on our annualized first quarter 2024 global wealth revenue. On a percentage basis, Global Wealth Management is up 45% since 2019. This growth offset a deep industry-wide recession in capital markets that reduced the pretax income of our institutional group from $560 million in 2021 to essentially breakeven in 2023. Our results in the first quarter indicate the onset of a rebound in investment banking, but it is far from a normalized run rate. As market conditions improve, we anticipate returning to more historical levels of profitability in this segment. For example, in 2022, we generated $254 million in pretax income, which I would note was not even a particularly strong market for investment banking. As revenue and margins continue to return to more historical norms, we will also benefit from the investments we've made in our Wealth Management segment. One item I would like to note is the benefits we've seen from our smart rate product, which enabled us to maintain our client cash within Stifel as interest rates rose. The increased levels of cash and smart rate makes Stifel less sensitive to the impact of lower interest rates when the Fed begins to cut. Last year, we noted that a 100 basis point decline in rates would result in a $65 million reduction in net interest income. Given the growth of smart rate, which carries a higher deposit beta, our updated disclosure in 2024 reduces the impact on net interest income to $15 million on the same 100 basis point decline in rate. So as we look to the future, we see improving results from our institutional group, consistent growth from our wealth management franchise and elevated levels of NII contribution. This combination leads me to believe that we will continue to generate strong performance for 2024 and as we transition to 2025. With that, let me turn the call over to Jim Marischen to discuss our most recent quarter results.

Thanks, Ron, and good morning, everyone. Looking at the details of our first quarter results on Slide 4. Our quarterly net revenue of $1.16 billion was up 5% year-on-year. The increase was driven by stronger client facilitation, trading and underwriting revenue that was partially offset by lower net interest income and advisory revenue. Our EPS was up 6% from the prior year as higher revenues and a lower share count more than offset modest expense growth. Moving on to our segment results. Global Wealth Management revenue was a record $791 million, and our pretax margins were 37% on record asset management revenue and strong growth in transactional revenue. We continue to add new advisers to our platform. During the quarter, we added a total of 22 advisers. This included 15 experienced advisers with trailing 12-month production of $6.8 million. We ended the quarter with record fee-based assets and total client assets of $177 billion and $468 billion, respectively. The sequential increases were due to higher equity markets and organic growth as our net new assets grew in the mid-single digits. We highlight our longer-term growth drivers of our Wealth Management business on Slide 6. Our focus on recruiting and supporting our advisers with best-in-class service has been the approach to our long-term success. Not only has our revenue contribution from this segment continued to increase, but the percentage of revenue generated by recurring sources such as asset management and net interest income has increased significantly and now stands at 77%. Moving on to Slide 7, where we highlight the solid trends at the bank. Net interest income of $252 million was in the lower half of our guidance range as bank net interest margin was impacted by higher deposit costs, larger average cash balances and the movement of sweep deposits back into third-party banks. Given the timing of the move to third-party banks at the end of the fourth quarter of 2023, we recognized the bulk of this impact on NII and asset management revenue in the first quarter as asset management revenue from third-party banks increased $7.5 million sequentially. As we had forecasted, cash sorting was impacted by seasonality in the first quarter, but continues to slow. Bank sweep deposits increased during the quarter by $130 million, but were more than offset by the reduction of third-party sweep balances by $872 million. Given our expectations for similar cash sorting and modestly higher bank NIM, we expect that NII in the second quarter will be similar to our first quarter results. And as such, we're forecasting a range of $250 million to $260 million. Our credit metrics and reserve profile remained strong, and the nonperforming asset ratio stands at 20 basis points. Our credit loss provision totaled $5.3 million for the quarter and our consolidated allowance to total loans ratio was 89 basis points, which was impacted by the decline in loan balances as a result of paydowns in fund banking. Lastly, our balance sheet continues to be well capitalized. Tier 1 leverage capital increased 10 basis points sequentially to 10.6%. I'd also note that the unrealized losses in our bond portfolio continued to improve as credit spreads tightened in the CLO market. On the next slide, I'll discuss our institutional group where we saw continued improvement as the operating environment continues to recover. Total revenue for the segment was $351 million in the first quarter, up 6% year-on-year, led by a strong increase in capital raising and transactional revenue. Firm-wide investment banking revenue totaled $213 million and substantial growth in capital raising more than offset a decline in advisory revenue. In terms of equity underwriting, the $40 million we generated was our strongest quarter since the fourth quarter of 2021 as we had a meaningful contribution from our health care vertical, where we've made significant investments in recent years. Advisory revenue was $119 million as we had solid results in our industrial and health care verticals. We were again impacted by the delay in deal closings. However, our pipelines are improving as the U.S. M&A market is showing signs of strength. Equity transactional revenue totaled $54 million, which was up 3% from the first quarter of 2023, which was a tough comparison as last year's commissions were positively impacted by the volatility that resulted from bank failures during that quarter. We continue to gain traction in our electronic offerings as well as strong engagement with our high-touch trading and best-in-class research. Fixed income generated net revenue of $139 million, an increase of $36 million year-on-year. We experienced strong growth in transactional and capital raising revenues as both increased $18 million from 1Q '23. I would note that we continue to see strong flow activity in our transactional business but our trading gains in fixed income were significantly lower than what we experienced in the fourth quarter. Fixed income underwriting revenue increased 57% from 1Q '23, as we continue to be a leader in the municipal underwriting business as activity increased, and we continue to be ranked #1 in the number of negotiated transactions as our market share was greater than 15% in 2024. We're also seeing improved traction in our taxable capital raising activities, which improved year-on-year. On the next slide, we go through expenses. Our comp-to-revenue ratio in the first quarter was 58%, which is at the high end of our full year guidance as we accrue conservatively early in the year. Non-compensation operating expenses, excluding the credit loss provision and expenses related to investment banking transactions, totaled approximately $245 million. Our non-comp OpEx as a percentage of revenue was 21.1%. The effective tax rate during the quarter came in at 25.2%. The tax rate was positively impacted by the excess tax benefit related to stock-based compensation but was offset by nondeductible foreign losses. Before I turn the call back over to Ron, let me discuss our capital position. In the first quarter, we repurchased approximately 2.3 million shares through both net settling of equity-based compensation and open market purchases. As of the end of the quarter, we have 11 million shares remaining on our authorization. We have approximately $210 million of excess capital based on a 10% Tier 1 leverage target. Additionally, we continue to generate substantial amounts of excess cash as illustrated by our first quarter net income of $154 million. We remain focused on generating strong risk-adjusted returns when deploying capital, and we've done this through reinvesting in the business, making acquisitions as well as through share repurchases. 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 109.9 million shares. And with that, let me turn the call back over to Ron.

Thanks, Jim. At the end of last year, I said 2024 would be a transition year and that my outlook for 2024 was optimistic. I stand by those statements. I would add that so far in 2024, we're off to a good start in both revenue and EPS in the first quarter exceeded consensus estimates. Simply looking at our annualized first quarter revenue, we are already near the midpoint of our full year guidance despite market conditions that aren't overly accommodating. The outlook for the remainder of the year is certainly not without risk as our performance could be negatively impacted by the ongoing geopolitical crises, the uncertainty of the U.S. presidential elections, potential credit market deterioration and persistent elevated inflation, just to name a few. Speaking of inflation and Fed policy. I would note that at the beginning of 2024, the market anticipated 6 to 7 rate cuts. Stifel was not in this camp, and we projected 2 to 3 rate cuts. We stand by this view, although we now believe that 0 to 1 rate cuts and even a rate increase are also in the cards. Look, the Federal Reserve finds itself in a precarious position, navigating the tightrope between controlling inflation and preventing recession. It's not an easy task. The Fed's unprecedented series of rate hikes in 2022 were successful at slowing the inflation that reached 40-year highs. Yet the market has numerous reasons to justify the Fed to begin a cycle of rate reductions. Cheap among them a desire to achieve a soft economic landing. While we and everyone, it seems would like lower rates, the Fed should recognize that reducing rates now is both unnecessary and risky for the economy. We believe that inflation will prove sticky and cutting rates too soon may reignite inflationary pressures undoing the progress made so far. Simply, ensuring that inflation is at or near the Fed's stated target of 2% is more important than trying to ensure a soft landing. The Fed has plenty of rate flexibility if the economy slows significantly and in our opinion, should not attempt preemptive rate cuts at the risk of invigorating inflation. That said, we are seeing market conditions continue to improve. Specifically, I'd point to improved sentiment for investment banking, strong year-to-date equity market performance and increased client transactional activity. If these trends continue, we'd expect to see increased revenue growth and improved operating efficiency throughout the remainder of the year. This would put Stifel in a very strong position heading into 2025. Let me conclude by saying that we are committed to creating value and maximizing returns for our shareholders through all market cycles. We have and will continue to do this by reinvesting in our business through strategic hiring and acquisitions, deploying capital based on generating the best risk-adjusted returns and always putting our clients' needs first. This approach is essential to Stifel reaching our near-term targets that I've discussed of over $5 billion in revenue and about $8 of earnings per share. I would note that this is essentially 2025 consensus analyst projections. Additionally, you've heard me talk about our longer-term goal of $1 trillion in client assets under management. While that level of asset growth, I believe our business would be at the scale to generate roughly $10 billion in annual revenue. I recognize that this is essentially twice our current size. However, my confidence in reaching these levels was bolstered by our historical growth rates. As recently as the period between 2015 and 2021, we doubled our annual net revenue. As we continue to attract high-quality individuals and as we, as an organization, continue to adapt and constantly think like a growth company, I believe that over the next decade, these revenue and client asset milestones are achievable, if not exceedable. And with that, operator, please open the lines for questions.

We will take our first question from Devin Ryan with Citizens JMP.

First question, just want to take a step back and look at the investment banking business that you guys have built here. And just really thinking about kind of the evolution in recent years. And it may be great just to maybe give some perspective around how you guys have increased the size and capabilities of that business relative to where you were in pre-COVID because revenues have clearly been anything but normal the last few years from 2021, extremely good to the last couple of years maybe on the other side of that. And so just trying to think about what kind of a normalization for Stifel could look like because of all those investments? It would seem that you don't need a 2021-like environment to get back to something in that ballpark of revenues.

I think it's a great question. It requires a little bit of a crystal ball, Devin. But what I'm confident in saying is that as you look and compare to 2019, the capabilities of the firm across our institutional business, not just in investment banking, but are significantly greater in terms of senior producing people, managing directors, products, services and just the evolution of the business. As you continue to do more business and are more relevant to your clients, that leads to more business. That's just the cycle of the business. I don't think there's any question that we'll look, I think for a little while as 2021 being a high watermark, everything that came together at that time, including the phenomenon of SPACs and everything that happened, that will be a high watermark in revenue, at least for a little while, in my opinion. But as we've looked at it, we can get back to acceptable margins in this business. And we've said that instead of 2021 being $2.2 billion, we say more like $1.7 billion to $1.8 billion. I think that, that's easily attainable. And the important thing is going back to some profitability from a business where we essentially broke even last year and yet still achieved great corporate results as that business improves, the profitability improved. And of course, that will be part of getting to the targets that I mentioned in my remarks.

So Ron talked about increased capabilities, more managing directors, just to put some numbers behind that. We've increased the number of managing directors by 65 people from 2018. So it's a fairly significant investment. You talked about a lot of our capabilities we've added. I would say we've also made investments in some of our key verticals. We've got a best-in-class product in our financials group with KBW. And you heard us reference multiple times on this call, some of the investments in the results being generated by the investments we've made in our health care and our industrial franchises. So I'll just add to that.

Okay. Great color. Just a real quick follow-up here for Jim. In the bank, obviously, loan balances declined a bit from last quarter. I'd love to just get some flavor for kind of the environment you're seeing around the loan book or appetite to grow the loan book from here would have the risk-adjusted returns in the market today? And then just also kind of an interplay between growing the balance sheet versus just leaning in on buybacks that you guys have been doing.

Yes. I mean, I think we kind of hinted to this in the prepared remarks as well is that we do anticipate seeing some balance sheet growth, specifically in the loan portfolio. I think you will see more loan growth in the areas we've historically grown. If you think about fund banking and venture banking as well as our mortgage portfolio, those are all areas that we're going to continue to invest in. And I think you can look at the yield table and see the kind of returns we can generate there. And I think as we sit here in balance today, we are generating a lot of excess capital and thinking about balancing some of the buyback versus balance sheet growth is part of that consideration. It does take some time to start to generate and get those things going in terms of adding loan balances, but that's something we're definitely focused on.

We will take our next question from Bill Katz of TD Cowen.

Just following up on those last sets of questions. As you think through the interplay between your NII guide. How do we think about to the extent that if rates are sort of higher for longer the interplay between the NIM looking ahead versus the opportunity to grow the balance sheet to sort of calculate through to that NII outlook?

I think the answer to that is a little bit hard to predict because understanding and predicting client behavior in that environment is going to have an impact on the NIM. As we've said, we continue to see cash sorting continue to slow. But obviously, there was an impact associated with tax season that we see every year. I think the key thing to think about there is we continue to monitor this what happens to these balances, not just to Stifel across the industry as we continue to get further and further away from tax season. That said, even if we saw additional sorting pressures, the capabilities we've built and the yield opportunity on the loan portfolio would allow us to continue to grow and make the reasonable risk-adjusted returns that we target. So even if there is continued pressure there, we do feel comfortable with what that environment looks like.

Yes. I would just add that I've always been cautious in an inverted yield curve environment, both as it relates to the behavior on cash client sorting activities. And frankly, that the SOFR rate is significantly inverted and the pressure that can put on various credit metrics. So we see, though, from this point, we have been limiting our balance sheet growth, and we see a lot of quality demand. So as I said in my remarks, we believe that whatever cash sorting impacts our NII will be offset by balance sheet growth so that we think that we're at a low part at NII.

Great. Just sticking with that theme, just one level deeper, as you just sort of think through client behavior. So I wonder if you could comment on behaviorally, how clients are funding any tax liabilities? And then as you look in a world where rates sort of stay here and we stay sort of in your framework of maybe just plus or minus one rate move, how do you think the mix of client assets might migrate from here? That is what percent might stick in the sweep vehicles versus what might stay in more of the money market, higher-cost vehicles. And when might you start see more favorable inflection to that?

There are two points to consider. Firstly, every year, clients manage tax season by transferring funds to the federal government, typically from our accounts and other brokerage accounts. This can be more pronounced in years when estimated tax payments are also due. If we experience a strong first quarter, clients may have additional capital gains, leading to usual behavior where they withdraw from our various cash products to pay taxes. Regarding client behavior in the future, it will be interesting to see how things change when the Federal Reserve potentially starts to cut rates. If I could suggest, instead of cuts, a rate adjustment would be more beneficial. Ideally, the Fed funds rate should be around 4.75%, aligning with the 2-year rate to avoid inversion. Though that's unlikely to occur, as rates begin to decline, clients will likely appreciate the 5% available on short-term rates and may seek longer durations to preserve that yield. We have been considering this and are prepared with products to offer alternatives for our clients, similar to how we proactively introduced the smart rate. We will assess our clients' potential actions as the yield curve starts to stabilize.

One other thing I think I would add to that is we already have about $18 billion of client assets that have moved into short-term treasuries and money market mutual funds. And obviously, that number can go up some from here, but that's a pretty big allocation relative to historical norms. And obviously, if rates stay higher for longer, those are probably going to stay somewhat elevated. If we turn around at some point and see rates come back down, that's a fair amount of investable dollars that aren't really earning much today that's potential revenue within our Private Client Group that's kind of sitting on the sidelines today.

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

Ron and Jim, it's Michael, and I'm hopping in for Steven. I wanted to start off with one on the DOL fiduciary rule. Ron, you had been relatively cautious versus some of the peers on the implications of the rule back at the conference in November. With the final rule now published, maybe you can remind us your views there? What this means for the industry? Any implications that you would highlight for Stifel's earnings as well?

Yes. Look, I mean, it was published yesterday, it's about 500 pages with numerous preambles and various things. At first blush, I want to say, I was somewhat surprised that at least an initial review of the rule appears to be less restrictive than what was proposed. I think that a number of people in the administration are trying to not create a rule that is so similar to the one that was struck down by the Fifth Circuit back in 2018 or whatever it was. And so I would say that the rule primarily targets just fixed indexed annuities, which we don't really sell at Stifel. However, I would say that, that probably is going to draw a legal challenge from the insurance groups. The rule likely is still susceptible to legal challenges. But they did some things like that you can continue to have education for IRA rollovers. And I thought that it was interesting that they expanded the principal transaction, which was always a concern of ours, mostly from investor choice that you should be able to do an IPO in your IRA if you wanted to. And it appears they put that back in. So on balance, I think the rule has an implementation period of about a year. I think it's going to get challenged. But as I see it today, I think the rule doesn't significantly impact our business as I've seen it now. We've done a lot to implement BI, Reg BI. Overall, I always say the same thing that to the extent that it varies, it has a lot of variance to Reg BI, then that just becomes very difficult to manage. Most of our clients have retirement IRAs, and they have taxable accounts, and we can't be operating under two standards. I'll continue to be looking at that. I know the industry is going to look at that. But I guess my first blush reaction was that it appeared to dial back from the proposal that came out a month or so ago.

Right. That's very helpful. And then just one on bank M&A. Following the close of the Lakeland merger that had lingered for quite a while, are dialogues among potential deal candidates in the bank space picking up? Or is the view that the current administration will continue to cause headwinds there? And then maybe just to round it out, can you give us a sense of how you expect the environment for bank M&A to evolve depending on the election outcome?

I don't know, maybe you gave me some information. I wasn't sure that Lakeland had closed. That deal has been sitting around for a while. I think we think it will close. In general, look, I think overall, the guidelines and what's been put out and the FDIC and a number of guidelines have certainly put a delay in transactions. That will continue. I don't see why that's not going to continue. And if it does anything as it relates to M&A, if I'm on a Board, I'm considering and putting a risk factor into my thought processes as to how to manage a delay in closing. That's part of assessing price and the ability to do transactions. I'm hopeful that the administration, whoever it would be after November, will recognize that a lot of midsized banks need to combine to meet enhanced regulatory enhanced liquidity and everything else. We don't need over 4,000 banks; we need more than 10. But there is a lot of M&A activity that's going to occur, and I'm hopeful that the administration will encourage bank mergers because it's good not only for shareholders but also communities and for the fabric of the United States Capital Markets, which has at its foundation community and regional banks.

I think one thing to add there is, obviously, the timeline from announcement to close has extended significantly. We are hearing from clients that we feel like they've gotten to the point where they don't feel like that's going to get any longer from here. And I think I would just say that if the environment switches to be more conducive for financial M&A, we're very well positioned to take advantage of that.

We will take our next question from Brennan Hawken with UBS.

So Jim, in your prepared remarks, you commented that you added, I believe, 22 advisers in the quarter, but the FA headcount dropped by about 30 quarter-over-quarter. Can you speak to what drove that drop despite the healthy gross adds?

Yes. It was primarily driven by retirements. I think you see that early in the year often. I think, generally speaking, the pace of recruiting has slowed a little bit. And so some of the natural attrition from retirements was more of a similar number to what we added in terms of net new advisers. And that is really the trend we're seeing there. I think when you see markets moving like they have moved, typically, advisers take a little time to make the decision to transition, and I think that's something you're seeing kind of across the industry today.

When you have those FA retirements, do you have any stats around what portion of those retiring advisers' books you are able to retain or maybe finance to move to a younger adviser or anything like that?

We don't have stats that we publish. We obviously look at that. I would say, with retirements, most advisers, we have programs for them to transition their books. We give them incentives to do so. And those assets are generally retained at the firm; if there's a challenge, it's that those assets like our advisers that are going through retirement, those assets are often going through intergenerational changes too. And so there's sometimes the higher challenges you go from parents to kids, but we have programs to do that, too. So net-net, we believe that when someone retires at Stifel, that's a good thing. When you want to look at what's not necessarily a good thing, it's our regrettable attrition, which has been low. When someone is leaving to retire somewhere else or something, that's not good. But when they retire here, that's a good thing.

Got it. And if I could squeeze in one more question, it seems that the other deposits were net of $1.3 billion at third-party banks. Are those balances at third-party banks reflected elsewhere in the supplement? And what motivated the decision to move those off?

I'll let Jim address that.

So if you look at Page 9 of the supplement, you can see the roughly $2 billion of other bank deposits. So in essence, late in the quarter, we moved about $1.3 billion of primarily venture deposits over to third-party banks. Some of that was a function of just the cash on hand at the bank and the lack of growth that we saw in the first quarter. So we can move deposits off balance sheet either through the sweep program or through these venture deposits. This is the first time we did that. I would just say, if you think about that, you add the $1.3 billion back to the $2 billion, you, yes, sorry, $1.3 billion to the $2 billion, you in essence, can see that we were up about $500 million. Venture deposits drove about $300 million of that increase. And there were other corporate deposits here of about $200 million. That's probably more unusual in nature, but the $300 million has been a fairly consistent pace over the last few quarters in terms of growth in venture deposits.

We will take our next question from Alex Blostein with Goldman Sachs.

I have a question about your comments regarding loan growth demand. It seems that over the past couple of quarters, you have hesitated to extend the balance sheet. Now, it appears that you are more willing to lean in. Could you elaborate on the high-quality demand you mentioned and indicate which segments are expected to drive growth? Additionally, regarding the fund banking loans, which have been a focus area but are seeing a decline, what factors are contributing to this decrease? How do you plan to address the gap to achieve loan growth?

Yes. I'll allow Jim to provide some additional information. From my viewpoint, we have experienced and continue to see strong demand for loans, especially in our consumer sectors. However, we mentioned our intention to adjust our balance sheet somewhat. While there is some loan growth, we haven't been aggressively managing our balance sheet. We have sold certain broadly syndicated loans and have chosen not to renew deals that were simply part of a larger group. Our goal is to lend more comprehensively and to generate more fee income rather than just relying on net interest income from our partnerships. As a result, you’ve observed a shift in our approach. We’ve noticed a significant amount of this and may continue to see net loan growth, though it will be less influenced by the fact that we haven't renewed some loans recently.

I think it's fair. Obviously, we've made a number of investments across both fund banking and our venture banking efforts. And those are still bearing fruit. On the fund banking side, we have been transitioning more to lending on a bilateral basis, as Ron had mentioned, basically allowing us more opportunities for other fee income or other deposits. And that's been a driver of more of the short-term changes you've seen there. And I think as we go forward, we see a fair amount of capacity from both the fund and venture banking teams.

I got you. And on the pay side of things, there's been maybe a little bit more chatter around rising competition for recruiting and the pay packages. And I know that's always part of the framework, and it's always competitive. But have you noticed any directional changes just the degree of competition and economics that are provided in the channel? And as you think about Stifel's net new asset contribution, can you help us characterize the mix between recruits versus same-store sales?

Obviously, we've not broken out a mix between recruits and same-store sales. I think it's one of those things where at what point do you consider someone no longer being recruited? Is it after six months? Nine months? Or twelve months? Where do you break it and where do you look at that? Obviously, we think we are holding our own in terms of net new assets, particularly when you look at your total assets and your total fee-based assets and the way those percentages changed period-over-period, both sequentially and year-over-year, others are reporting higher net new asset numbers but total assets that are managed, which drive fees generally are moving in very competitive directions with peers.

Yes. And look, I always look at I've commented before that I don't want to say the obsession, but a lot of the net new asset metrics, I can't always draw a line between that and revenue growth and profitability. I'll stick by our growth, like I said, almost in our view, to double our assets under administration to $1 trillion, and our historical growth and our historical improvement in productivity by person are the metrics that I really look at, and I feel very good about those.

Got it. And just a cleanup for Jim on the back of Brennan's question as well. The $1.3 billion that moved to sweep. What's the revenue yield on that? And just where does that show up because I don't think it's in your wealth business?

It shows up within Global Wealth Management because it's going to show up in the asset management line. It was de minimis for the quarter. The fee capture rate on that is significantly lower than what we get on third-party sweeps. Just given the inherent interest rate on those deposits relative to the sweeps. So you're talking something around 10 basis points or so because it's basically an amount you're taking off the top of the yield. And there's a lot less room there to do that on venture deposits relative to sweep deposits. That's relatively de minimis. It's in fee income.

Got it. Okay. But the point being is like you can move it back to the bank whenever you want if there's loan growth, you could use that?

Correct. We just wanted to make sure people understood that's an additional $1.3 billion not shown on Page 9 of the supplement to fund loan growth as we go forward.

I have a feeling next quarter, it's not going to be in that foot, okay, on the number of questions...

We will take our next question from Chris Allen with Citi.

Maybe just a quick one on Global Wealth Management brokerage revenues, obviously, a nice quarter, both commissions and principal transactions. Maybe just some color just on the commission, what was driven by mutual fund trails kind of what's the outlook and principal transaction is more appetite for credit or rate-related products there?

Most of the increase we saw on the sequential basis was driven by equities activity and mutual fund trails, those built up nicely. I think you saw people engaging in the market as we saw some pretty attractive returns in the market, and I think that spurred a lot of client behavior.

Yes. I mean, it's correlated to market levels and both trails and activity. So that's good markets generally will result in that line item transactional improving, and this was no different.

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

Ron, I'm analyzing your $10 billion revenue target, which seems quite ambitious. I have a couple of related questions. Firstly, has the model's growth rate accelerated due to your comments about having a stronger platform compared to the past few years? Secondly, what aspirational margin target should we consider in relation to the company's earnings potential?

I appreciate the question, Bill, but I'm not going to provide a direct answer. I want to emphasize that this is forward-looking. I can't predict how aspirational we'll be. In the past, when we grew from $200 million to $400 million in 2009, we reached $900 million. I mentioned doubling the firm again to $1.8 billion, and then people were curious about the next doubling, and we responded that we weren't sure. However, we've continued to grow and capture market share across all our businesses, which still has a lot of potential. When looking at our historical growth rates, I want to mention a significant milestone of $10 billion in revenue and $1 trillion in assets. These figures are related; if you analyze our wealth management and institutional business, you'll see that $10 billion and $1 trillion have a strong correlation. I want to stress that we view ourselves as a growth company and this journey is far from over. I am confident that reaching $10 billion in revenue and $1 trillion in assets will improve our margins and, consequently, our returns, making our shareholders happy. Beyond that, I won't delve into specifics. I appreciate your understanding, and feel free to send me your calculator; I'll review it.

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

It's Michael again. Just one more question here on capital. It was nice to see improved repurchase activity during the quarter. Is this like $150 million or $160 million zone more reasonable in the near term? Your capital ratios are still very healthy. Free cash flow generations still quite strong. But at the same time, you guys are planning to grow the balance sheet a decent amount more this year. So I just wanted to understand whether or not we should expect it to return maybe to the 2023 run rate.

So obviously, the buyback activity is all price dependent. And we've obviously talked about allocating more capital to balance sheet growth. So you may see that slow some in the near term. That very one would be the case. We do have a senior debt offering that comes due in July. At this point, we may fully just pay that off. So some of that may play into this as well. But I think as we look at the back half of the year, I would anticipate that buyback activity probably returns to those more normalized levels.

We do not have any questions in the queue. I would like to turn the call back over to our speaker today for closing remarks.

Well, I would, again, as always, thank everyone for taking the time to look at our first quarter results. I'm optimistic about the markets in general and look forward to reporting our second quarter results this summer. So with that, everyone, have a great day. Thank you very much.

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