Good day, and welcome to the Stifel Financial First Quarter 2025 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Joel Jeffrey, Head of Investor Relations. Please go ahead.

Thanks, operator. I'd like to welcome everyone to Stifel Financial's first quarter 2025 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 you 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 other non-GAAP measures. This audiocast is copyrighted material 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. Good morning, and thanks to everyone for taking the time to listen to our first quarter earnings conference call. Stifel's core operating strength was evident in generating roughly $1.3 billion in net revenue during the first quarter, despite the volatile market environment. This marks our highest first quarter revenue and third strongest quarter overall, driven by record asset management revenue in our Global Wealth Management segment and robust advisory and transactional revenue from Institutional Equities. While our bottom line was impacted by a significant legal charge, which I will discuss later, excluding this charge, our operating EPS was $1.65, an 11% increase over the same period a year ago, and it does represent record first quarter earnings per share. Our revenue performance is particularly noteworthy considering the market conditions throughout the quarter. Although we were optimistic about Stifel's prospects in 2025, we also were conservative in our general market outlook. Following two consecutive years of better than 20% gains in the S&P 500, we adopted a more conservative market outlook. Stifel entered the year with the lowest S&P 500 forecast on the street at 5,500. Yesterday, it closed at 5,288, down roughly 10% on a year-to-date basis. The combination of tariffs, uncertainty over global capital flows and disagreement between the administration of the Federal Reserve on monetary policy has contributed to increased market volatility. Meanwhile, counterweights that usually strengthen when stocks fall, such as government bonds and the U.S. dollar, are also under pressure, leaving investors with few havens to wait out the storm. This backdrop has clearly weighed on investor confidence and slowed activity across certain segments of the market. Having served in this role for over 27 years, I've witnessed numerous market crises, from the Russian debt crisis in the late '90s, the technology meltdown in 2000 to 2001, the 2008 financial crisis, and the most recent global pandemic. Each time U.S. financial markets have demonstrated resilience and remained a global benchmark. While the current environment has introduced volatility, we do not believe a recession is likely. In our view, the disruption surrounding tariffs is not the new normal. It's part of a high stakes policy negotiation strategy by the White House. Considering the underlying strength of the U.S. economy and efforts to address trade and fiscal imbalances, we remain optimistic about long-term growth. In the near term, while volatility presents challenges, we are cautiously optimistic. Indeed, periods of uncertainty highlight the value of our advice-centric business model. We are seeing high levels of engagement between our investment bankers and our clients. That said, the greater challenge lies in converting these pipelines into realized revenue, particularly given ongoing market uncertainty. Now, there are pockets of strength within banking, as illustrated by KBW's strong quarter, as we are seeing a growing appetite for bank M&A, and we continue to project a strong year for our financials vertical. In Wealth Management, our asset management revenues were up 11% versus last year, but this line item was closely tied to market levels. If equity markets do not rebound, that could have a negative impact on these results in future quarters for 2025. Overall, while the market conditions have certainly slowed, we believe that Stifel's diversified business model is well positioned to navigate through short-term volatility and drive significant growth as the market normalizes. Moving on to Slide 2, I'll review our first quarter operating results. The table on the left illustrates our performance excluding the legal charge incurred during the quarter. Presenting our results this way offers a clearer view of our core business performance compared to prior quarters. I'll address the impact of the legal charge separately. We generated net revenue of $1.26 billion, marking the strongest first quarter in our history and an 8% increase year-over-year. This growth reflects strength in both Global Wealth and our Institutional Group. Notably, this is the first quarter since the end of 2021 where all categories in our revenue bridge have shown positive contributions. Looking at the specific revenue lines, commissions and principal transactions increased 3%, with both Wealth Management and the Institutional Group showing year-over-year growth. Investment banking revenues rose 11%, driven by increases in both capital raising and advisory. Asset management revenue reached a record high, up 11%, reflecting organic growth and market appreciation. Net interest income increased 4% compared to the same period last year. Our compensation ratio stood at 58%, aligning with the high end of our full year guidance, as we maintain a conservative approach to compensation accruals early in the fiscal year. Operating pre-tax margin exceeded 20%, consistent with the fourth quarter and first quarters of 2024. Operating EPS, as I stated, was $1.65. While our operating results improved year-over-year, our bottom line on both a core and GAAP basis was negatively impacted by a legal charge related to a recent FINRA arbitration panel ruling, which we are currently appealing. As shown on the table on the right, the legal accrual totaled $180 million for the quarter, resulting in a $1.16 negative impact on our EPS. Due to the ongoing nature of this matter, we are limited in our ability to discuss it further. However, we believe that we are appropriately accrued to the recent judgment as well as the remaining outstanding cases. Before I turn the call over to Jim, I want to highlight the critical role our Global Wealth Management business plays in Stifel's long-term growth strategy. Over the past decade, we've more than doubled our revenue in this segment, reaching a record $3.3 billion in 2024. This growth is a testament to our unwavering commitment to providing exceptional service to our advisors and equipping them with the tools necessary to deliver tailored investment advice to their clients. Our advisor-centric culture has been a significant driver of our recruiting success. Over the past five calendar years, we've added 464 experienced advisors with trailing 12-month production exceeding $365 million. In 2024 alone, we recruited 100 financial advisors, including 34 experienced employees and 12 experienced independent advisors, contributing a total trailing 12-month production of $37 million. As we focus our recruiting efforts on higher-producing advisors, we've seen a continued increase in the percentage of our revenue coming from recurring sources, such as asset management and net interest income, contributing to greater stability in this segment. The strong upward trend in markets over the last few years led many advisors to delay transition, hoping to maximize their trailing production for recruiting packages. Additionally, competition among RIA platforms has driven transition costs higher across the industry. That said, we are seeing real momentum build. The recent market pullback has prompted more advisors to act, and we've adjusted our approach to remain competitive while staying disciplined on our return on investment. We are seeing early success in this initiative, and our second quarter is off to a strong start as we've added seven experienced advisors with trailing 12-month revenues of $14 million and more than $3 billion in client assets. To reiterate, our recruiting pipeline remains robust, and I'm as confident as I've ever been in our ability to continue attracting highly productive advisors. And with that, let me turn the call over to Jim.

Thanks, Ron, and good morning, everyone. Overall, operating results were relatively in line with consensus expectations. This was a result of slightly lower net revenue, which was offset by lower expenses when excluding the legal charge. In terms of net revenue, we fell short of the street estimate by 1% or approximately $14 million, as stronger investment banking and asset management revenue were more than offset by lower transactional revenue and net interest income. Investment banking revenue was the largest upside contributor, coming in $10 million above the street estimate, driven primarily by higher advisory and equity capital markets revenue. I'd note that in our February operating metrics announcement, we anticipated investment banking revenue to be similar to the first quarter of 2024. The stronger result was due to a few additional transactions closing at the end of the quarter. Asset management revenue was 1% higher than the street primarily due to a higher fee capture rate. Transactional revenue was 5% below the street due to lower fixed income and wealth management revenue that more than offset higher-than-expected institutional equity revenue. Net interest income was 3% below the street estimate on lower NIM, which was driven by lower-than-expected loan growth. We also had some success fees we recognized last quarter related to some venture clients. Those types of fees are episodic and hard to predict when they come in. On the expense side, our compensation ratio was 58%, which was slightly above the street and in line with the high end of our annual guidance. Non-comp expenses were significantly impacted by the $180 million legal charge we incurred in the quarter. Excluding this, our non-comp expenses were $5 million below the street estimate. The provision for income taxes came in below the consensus number as the tax rate was impacted by the excess tax benefit recognized due to stock-based compensation. Moving on to our segment results. Global Wealth Management revenue was $851 million and pre-tax margins, excluding the impact of the legal charge, were 36% on record asset management revenue and our second highest first quarter transactional revenue. During the quarter, we added 52 total advisors to our platform. This included nine experienced advisors with trailing 12-month production of $12 million. We ended the quarter with fee-based assets of $190 billion and total client assets of $486 billion. The sequential declines were due to weaker equity markets and modest asset outflows. While our net new assets growth for the quarter was modestly negative, I would note that asset flows turned positive in March as net new assets for the month were in the low single digits. On Slide 6, I'll discuss our bank results. Net interest income of $262 million came within our guidance as firm-wide average interest-earning asset levels increased by $350 million, and our bank net interest margin decreased by 14 basis points to 3.1%. In addition to what I said earlier, the decrease in NIM was also due to lower asset yields given the repricing lag resulting from the most recent rate cut, as well as the lower day count in Q1. Our bank balance sheet remains relatively rate neutral. As such, as we progress throughout the rest of 2025, we expect any changes in our quarterly NII and NIM to be dependent on loan growth. Ron will touch on this in more detail in his concluding remarks. Client cash levels decreased during the quarter due to a $920 million decline in sweep deposits and a $690 million decrease in smart rate balances, which were primarily due to typical seasonality in the first quarter related to tax payments. These declines were slightly offset by the $600 million increase in venture and fund banking deposits. As a result of these fluctuations, our total third-party deposits available to Stifel Bancorp ended the quarter at more than $3.7 billion. Our credit metrics and reserve profile remain strong. The non-performing asset ratio stands at 50 basis points. Our credit loss provision totaled $12 million for the quarter and was negatively impacted by the macroeconomic forecast and increased reserves on C&I and unfunded commitments. Our consolidated allowance to total loan ratio was 85 basis points. Moving on to the Institutional Group. Total revenue for the segment was $385 million in the quarter, which was up 10% year-on-year. Firm-wide investment banking revenue totaled $238 million, as we experienced year-on-year increases in advisory and capital raising revenue. Advisory revenue was $137 million, an increase of 15% from last year. The growth in revenue was driven by a strong quarter in financials and solid contributions from our technology and industrial services verticals. While discussions and pipelines continue to be strong, we've seen some deal activity delayed given market volatility. Equity underwriting of $49 million was up 22% over the same period in 2024 as financials, healthcare, and industrials were our strongest contributors. While our first quarter was strong, we did see activity levels slow towards the end of the quarter, and that continued into the first month of the second quarter. Fixed income underwriting revenue was $46 million in the first quarter and declined by 9% year-on-year. This was primarily due to lower issuance activity from our corporate credit clients, as we had a particularly strong quarter in Q1 last year. Our public finance revenue was relatively similar to that of Q1 2024. Stifel continues to be ranked #1 by the number of negotiated issues led as sole or senior manager. Equity transactional revenue totaled $60 million, which was up 10% year-on-year, driven by increased market volatility. Fixed income transactional revenue of $89 million was up 1% year-on-year, as our rates business continued to perform well as customer activity within our depository and credit union clients has been strong, given the normalized yield curve. This more than offset the slower activity levels we saw from our high-yield and municipal desks. On the next slide, we'll go through expenses. As we noted earlier, our comp to revenue ratio in the first quarter was 58%. Our non-comp expenses totaled $451 million and were significantly impacted by the $180 million legal charge that Ron mentioned earlier. Excluding legal, our non-comp expenses were $271 million, which was a 5% increase from the same period last year, and our non-comp operating ratio, when adjusted for the impact of the legal accrual, was 20%. Our tax rate for the quarter was 16.4%, which was due to the excess tax benefit mentioned earlier. On Slide 9, I'll review our capital position. Our balance sheet continues to be well capitalized. Tier 1 leverage capital decreased 60 basis points sequentially to 10.8%, and our Tier 1 risk-based capital ratio decreased by 60 basis points to 17.6%. Based on a 10% Tier 1 leverage ratio target, we have approximately $324 million of excess capital. In terms of capital deployment during the quarter, I'd note that we increased bank assets by $700 million to $32.1 billion and we repurchased and net settled roughly 2 million shares with 9.2 million shares remaining on our current authorization. Finally, 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 108.2 million shares. And with that, let me turn the call back over to Ron.

Thanks, Jim. So, despite the market volatility, our operating business started the year with a solid quarter with continued recruiting success and strong contributions from KBW in our public finance business. Basically, Stifel remains well positioned as the year progresses. While we had a solid start to the year, the implementation of new administration policies for 2025 has started slower than we had anticipated just a few months ago. However, market conditions can shift quickly. The uncertainty around policy direction and difficult market conditions have, in our view, merely delayed what we believe to be significant business growth in the near future. If we can establish greater stability in trade policy and advance meaningful tax legislation, both of which we at Stifel believe are achievable, we expect to see positive momentum in the broader economy and capital markets. So, at this time, we are not revising our 2025 financial guidance, and we remain confident in our positioning and long-term growth strategy. However, while we remain cautiously optimistic, we are prepared to revisit our full year forecast if current conditions persist. We also have the flexibility to reallocate capital as needed. Given current market conditions and our recent share price levels, we may moderate loan growth and instead prioritize share repurchase. Our first quarter buyback activity reflects this approach, and we will continue to evaluate the most strategic uses of capital as the year progresses. In conclusion, Stifel's advice-centric model proves invaluable during periods of market volatility. Our seasoned advisors across both private client and institutional sectors have consistently guided clients through turbulent times. As markets stabilize, we are poised to continue our long-standing traditional growth. With that, operator, please open the line for questions.

Thank you. We can take our first question from Devin Ryan with Citizens.

Good morning, Devin.

Great. Hey, Ron. Hey, Jim. How are you doing?

Good morning.

Good.

Good. I want to start with a question about advisor recruiting. I've heard some of the comments, Ron, but there have been several acquisitions in the space over the past year. On the other hand, the markets have been volatile, which isn't always the best time for people to consider moving. Given these factors, I would love to get a sense of the current situation regarding advisors in motion. Could you provide more details on the recruiting pipeline and your expectations for 2025? Last year, advisor headcount did decline slightly for reasons you've discussed, but I believe that was more of an exception. What are your expectations for growth this year, considering these influences?

It has been active with the recent employee space deal involving private equity and an independent transaction. While I don't need to mention specific names, these transactions have been noteworthy. Regarding recruiting, I am satisfied with our progress. We have brought in some very high-quality teams this quarter that are performing well with clients and assets, positioning us as an appealing choice for productive advisors, and I anticipate this trend will continue. My schedule for recruiting, including dinners and a well-attended virtual open house we held yesterday, is promising. Historically, in volatile markets with some declines, we typically see an uptick in recruiting activity. I focus more on productivity than simply advisor headcount. We are enhancing productivity, scale, breadth, depth, and our influence in the wealth management sector. So, overall, I am pleased. While we can always improve and are motivated by return on investment, I remain encouraged. Jim, do you have anything to add?

In addition to recruiting, and I'd also remind everyone that we closed the B. Riley transaction in early April, which added 36 financial advisors and approximately $4 billion of AUM. So, that's another area of growth that will contribute.

On our platform, I believe those advisors will become significantly more productive. You'll notice the strength of our platform reflected in their productivity. Go ahead, Jim. I apologize for interrupting you.

No, that was it.

So, Devin, I believe that's an excellent question and a common one. Each quarter, we remain focused on building the firm to meet our objectives.

Yeah. That was great. Appreciate it. Good to hear you're feeling well. And then, just a quick follow-up for Jim, I guess. On the wealth commissions, those were a bit softer than we had modeled. Was that just trailing commissions declining or some hesitancy with the volatility? I'm just trying to get a little bit of a sense of what happened in the first quarter and then kind of a trajectory as we look out over the course of the year.

I think it was a combination of factors. Some of it was due to limited activity during the quarter. The volatility we experienced occurred after the end of March. We have noticed a slight increase in client engagement and portfolio adjustments, but again, this only happened after the quarter concluded.

Got it. Okay. All right. I'll leave it there. Thank you both.

Thank you. And our next question will come from Mike Brown with Wells Fargo Securities.

Good morning, Mike.

Good morning, and thanks for taking my question. Ron, just to maybe follow up on the organic growth question from Devin. You alluded to a change in the shift in the approach to recruitment and that does seem like it's been supporting success with big teams and from the wirehouses. So maybe just in light of this, can you just expand on what that shift has meant and do you expect to see continued success from some of those bigger teams? Thank you.

I believe our perspective is that when you examine our margins in wealth management, our geographic presence, and the scalability of our model, these aspects played a key role in our decision-making across various locations. We revisited our model and realized that with our profitability and scale, we can offer more competitive transition packages while comfortably meeting our return requirements. We've remained disciplined as market conditions have evolved, acknowledging that some deals have become quite excessive. However, we reassessed our competitive edge, which is essentially a matter of business fundamentals. If we possess a pricing advantage in terms of our margins and the competition intensifies, it makes sense for us to be more aggressive since we have the capacity to do so. Additionally, with nearly 400 offices and some underutilized spaces, we recognized that enhancing our competitiveness could benefit our recruitment efforts. Importantly, I want to emphasize that we are not compromising our long-term future for short-term gains. My concern is that poorly executed deals have lasting implications, which may not be immediately evident, but will manifest over time. We are mindful of this, and I am satisfied with our current position.

Okay. Great. Makes sense. And then, if we could just maybe change gears and unpack your comments on the M&A activity in the bank space. That's an area where the deregulation is happening, the Capital One-Discover deal has got an approval. That seems to remove a regulatory overhang. But we are seeing lower share prices, shifting interest rate backdrop, those present headwinds. So, what's the view there in terms of that consolidation trend? Is it perhaps as strong as it was coming into the year? And do you think we can see those announcements coming through in '25? And then, just given the deregulation tailwind, are you expecting a shorter timeframe between announced and close on those deals?

Yes, we believe that Discover-Capital, and even deals that could be announced now, could close this year. If you had asked me that two years ago, I would have said no, but now I think the time from announcement to close has shortened. It's not unreasonable to think that a deal could be announced and still closed within this year, at least according to what bankers are telling me. Regarding overall activity, consolidation needs to occur for several reasons, and there are many headwinds related to accounting and mark-to-market issues. I expect a couple of transactions to be announced that will influence future deals as people observe how those are handled. Banking M&A often follows a trend where one deal prompts another, and I can see that happening. Looking at our segments, I believe our FIG segment, particularly in advisory, will perform better than last year. Other segments are facing challenges due to tariff issues, tax policy, and various uncertainties that need resolution before more debt financing can happen. As a result, those areas may be a bit weaker, but I expect financials to be somewhat stronger.

We've seen bank deals approved in as little as four months. And so, there's obviously some positive feedback we're getting from the regulators and their receptivity to improving transactions, and that's very positive, given the rationale that Ron laid out and the need for banks.

I believe that many regulators are aware of the risks involved between the announcement and the closing of deals, and they are aiming to reduce those risks since this period can be challenging for shareholders.

Great. Thank you so much for all the color there.

Thank you. Our next question comes from Alex Blostein with Goldman Sachs.

Hey, guys, good morning. Thank you. Another one on recruiting, just again related to the sort of adjustments you made to your approach to stay more competitive. Is there any particular section in the market that's more receptive to sort of the changes you made and the changes you're seeing in your recruiting pipeline? And I know you talked about building out the independent channel in the past. I'm not sure if that's part of the changes you're making or you're still largely focused on the employee channel?

We are primarily focused on the employee channel. Our emphasis is on building higher productivity, more comprehensive teams that work with family offices and manage both sides of the balance sheet—investing funds and using our bank for broader services. We're looking to attract teams, rather than just individual advisors, who can provide holistic advice and planning. While many advisors excel at simply advising clients, we recognize a segment of the employee channel that we need to appeal to more effectively, especially since they are also being courted by registered investment advisors. Therefore, we are adapting to leverage our competitive pricing advantage in this dynamic market.

Got it. Okay. Understood. And then, in terms of the outlook, obviously, I appreciate the challenges with trying to predict the next several months given all the uncertainty, so maybe keeping banking out of it. But when it comes to net interest income, maybe give us your updated thoughts on the sort of near-term outlook for Q2 and for the full year. And as part of that, I was hoping you could hit on where cash balances stand in April. Obviously, lots of volatility, but there's also a tax season. So, maybe some of the core buckets, sweep deposits as well as third-party bank sweeps and kind of where that stands so far in April?

Alex, this is a great time for me to say, Jim, this is yours.

So, I mean I think we gave a range for net interest income for the second quarter of $260 million to $270 million. And I think given the fact we've talked about our balance sheet being rate-neutral, the outlook is really going to be dependent on the mix and volume of loan growth. Ron gave some commentary of continuing to evaluate the trade-off between repurchases and loan growth, and we're going to look at that every day based upon the best risk-adjusted return. So, more to come there based upon how the market continues to evolve, but that's going to be the primary driver. In terms of cash sweeps, we've still seen some continued outflows since the end of March. Sweeps were probably down another $100 million, $150 million, and we've seen a couple of hundred million plus in terms of smart rate. Again, I would say the vast majority of that is typical seasonality related to tax payments. I think the key with the inflection point in the sweep and smart rate balances is what happens now that we're after tax season and where balances go from here.

I can observe that the relative size of tax payments after two years of strong market gains and some profit-taking is notably high. The government is receiving cash from this segment of the economy that I observe. Furthermore, I want to emphasize what Jim mentioned; it should be clear to everyone on this call that in our current environment, especially given the decline in share valuations—particularly in financials and at Stifel—the calculations regarding return on investment change when deciding whether to allocate capital toward balance sheet growth through loans or share repurchases at these price levels. Furthermore, loan demand in this environment is somewhat subdued compared to our expectations. We are cautious about trying to grow loans without sufficient loan demand, as that can lead to adverse selection. Consequently, we want to communicate that, as of now, instead of projecting asset growth of $3 billion to $5 billion, we can anticipate that it will be lower, but we will increase our share repurchases because we are still generating substantial capital. This reflects a slight shift in our approach.

I should note that we have seen significant increases in venture and fund banking deposits. The last two quarters showed net additions well above the $300 million run rate, and we are observing continued growth in early April.

Yeah, it's a balance, totally get it. Thanks, guys.

Thanks, Alex.

Thank you. And we will take our next question from Steven Chubak with Wolfe Research.

Hi. Good morning, Ron and Jim. I hope you're both doing well. So, I wanted to ask a follow-up on some of the trends that we saw at the bank, specifically around the NIM, the contraction was admittedly probably the highest among the banks that we track. It looks like the primary culprit was securities yields. I was hoping you could unpack the timing-related impacts that you were alluding to earlier. Just want to get a sense as to how big of a drag that was on the NIM in the quarter and how you're thinking about just managing duration, bigger picture, just given some of the expectations for increased steepening of the curve?

Within our bond portfolio, the CLO book represents the largest component, and these instruments reprice over a 90-day period. Consequently, there is still a lag effect from the last two rate cuts in the fourth quarter impacting our asset side. We also experienced a notable drawdown; the yield on C&I loans decreased by around 75 basis points. As I mentioned during the call, the success fees connected to our venture clients contributed a couple of million dollars in the fourth quarter. These success fees are sporadic and difficult to predict, but they do have a significant annualized impact on our Net Interest Margin (NIM). When considering the number of days in the quarter, the repricing lag, lower-than-expected loan growth, and the success fees, this is what is driving the situation. While our decline in NIM may be steeper compared to other banks, we are still satisfied with a 3.10% bank NIM in this environment, which we believe is quite robust. Additionally, our results fell within the projected range of $260 million to $270 million, albeit at the lower end. Therefore, this outcome aligns with the guidance we provided last quarter.

Yeah. I think, look, it's a great question and looking at the raw numbers, I agree with what you're saying. But when we unpack it, we're very comfortable, primarily with the success fees and the impact that that has. So, Steve, I hear you, but I would caution you not to think that that's some permanent compression.

Yeah. I mean, we're more asset sensitive than most banks, right? And so, we also have the ability to adjust that on the liability side in terms of rate cuts. And so, that gives us the ability to be relatively rate neutral outside of these timing effects, whether it be the fees or the lag on certain items on a quarter-to-quarter basis.

No, it's a fair point. And certainly, did see that on the liability side, you guys did a nice job of managing deposit pricing. Just for my follow-up, I did want to drill down into public finance and maybe fixed income more holistically. The public finance outlook, just given the murky policy picture, how much of the strength in activity do you believe is durable versus temporary? And then, on fixed income brokerage, just given the strength in volumes and volatility, the revenues there were a little bit lighter than we had anticipated, and I was hoping you could unpack that as well.

On public finance, it’s uncertain. There are many unclear aspects regarding the tax bill and what is being proposed. We could see a significant increase in activity based on factors such as private activity bonds, stadium bonds, or tax incentives for major colleges. There are numerous issues at stake, and this uncertainty has made the situation a bit unpredictable. However, there is substantial infrastructure that needs attention, particularly at the community level, including essential development like schools, sewers, and housing. We believe this segment remains strong. Yet, whenever tax legislation is being discussed, it inevitably creates some doubt in public finance.

Things came to a standstill in public finance in March, but I would say our underwriting calendar is busier than ever and the outlook is very strong.

Not just at Stifel, on the street when you look at the volume.

Certainly. In terms of fixed income trading, I would highlight that we had a decent quarter in our rates business. The first quarter is usually our seasonally slow time for that segment. Moreover, if we consider the same period last year, we experienced significant trading activity in the Visa B shares within our credit book, which was somewhat exceptional and did not occur at the same level this year. These factors impacted our first quarter results, but looking ahead, I believe the second quarter will be relatively stable or slightly better, with a generally optimistic outlook for fixed income trading.

That's great color. Thanks so much for taking my questions.

Absolutely.

Thank you. Our next question will come from Bill Katz with TD Cowen.

Great. Thank you very much for taking the questions this morning. Good morning, everybody. So, I'm just trying to come back to some of the math, if that's okay. If I simply annualize your first quarter revenues, I get sort of below the low end of your initial guide, your current guide, which you're not changing at the moment, I still appreciate all the moving parts. But as I think about your commentary into the second quarter and what's been going on in the macro perspective, it seems like revenues may tip down potentially just given the different business component pieces, if you will. So, just trying to understand what's your macro framework as you get to the second half of the year, particularly if you still think the S&P is going to hover at current levels here? I'm just trying to figure out where the incremental drivers of opportunity might be. Thank you.

Well, I want to be cautious because I don’t have the exact numbers. If you look back at our first quarter performance, annualizing it would typically result in a lower total than what we actually achieve. This is due to the natural seasonality of our business. The fourth quarter usually performs well as revenue tends to be pulled in during that time, while the first and third quarters are generally slower. We have adjusted our internal forecast to reflect the current lower equity markets and to take into account our pipeline and deal specifics. When I say we're not changing our guidance, it's based on the expectation that equity markets will stabilize around current levels, not on the hope of an unexpected recovery. We believe this current lull in activity won’t last for the entire year, especially in the institutional and advisory sectors, which often experience significant fluctuations. However, if there are changes like raising tariffs in China drastically, we would reevaluate our position. As of now, I feel confident in our current outlook, and I do believe market conditions will improve over time. That said, our need to stay within our guidance doesn’t hinge on a substantial market recovery, although some easing of market volatility would be beneficial, particularly for the institutional side.

I would add, it's really hard to annualize investment banking results in any quarter in any economic environment. That's really lumpy, and particularly on the underwriting side, that can change very quickly if the market gets some stability to it. On the advisory side, we talked about the strength in KBW at length here already, but we've also seen a strong outlook within our tech practice with our industrial services practice. So, there are pockets of strength there that we see things improving over the back half of the year.

That's very helpful. And maybe just on capital management, I appreciate the interplay between the decision to repurchase stock versus grow the bank balance sheet. How are you thinking about M&A more broadly for the firm at large, just given a lot of volatility and some deals around you? Any areas of particular focus that might be of interest as you think about inorganic opportunities? Thank you.

Yeah. Back to the first part, I do, I also want to say that on the street, and I would echo this, activity, especially buying is usually back-half weighted, okay? And that's true in almost every year. But when I listen to the commentary and what people say and as I said in my remarks, a lot of things that have been delayed, I think, have not been canceled. So, there is increasing demand for services, assuming we don't drive the U.S. economy off the cliff, okay? And I don't think we're going to. Now as it relates to M&A, we're always looking at things, and we will continue to do so. I feel that a lot of the pricing which is primarily driven by firms that don't have the capital levels that we have as a regulated institution that fund deals would get and don't really need tangible equity has really made pricing of these deals difficult for us in the last few years. But we're always looking. Again, B. Riley was a nice bolt-on, and I'm always open, okay, and get a lot of the calls. I don't feel like we're missing anything, but as I said in my opening remarks, I do rely on that calculator on return on investment, and that's always going to be a governing factor.

Okay. Thank you for taking both questions.

Thank you. Our next question will come from Chris Allen with Citi.

Hey, Chris.

Good morning, guys. Thanks for taking the question. Most topics have been covered. One thing I wanted to ask on is just the FICC brokerage outlook for Q2 is flat to up. Just if you could remind us what level of FICC brokerage is tied to FICC underwriting? And what are kind of the separate buckets there? Munis, I think, is a key driver of trading, but I think rates are most important. And just to try to think about the different outlooks and what is tied to underwriting under recovery and what can continue to perform without underwriting coming back in the near term?

From a FICC underwriting perspective, most of this will be in public finance. However, aside from public finance, we expect to see mostly investment-grade activity. Last year was reasonably good for us, but activity has been slower earlier this year, as we've mentioned in previous comments. These factors are the main drivers. We also noted that other FICC transactional drivers, particularly in Q1, showed generally softer performance.

No.

Thanks, guys. Appreciate it.

Thank you. And it appears though we have no further questions at this time. Mr. Kruszewski, I will turn the call back to you for any additional or closing remarks.

Thank you, operator. I want to conclude by stating that we are in volatile and uncertain times. Stifel is well-equipped with a strong balance sheet, ample liquidity, and diverse business segments to not only navigate these challenging markets but also to capitalize on the recovery when it occurs. I’d like to finish on a hopeful note, as I believe the current volatility and uncertainty are temporary and tied to unique negotiating circumstances. The economy remains robust, and as we gain clarity on some of the disruptive policies, we are strategically positioned to seize and profit from opportunities that have been postponed. Optimism is key, and we are prepared to sustain our historical growth. I look forward to connecting with everyone on the second quarter call. Wishing everyone a great day. Thank you.

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