Please stand by. Good day, and welcome to the Stiefel Financial Q126 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Joel Jeffrey, Head of Investor Relations. Please go ahead.
Thank you, Operator. Good morning, and welcome to Stiefel's first quarter 2026 earnings call. On behalf of Stiefel Financial Corp., I will begin the call with the following information and disclaimers. This call is being recorded. During today's presentation, we will refer to our earnings release and financial supplement, copies of which are available at Stiefel.com. Today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Stiefel Financial Corp. does not undertake to update the forward-looking statements in this discussion. Please refer to our notices regarding forward-looking statements and non-GAAP measures that appear in the earnings release. I will now turn the call over to our Chairman and Chief Executive Officer, Ron Krzyzewski.
Thanks, Joel. Good morning, and thanks to everyone for joining us. In the first quarter, we delivered very strong performance. Net revenues of $1.48 billion were up 18% from a year ago. That includes a non-recurring gain from the sale of steeple and independent advisors, which closed in February, which was partially offset by interest on a legal judgment. We've excluded both from our core results. Excluding the SIA gain, Revenue grew 15%. Either way, it was a record. It's a growth rate comparable to the best firms on the street. Earnings per share were $1.48 on a gap basis and $1.45 on a non-gap basis, compared to $0.33 last year. That's a significant improvement, so I want to be transparent. Last year's results were impacted by $180 million legal accrual, which was unusual to say the least. Adjusting for that, EPS was up 32% on a comparable basis. Our annualized return on tangible equity was nearly 25%, fixed to be a good year, and the first quarter reflects that. Yet the environment has become more uncertain. Against a backdrop of escalating geopolitical risk, energy prices have risen, credit spreads have widened, and interest rate uncertainty has increased. The wild card remains a conflict in Iran, and its potential impact on energy prices, inflation, and ultimately growth. But I'd like to note that unlike some of our larger peers, people's business model isn't built around trading volatility. We have a trading business, but it's client-driven and relationship-oriented, not structured to capitalize on market dislocation. Delivering these results in a volatile quarter tells you something important about the durability and diversification of what we've built. Our growth was broad-based. Global Wealth Management delivered record first quarter net revenue, driven by record asset management revenues and growing advisor productivity. We also generated record first quarter investment banking revenue, producing a record first quarter for our institutional business. Our firm-wide pre-tax margin was more than 22%, reflecting continued robust wealth management margins coupled with an institutional pretext margin of nearly 20%. It is noteworthy that this metric improved nearly 1,300 basis points from last year, benefiting from both revenue growth and our international equities restructuring. Jim will provide more detail on that. Look, if the risk I cite remains within a range of market expectations, expectations. We are confident in a strong 2026. That confidence is grounded in something more than one quarter. Let me put these results in the longer context. Tifo is a company that both grows and understands the concept of return on invested capital. We've scaled revenue from about $100 million in 1996 to roughly $6 billion today, and we're targeting $10 billion in revenue and one trillion in client assets. We grow, and we grow the right way. That long-term philosophy also informs how I think about some of the questions dominating every earnings call so far this season. For each one, I want to tell you what Stifle is doing and share my observations about what I'm seeing in the market around us. First is AI. Across Stifle, we're seeing real benefit from our AI investments. The technology enables our advisors, our investment bankers, our commercial lenders and support teams to work faster and smarter. In every case, we're working to enhance client relationships with AI, keeping our professionals at the center of the value proposition. The opportunity here is significant. We are in the early process of linking our data to these new tools, and there is a lot of work ahead, but the early results give me confidence that we're on the right trip. and candid if I didn't raise a concern about frontier models like Mythos that are becoming an entirely new category of technology. As recently as a few weeks ago, I'm not sure any of us really fully understood what Mythos was, possibly even those that created it. And the next version, as I understand it, is already in development. Models this powerful increase capability on both sides of the table, for those defending and for those who would do harm. And if you ask me what our industry needs to get right before anything else, the answer is cyber, not just for Wall Street. This requires a national response. I have consistently said that this is an issue of national. The second is credit. At Steepler, our lending philosophy has never been built around chasing yield. We treat lending as a relationship-oriented business, not a volume-driven growth engine. The headlines this season involve specific credit situations. First brands, Tricolor, Medallia, where aggressive structures, weak collateral monitoring, and in some cases, fraud drove the losses. People had essentially zero exposure. As an aside, the more recent and concern has been about liquidity in private credit vehicles. Some funds are limiting withdrawals and we're seeing secondary market participants offering liquidity at significant discounts to NAV. Reminds me of the scene in It's a Wonderful Life where Potter's trying to buy Bailey billing and loan shares at 50 cents on the dollar during a run in the bank. The underlying assets haven't changed, but when everyone rushes for the exits at once, the gates come down. That's a structural issue. The third consistent question surrounds software loans. I read the predictions that every software loan is essentially worthless given AI disruption. To put some numbers to steeple, our software loan exposure is approximately $500 million on a $43 billion balance sheet, not a material number. But the more important point is that we have reviewed our software exposure carefully. And while there are always normal pockets of stress, we don't see the broad credit issues that the headlines suggest. Fourth is legislation and market structure. Two questions are dominating this debate right now. Stablecoin yield and tokenized equities. Let me tell you where steeple stands on both. On stablecoins, we will offer them. But in my opinion, if a stablecoin pays yield, that's a deposit. Subject to capital requirements, AML, BSA, and the full framework of bank regulation. Or if the yield comes from investing the underlying funds, then it's a money market fund. Follow those rules. Legislation should not create a third option that avoids both. On tokenized equities, we will build the capability to offer, settle, and trade them. But in my opinion, the regulatory framework should follow the underlying asset. A tokenized Apple share is still Apple stock. Every rule that applies to that stock, disclosure, best execution settlement finality investor recourse applies to the token the technology changes the delivery it doesn't change the obligation and for those who say this is about protecting the incumbents if that was true we wouldn't be building the capability at all but we are building this capability the principle is simple a deposit is a deposit security is a security custody is custody. Nearly a century of investor protection wasn't built to apply only to some participants. The technology doesn't change that. I've discussed AI and software disruption, credit markets, and legislation and market structure. In each case, I wanted you to understand both where Stiefel stands and my observation about what's happening around us. Over the last 30 years, we have shown a consistent ability to adjust to economic and technology change. Global wealth management is growing, our institutional pipelines are strong, and our investments in the innovation economy through venture lending and deposit generation are paying dividends. Bottom line, what I see is a firm that is very well positioned. So Jim, please take us through the numbers.
Thanks, Ron, and good morning, everyone. Before I jump into the financial results, I would remind everyone that the EPS numbers are reported for two stock split that was effective in late February, non-GAAP revenues of 1.44% with consensus estimates. Investment banking was the primary upside driver, exceeding expectations by $8 million, or 2%, as their number of transactions closed. Advisory revenue was the primary driver of the beat. Transactional revenue came in 1% below expectations, but increased 7% from the prior. I'll hone in some more detail when we get to the institutional segment. Asset management revenue was modestly above consensus and increased 12% in net new asset growth. Net interest income came in at the lower end of our guidance and $3 million below. The details and the second quarter guidance, when we get to the global wealth management section, would highlight the missed consensus expectations was driven by lower corporate or non-bank and benefited from the strategic actions, romp ratio, and non-comp expenses came in below consensus. Effective tax rate was roughly 23%, slightly below both guidance and consensus from our non-U.S. Global Love Management generated $932 million in net revenue, the strongest first quarter in our history, and essentially in line with last quarter's results. Results were driven by record asset management revenue and growth in net interest income. These results are particularly strong given the sale of SAA reduced our transactional and asset management run rate for two months during the quarter. We ended the quarter with total client assets of $539 billion and fee-based assets of $220 billion. During the SIA impact, total client assets and fee-based assets were essentially flat despite the equity market decline. As net new asset growth was in the low single digits, pipeline remains robust, though activity is episodic and dependent on changing competitive and market dynamics. We recruited trailing $80 million, which does not include the impact that recruiting has on net interest. Our client-driven balance sheet continues to enhance both earnings consistency and client engagement. As I mentioned, net interest income came in fund banking late in the quarter, more than offsetting growth in residential mortgages, securities-based lending, and C&I loans. Non-bank interest income, particularly within corporate interest and securities lending, was approximately $3 million lower than originally forecast. Net interest income in the range of $280 to $290 million. Balances increased by more than $670 million. Strong momentum from our third-party money fund balances increased by nearly $200 million. We have significant funding to grow our loan lower than originally forecast. We've already seen fund banking activity pick up in April, and we are maintaining our full-year guide of up to $4 billion. It was $495 million, up 29% year-over-year, driven by record investment banking revenue, totaled $341 million, really above our recent guidance due to a number of transactions closing meaningful contribution from our new partners at Brian Garnier. Through revenues, into $218 million. With continued strength in financials, industrials, consumers, and help raising with $67 million, issuer engagement led by 9% year-over-year, driven by increased public finance activity, negotiated issue manager in public finance by deal count with nearly 15% market share, and are also seeing increased success and larger par value trends. Investment banking and advisory pipelines remain very strong. It will depend on the geopolitical and economic factors, including energy prices, interest rate uncertainty. To anticipate, increased 4% by a 12% increase in fixed income revenue, reflecting increased client activity from market volatility. Revenue was down 7%, entirely reflecting the European restructure of a $9 million year-over-year decline due to those restructuring transactional business grew by 10%. The primary driver of the nearly 1,300 basis point improvement in our institutional pre-tax margins year-over-year. We made significant progress in our non-U.S. operations. not be linear. 47.5% was the high end of our full-year guidance and down from 58% a year ago. We'll continue to look for leverage as the year progresses. Non-compensation expenses totaled $293 million, up 8% year-over-year. Operating non-comp ratio was 19%, and it was at the midpoint of our full-year. The declines in our comp and non-comp ratios benefited from the strategic actions referenced earlier, and we remain confident that the capital position remains strong and provides meaningful strategic flexibility. The Tier 1 leverage ratio increased, and the Tier 1 risk-based capital ratio rose to 18.7%. 10% Tier 1 went into the quarter with nearly $560 million of excess capital. We reviewed the new proposed capital. In our review, Stifel would obtain some relief, but these rules would have no material impact on our Tier 1 leverage capital. 2.8 million shares during the quarter and have 10.2 million shares remaining under the current. Assuming no additional reluted share count for the second quarter is expected to be approximately 163.1 million shares.
I want to close by saying that I'm generally excited about where Steeple is headed. We have a strong business, an experienced team, and a model that has proven itself in good times and in challenging ones. The environment is uncertain. I said that at the outset and I mean it. but uncertainty has always been the context in which steeple has grown. Look, global wealth management is growing, our institutional pipelines are strong, and I look forward to reporting our future progress. So with that, operator, please open the lines for questions.
Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure the mute function is turned off to allow the signal to reach our equipment. In the interest of time, we ask that you please limit yourself to one question and one follow-up question. Again, press star 1 to ask a question. We'll pause for just a moment to assemble the queue. We will take our first question from Devin Ryan with Citizens Bank.
Hi, good morning, Ron and Jim.
Good morning. Good morning.
Question on AI. Ron, appreciate the context you gave in the script. But, you know, a couple of questions we're getting, obviously, you know, is the technology gets stronger and stronger and potentially agents are automating more and even transacting, you know, do fewer people seek out financial advisors or does that impact pricing that advisors charge? And then the more pointed question that we're getting is just around kind of tools that automate kind of customer cash sweep and just does that drive balances even lower? And so that's a revenue stream that firms have to think about. Love your thoughts on both of those.
Well, look, the technology is powerful, to your first question, and it just really helps advisor productivity. I believe, as I've said in many of things I've talked about, that today at least the models are mathematically driven and they're great at summarizing, organizing, you know, putting, helping you solve math. I said it's like chess, you know, there's a finite board and it's very good at that. When you move to judgment, which is what our advisors do, it just really isn't that good, and I'm not really comfortable thinking that we're going to serve our clients with some consensus-building mathematical AI, to be honest with you. And, you know, we can debate whether or not human judgment will matter, but investing in markets are not a finite game. It's constantly changing. Every second it changes. The participants change. Their outcomes change. Their risk tolerance has changed. And so, you know, that's an ever-moving target. So to answer your question, what will happen, I believe, at least on the advisor side, is that this will make our advisors more productive. that will unearth potentially, and it will, more opportunities, more ideas, more things on tax savings ideas, more on estate, more things that will help our advisors do what they do, which is generally be the financial advisor to not only individuals, but to families. So I see this as a tailwind to advice, not a headwind. And, you know, it's a more sophisticated version. We've seen it in the past with robo-advisors and a number of things. Those technologies will be better, but I, again, I'm going to say it's a tailwind to the advice business. You know, as it relates to energetic-type models and, you know, and the cash optimization, look, we've been through that, Devin. I mean, you know, we have about, I'm going to say this, I think when I look at it overall, we have about $60 billion of our AUM that I would say is allocated to short-term, sweep deposits, smart rate, money market funds, short-term treasuries, about $60 billion, which is frankly about, you know, consistent, a little 11, 12% of our AUM toward that portion. And of that, you know, when you get right down to it, after you take out advisor cash, we have about $7 billion that is, if you would, be unsorted. I love that industry term. And look, it's transactional cash. I look at my own accounts. I have transactional cash because I have cash and I have needs and I'm paying bills or I'm doing things or I'm getting a dividend, I'm reinvesting it. So will some, you know, technology come that will help optimize that? I think so, you know, but at what cost? It's not free, and what kind of movement and what kind of transactional things are going to happen? Listen, I think it will happen, but do I lose sleep over that?
No, okay?
This is a business model question, and, you know, I'm hearing a lot of things. And so, well, you just replace it with fees and things like that. And I think, well, look, if we could do that, we'd do it anyway. We're not going to do it just because of this. So not overly concerned about the second. Very optimistic about the first part of your question.
Maybe add a little bit of detail there to support what Ron was saying is, you know, of the $60 billion as of the end of the first quarter, $12 billion was in sort. That's not subject to the same type of sorting dynamics we're talking about here. So that's how you get to that $7 or $8 billion that's remaining. And I just say, you know, as Ron reiterated, we've been out in front of this topic minimizing our exposure to this. We've adjusted our balance sheet both on the asset side and the liability side to give clients the yield-seeking products they want on the liability side and having a flexible balance sheet on the asset side to earn an acceptable return. So do we have some exposure here? I think everyone has some exposure, but you're never going to see, as Ron said, transactional cash go to zero. So I think on a relative basis, this general topic is less impactful to Stiefel than to a lot of other players. You think back 10 years ago, we funded our bank balance sheet 100% with sweep accounts. Today, that's 12%. We've diversified and have already seen the sorting.
Yeah, and I answer the question. I tell you, it's not that big of an issue, and I'm giving a lot of oxygen to it. But I do think about these things, and I think, you know, for Stiefel, it really is not a big issue. Look at the numbers. But you can take it to the broader financial system. It will adjust if rates go up or capital. So enough said. That's a lot of oxygen to much about.
Appreciate it, both of you. And, you know, it's a question that we're, I think, all getting quite a bit. So just addressing it, appreciate it. I'll ask you a quick follow-up just on investment banking. Obviously, a very good start to the year. Sounds like backlogs are at a pretty healthy level as well. When you drill into that, can you just talk about the depository side, like just the expectations for more activity there and how that's kind of feeding into, I think, maybe the announced backlog or even pre-announced backlog?
And then with sponsors, are middle market sponsors reengaged right now, or do we need to see them ramp up and that's the hope that we progress to next? yeah look on the depository side i was talking with tom michelle a little bit about about this and what what i would say is that well in fact it crossed m&a not just on the depository side but specifically on the depository side you know there's a lot of uncertainty and this uncertainty is impacting uh buyers you know you talk reading the press saying about 150 dollar oil and interest rates may be rising and, you know, what happens to credit spreads, et cetera, et cetera. And I think that there's a pause. There's some market concerns about, you know, have the deals been done with enough of a premium? So there's a little bit of combine all this, and I think making people think about it. But the overriding depositories is that this administration, and just compared to the last administration is fostering and encouraging bank M&A. And that's not going to change. And as we get closer, not the midterms per se, but the 2028 elections, the potential and what's going to happen is going to happen. People are incented to do that. It's not linear, which is what we're seeing now. And you need the same thing as it relates to 2026. A deal has got to be announced in the next couple of months, otherwise they're 20-27 deals. But that's what I would say, and an overall M&A, look, we're seeing a lot of activity, but my sense is that if we didn't have the economic uncertainty that we have out there, we'd be seeing even more.
Specific to sponsor, we're seeing a lot of activity in growth and backlog across a number of verticals. The one area I would call out that has been a little bit weaker is technology, And that's not as big of a vertical for us, but that is certainly an area that has been slower. Software. Software specifically.
Got it. Okay, well, I'll leave it there.
Yep, thank you.
We will take our next question from Mike Brown with UBS.
Hey, Mike. So, Ron, you're getting more capital to recruitment in 2026 and some good organic growth in the first quarter. Can you just expand on how the recruitment and productivity efforts are faring relative to your expectations? Maybe what specific profile advisor are you more aggressively targeting and having success recruiting? And then how is the competitive space in the wire houses or some of your other peers? How has that been impacting recruitment and maybe cost of recruitment?
Well, I'll take your second part first. You know, the competitive environment, you know, a couple of the large firms, you may know some of them yourself, have really, really some of these competitive aspects of transitional pay, the so-called deals, and that's been interesting. But the quarter across the industry was slower for, I think, the same reasons that we're talking about M&A and everything else. It's just some uncertain times. As it relates to us, our strategy hasn't changed. We continue to be disciplined. As I said earlier in my remarks, that we grow and we've grown through acquisition for a number of years and recruitment. And our return on tangible equity is 25%. You know, you don't do that by making investments with an RO, you know, return on invested capital of 5%. It just doesn't work. So I'm very confident. What I mostly, and that to me, get the dimension.
Great, appreciate the color there, Ron.
Yeah, yeah. I mean, it's no big news, no big news there in terms we're number one in J.D. Power, we're number one in Advise, we have a great culture, we have things. If anything, what we're trying to do, and we've talked about this, it takes a little bit longer. We're just trying to get our name out there. I get discouraged sometimes when I'll talk to people and I say, oh, you know, I didn't really know, you know, I didn't know that much about Stiefel. And we're really trying to fix that. We've done that with a lot of our brand advertising and a lot of things we're trying to get out there. But that's still an area that we can improve, we will improve, and then that will improve our business.
That makes sense. And just as a follow-up, I appreciate the color on the advisory side, but I want to ask about the IPO window, which has certainly had some stops and starts in 2025 and in 2026. And we've had the Middle East volatility this year that seems to have contributed to some delays.
But what's your read on maybe the ECM calendar specifically as we think about the back half of 2026 for steeple and in the industry here? look I think it's good I was talking to our desk this might be dated by a week or so but you know what what I said was what's happening and often when deals get delayed they just get pulled and they'll get pulled you know maybe for the next set of numbers and we've seen delays that are a week or two so people are you know what that told me at the time was that you know people clients or issuers and and buyers are just concerned about volatility and you know in the volatility has always impacted ECM and I think that's the case now but when I layer that with the fact that things are just being delayed you know maybe for you know the next news that comes out of the Middle East or something or a next comment, but it's healthy, I think, and now this is in a nanosecond, as you know, but as I sit here today, I would say that that's a healthy market.
We will take our next question from Stephen Chuback with Wolf Research.
Hello, Stephen. Good morning, Ron and Jim. Hello, how are you?
Yeah, good.
So I wanted to double-click, Ron, into some of the comments that you made around agentic AI. I know you gave it quite a bit of airplay and you might argue too much airplay during at least at the start of Q&A, but this is perceived to be a pretty meaningful potential sourcer of pressure eventually on idle sweep cash, whether it's agentic AI, tokenization, lots of technology that's in the nascent stages of development.
And I was hoping you could simply speak to the levers you might consider if headwinds to sweep cash do in fact materialize and how does your pricing model differ from some of your competitors just in terms of account fees platform fees that could serve eventually as potential offsets down the road yeah well thought out the uh but but um i again when i put it down i didn't go i yeah i didn't go i didn't go oh my gosh you know we got an issue here at steve because we don't but um But as it relates, Stephen, I don't, I do think that there will be changes, okay? And there were changes in commissions, and one of the leading consultants at the time said there wouldn't be another, you know, commission trade done by 2004. And, you know, and the robo-advisors were going to do this and we're going to do that. And it's a business model, and the business model will adjust. And so if, in fact, Agenic can come in and be more efficient at sweeping cash, I don't really see how it's going to be that much more efficient myself with all of the things that you would have to do. You'd have to actually give access to everything, not only your recurring expenses but your non-recurring and your clearing checks and all your credit cards, not just your one single account. And that's not going to be done for free. And so, you know, you're going to sit there and tell me that, you know, because of transactional cash has a lower yield that I'm going to do and pay for that and give all that information, maybe, but it's a ways away, in my opinion. And if it does happen, there's a lot of things. You know, many banks, as it relates to platform fees, which I know you referred to in your report and you just did in your question, platform fees and account fees and inactive account fees, those are all levers. We don't have an account fee at Stiefel. We don't have an inactive account fee. So those levers are actually un-pulled at Stiefel today, while many of our competitors do do that. And so a fair question to me would be, well, why don't you do it? And my answer is it's not that easy, okay? I'm reminded of a commercial we did years ago where the person says, hey, what are all these fees? I have an idea. Why don't we charge a fee on a fee? And the guy says, that's a good idea. It's just as difficult to do. And I'll be watching, and if the market, if the cost of advice across the industry begins to, you know, be consistently with platform fees and done for firms that are trying, that have bigger issues with cash sorting than we do. And you know that, Stephen. We're probably at the low end of your issue of firms that are going to impact it on this. I think that's what your report said. So, look, we have a lot of levers. We have dealt with changing economics in this business for as long as I've been in the business. And we will continue to do so.
The other thing you have to think about here is the impact on the client. And, you know, higher interest income is not just a complete wash based upon the fee when you think about the tax effect of those things, because the higher interest income is taxable while the fee that they're paying is not tax deductible. So you have to consider that overall impact on the client as well when you're doing your overall thesis here.
Yeah. I'd be interested to see when you get your feedback as to the number of firms that will say, oh, yeah, it would be easy to. And I would I would take the other side of that.
I will certainly keep you in the loop and appreciate that perspective. For my follow-up, just on the restructuring within Europe, I was hoping that you could quantify the benefit to the margins that we're expecting in the coming year, just from shuttering some of the businesses, and was also hoping to get your longer-term perspective on how this informs at least your ambitions or appetite to expand outside the U.S. and tying that with just your M&A appetite in general, at least in the current environment, amid what remains a heightened level of uncertainty?
That's a fair question. I don't think we can really talk, nor do we disclose, margin improvement in that segment. But I'll lateral that to Jim and let him decide or he can answer in a moment. So you can think about that, Jim. But as it relates to our strategy and what we have seen margin improvement, What we did, and something that we sort of unwound, was the fact that we invested in sales trading and capital markets within Europe. And, you know, thinking we'll either be on, you know, the London Exchange or the Nordics, and we would do IPOs and we'd do sales trading and research over there. And what we found was that that market, because of MIFID and what they've done, raised to themselves, is that that business made really money. But you certainly were not making, we weren't making any money at the size that we were. But just as importantly was that when I would visit, we just did a large transaction, European-based. We listed it on the U.S. Jim referred to it. And so what we decided to do strategically, and it frames or is to lead our U.S. capabilities and then equity capital markets transaction, for the most part, they're coming back to the U.S., especially where we have some expertise. So maybe you can criticize the way we started, but where we're ending up, we're a global firm, we have global capabilities. I just don't think we needed to do marketing trading in local markets to achieve our ultimate goal. And, frankly, many of the clients' ultimate goal, which is to access the U.S.
In terms of some numbers, as we've talked about this in prior quarters, we've framed this up with a combination of not just the European restructuring, but also the sale of SAA. And we've told you in the past that's about $100 million of revenue, probably roughly half and half between the two groups, or between 70% and 80% comp. And then we talked about $20 to $25 million of non-comp expenses. Gets you roughly to around a breakeven number of pulling those revenues out, and that's a good way to think about it. As we look at the non-comp expenses of what actually occurred, we were able to pull out about $6 million here in the first quarter, which is relatively consistent to what our guide was and what we talked about. as we kind of framed this up last quarter. And so all of those things are fairly consistent. As we look forward, there's still more costs to be taken out of some of our European operations post-restructuring. Think of some of the longer-term contracts, like leases. Think of subscription agreements and things like that. So more to come, but as we sit here today, we'll just caveat that this is a pretty good quarter for the international or the non-U.S. business, given some of the larger fees that Ron talked about. It won't necessarily be linear, but it gives you a sense of kind of the overall financial benefit.
And look, you see it in our margins. Our margins, it's a combination of both productivity and revenue plus the restructuring that we did.
That's great, Collar, and thank you both for the fulsome responses. Really appreciate the perspective.
We will take our next question from Brandon Hawken with BMO Capital Markets.
Good morning. Thanks for taking the mic. How are you?
Good.
Good, excellent. So, I wanted to touch on NII. You touched a little bit on the headwinds in the quarter. You mentioned Corp and Securities-Based Loan headwinds. But, you know, maybe could you provide a little bit more texture around what caused that versus your prior expectations? And then in the context of the 282 to 290 expected for next quarter, good to see your expectations for that to uplift, but maybe could you provide a little bit more texture around what's going to drive that? Thanks.
I love giving NII in March. I'm going to do that right now. So, Jim.
Right. So, in terms of this quarter, obviously the non-bank NII is the main piece there. If you look at kind of the consolidated NII numbers and back off what you see in global wealth management, you can compare 1Q year over year, and you can see the non-bank's down about $3 million. So it's consistent. That delta is consistent with what we described there. Most of that, some of it's corporate interest. It wasn't securities-based lending. It was securities lending, stock lending, if you will. That's opportunistic based upon individual hard to borrows in your box. That number can move around from period to period. It was just somewhat, we do view that kind of getting back to its normalized run rate. But the bigger piece of the $280 to $290 million NII guide is going to go back to, you know, asset growth. And, you know, we said we still feel comfortable with up to $4 billion of asset growth. We're seeing things like in April, there was a number of paydowns kind of late in the quarter. NII guide is, you know, $1.1 to $1.2 billion.
We're already annualizing the low end of that, and we think there's a fair amount of growth that can occur in the second through fourth, you know, higher in that range so yeah and it's not it's not necessarily NIM expansion it's just it's just growing growth it's just growth and we see a lot of opportunities I've always I am still you know optimistic about what we're building in in venture
and for the innovation economy and that is that's got nice nice growth written all over great thanks for that color um and then you touched on this a little bit ron in your prepared remarks about uh concerns around the software loans and whatnot but curious to hear your uh what you're seeing in the clo portfolio so seeing spreads widen out in the levered loan market equity and lower rated layers of coos have been uh under some pressure recently so totally appreciate that you're in the higher layers uh which have been fine but you know what underlying trends are you seeing?
Yeah, Jim. Yeah, so our CLO book at the end of the quarter sat right around $6.8 billion. I'd say a little over 60%. What we're seeing in terms of credit enhancement has remained consistent with what we've said in prior periods. On a blended basis, that's around 32%. You can see AAA classes 36% and north of there in terms of credit enhancement, AA class is around 24%. The underlying collateral here is very well diversified. There's no particular concentrations over percent of the underlying portfolio, over nearly 100 CLO managers. And I think the key here is that what we see in our stress testing has not changed. We're not seeing any new issues. We're seeing consistent levels of the ability to a great financial crisis and not break the underlying structure. So we feel very...
Look, I've always said that what people are talking about is the lower-rated tranches. That's really what they're talking about, as you would expect. But as it relates to diversification, I don't think there's – and every time I look at it, which I think I did in the first quarter, I just put it down. It's not an issue for us when we look at – we look at individual loan by individual loan lacrosse and individually, our team does a really good job, but at the AAA, where we are at the top and what happens when it gets stressed, actually the sport nation gets higher as stress occurs because you divert cash flows. So, you know, what I sometimes ask myself is that, is the yield give up full yield? We get the AAA yield and all the way that it's allowed us to have been a great asset class.
Great.
Thanks for taking my questions.
Yep.
We will take the next question from Alex Blasting with Goldman Sachs.
Hey, guys. Good morning. Hello.
Good to hear you as well.
I got almost as enthusiastic a response as you get to Steve, so I appreciate that. So I wanted to ask you guys a question around the bank growth and loan growth, kind of how that comes together. Obviously, that's a priority for the firm for some time. I'm curious how you're thinking about funding that, because if we look at the sweep deposit balances, they've been basically in a range of, I don't know, $10, $11 billion for quite some time, a couple of years. Even holding the whole AI sweep cash issue aside, as you think about the forward loan growth and without a whole lot of balance sheet sweep options, how do you sort of think about the funding mix here over time? Is that more institutional? Is it more sort of high-yield savings? I'm just trying to think about the funding of the bank on the forward.
Well, first of all, both, but I would have – geez, Alex, I thought you might have complimented us on our deposit growth, okay, relative to our muted loan growth, okay, in terms of I think our deposit growth was $2 billion. $2 billion. And what we're seeing is much of our loan growth and the potential we see is not only self-funded, if you will, by deposit generation, but self-funded in a multiple of the loans outstanding. So deposits are not sweep. So if you're focusing on sweep, then we've got to go all the way back around the barn and come back and say, you know, transactional cash in clients isn't going to get that much higher for all the reasons that we've been talking about. But in terms of our smart rate and our venture deposits and our sort of non-wealth deposits, that growth has been very strong. And that didn't answer your question. That's how we're funding that.
If you look at the supplement and you look at page 10, the bottom of page 10 has a disclosure of third-party deposits, $2 billion of excess deposits that are off balance sheet today that we can use to fund that growth. Obviously, a good portion of that is going to be in that third-party commercial treasury deposit line, so that's $5.7 billion of it. The vast majority of that's going to be, obviously, venture and fund banking. As you think about that, that grew $1.2 billion in the first quarter, and if you look at that as kind of a mark-to-market of where we're at through, I don't know, as of yesterday, that's up another $700 million. So that's a significant source of funding capacity growth that continues to occur that's been fairly consistent and gives us a lot of flexibility if we're talking about up to $4 billion of asset growth.
And I'll end by saying, as I've said before, in this segment of what we're doing, we're really in the early innings. Frankly, technology capabilities to our treasury platform, international settlements. So there's a lot of work that we're doing to have a very competitive potential. It's a great question, but again, we've said- That's really helpful.
Thanks. Question on the buyback. Really nice to see you pick up. I know you guys tend to do a little more in the first quarter than typically over the course of the year.
So as you think about your shared repurchase plans from here on through the rest of the year, any thoughts you'd share would be helpful thank you capital allocation capital utilization return on invested capital all of those are the inputs to the model that you know will we're always buying back shares the pace of that math changes daily as well as to what is that's why we don't just sit there and say oh you know we'll buy X number per day we we look at it we balance that against M&A other opportunities, but we've been more consistent because we've felt that relative to our growth, our stock's been undervalued, so you see us buying back our stock.
Right. So Ron touched on the strategy and how we think about it in terms of capacity. You know, we had $560 million of excess capital at the end of the quarter. If you think about what we talked with the balance sheet growth expectation of up to $4 billion, say we do the full $4 billion. That's only about 70% of the current excess before retained earnings. So we certainly have strategic rationale that Ron talked about if that math works.
Thank you, guys.
We'll take our next question from Bill Katz with TD Cowan.
Great. Thank you very much. Most of my big picture questions have been asked already. So maybe just thinking tactically, update us on sort of what's been happening in April, just in terms of maybe client engagement, whether it be on the advisory side or on the institutional side, and how what the sort of cash levels look like, just net of maybe billings and or seasonal tax Yeah, look, I said client engagement remains strong.
I just said that, Bill, and it wasn't through the quarter, I guess, when I got this call. It is. I have to caution, though, because in the level, things that can change pretty analogy, those environments. Today, Jim, I don't know if you want to comment on cash.
Right. So if you kind of go bucket by bucket, sweep is down while Treasury deposits are up. And to provide some detail, you're down probably a billion four in sweep, so call it about 10.6. You're down about $400 million in smart rate. And then, again, you're seeing a $700 million increase offsetting some of that in the other Treasury deposits.
Yeah, but you know what? I will just say that doesn't matter.
Yeah, this is so seasonal.
It's right around today. I wonder if we've ever had an increase in April. It is an outflow for a lot of tax to be taken at some trend.
Of course. And then as a follow-up, I'm just sort of curious. You mentioned on the banking side a very good pipeline, but it also seems like a lot of this conversation is about just so the ebbs and flows around uncertainty and certainly appreciate one day to the next with the headlines coming out of the Middle East as a confounding for everything. Should we be assuming that there's a little bit of a deceleration here in terms of activity from a revenue perspective, giving your comments, that if some things don't get sort of booked in the next couple of months, it's more about 2027 just as we think about the pacing for this year versus next for the advisory side of investment banking?
Look, I think our banking is overall strong. We're seeing real pockets, and at least what our guys tell me is, you know, it's strong. I think we caution a little bit on depository. We're big in depositories, and so that feels like it's a lull a little bit, but that can change quickly, too. and, you know, in the technology side, which we haven't been as big at, but we can see when we look at numbers, that appears to be more muted relative to what else is going on. But overall, as I've said, if the risks land within the range of market expectations, we see the business improving. If some of these things get resolved, it could really improve. It's not just all downside from here. the business can really pick up here some of the volatility out of this and uncertainty out of this market. There's always volatility. There's always uncertainty. It's just heightened, and we all know this. I'm not telling you anyone on this call.
Thank you.
There are no further questions at this time. I will turn the conference back to Mr. Krzyzewski for any additional or closing remarks.
Well, I would just want to compliment all the questions. It actually was a very, very robust question, and we like being able to engage and give you our best answers, and I appreciate that, and I appreciate everyone's time, and I look forward to talking to you in July. I would just say who knows what's going to happen between now and July, but many of you will be talking before then, but to our investors that are on the call, Thank you for calling in and have a great day. Thank you.
This concludes today's call. Thank you for your participation. You may now disconnect.