Stifel Financial (SF) Q2 2026 earnings call transcript

Thank you, Operator. Good morning and welcome to Stiefel Second Quarter 2026 Earnings Call. On behalf of Stifel Financial Corp. , I will begin the call with the following information and disclaimers. This call is being recorded. During today's presentation, we will refer to our earnings release and financial supplement, copies of which are available at Stiefel. com. Today's presentation may include forward-looking statements that are subject to the risks and uncertainties that may cause actual results to differ materially.

Stifel Financial Corp. does not undertake to update the forward-looking statements in this discussion. Please refer to our notices regarding forward-looking statements and non-GAAP measures that appear in the current release. I will now turn the call over to our Chairman and Chief Executive Officer, Ron Krzyzewski.

Thanks, Joel. Good morning, everyone, and thank you for joining us. We entered 2026 with a clear plan. At the beginning of the year, we said we would grow revenue, increase our loan book by up to $4 billion, increase Treasury deposits, improve operating leverage, and deploy our substantial excess capital where it would earn the best risk-adjusted returns. Six months into the year, we're doing what we said we would do. Our second quarter and first half results reflect the strength of our business and the momentum we're seeing across the firm.

Second quarter net revenue of $1.45 billion increased 13% from a year ago, while non-GAAP earnings per share of $1.42 increased 25%. Both represented the second highest second quarter results in our history following our strongest first quarter ever. The result was our strongest first half in Steeples history, generating record net revenue of $2.9 billion, 15% above our previous record, and record earnings per share of $2.87, up 28% from our prior record. Return on tangible common equity was approximately 24% for both the quarter and the first half of the year, while tangible book value per share increased 15% over the prior year.

Our top-line growth was driven by another quarter of record global wealth management revenue and continued growth in net interest income as we increased our loan book by $2.6 billion during the quarter, keeping us well on pace to achieve our full-year guidance of up to $4 billion of balance sheet growth. Just as importantly, our strategy of putting advisors first continues to differentiate Stifel.

Advisor recruiting remains as competitive as I've ever seen it. Client engagement remains strong. And earlier this month, Stiefel was ranked number one in employee advisor satisfaction by J. D. Power for the fourth consecutive year. I'll come back to why that's so important in just a moment. Our institutional business also continued its strong momentum, led by investment banking, as the breadth of our platform continues to generate growth across ever-changing market environments.

At the beginning of the year, we said we'd improve the profitability of our institutional business, and we've done just that. Institutional pre-tax margins improved to 19.5% in the first half of 26, compared to 11% a year ago through revenue growth and lower expense ratios, reflecting the benefits of the efficiency initiatives we implemented in 2025. Our business continues to perform well, and we're generating significant capital.

As I've often said, we have four levers for deploying capital. During the second quarter, we pulled three of them, reinvestment into the business, share repurchases, and dividend payments, which combined for more than a half billion dollars of capital deployment in the second quarter alone.

This illustrates our ability and willingness to opportunistically deploy our excess capital when we believe the risk-adjusted returns are compelling. Looking ahead, the broader market remains constructive, although volatility is likely to remain part of the landscape. The economy is healthy, client dialogue remains high, and the capital markets continue to broaden. At the same time, we remain mindful of the secular forces shaping our industry, including artificial intelligence, expanding capital needs, private credit, changes in market structure, and geopolitical uncertainty.

In an environment like this, trusted advice becomes even more valuable. Given the breadth of our business and the depth of our client relationships, we believe Stiefel is exceptionally well positioned to help clients navigate an increasingly complex world. Before turning the call over to Jim, I'd like to spend a few minutes talking about service, technology, and why I believe they go hand in hand. As I mentioned earlier, STIFL was ranked number one in employee advisor satisfaction by J. D. Power for the fourth consecutive year.

I'm especially proud of that recognition because it comes directly from our advice. It tells us we're executing on our mission of making STIFL the firm of choice for advisors. Our overall score was well above the employee advisor segment average, and we ranked number one in leadership and culture, operational support, and products and marketing. Look, awards don't define us, but four consecutive number one rankings tell us we're doing something right. You don't earn the trust of advisors four years in a row by standing still. You earn it by listening, investing, and continually improving.

Our advisors are the foundation of our success. And that philosophy also shapes how we're thinking about artificial intelligence. Technology shouldn't ask advisors to adapt to software. Software should adapt to the way advisors work. That's the philosophy behind what we are building. In the first half of the year, market reactions have suggested that advances in AI will at least diminish the value of financial advice and at worst, eliminate the need for financial advisors altogether. This, however, is completely disconnected from what we are seeing in the market for financial advisors.

Transaction packages are elevated and advisor recruiting remains as competitive as I've seen it for experienced, trusted financial advisors. So either the largest wealth management firms in the world are increasing investments into a business that apparently is going away, Or, as we see it, the industry will continue to evolve with more capable and efficient advisors using AI to benefit their productivity and their clients.

Service. I think markets sometimes confuse access to information with judgment. AI is making information more abundant. That only increases the value of judgment, trust, and relationships. At Stifel, we always believed our people are our competitive advantage. AI simply raises the ceiling on what great people can accomplish. It is proving to be far more of a productivity accelerator than a replacement for talented people. It enables our bankers to evaluate more opportunities, our research analysts uncover more insights, our advisors spend more time with clients, and our associates to focus on higher value work. The result isn't less opportunity for our people, it's more. In short, we don't see AI as replacing human judgments. We see it as expanding human potential.

In terms of the revenue potential for AI, look, by all indications, we're still in the early innings. AI is creating one of the most important secular investment opportunities of our time, and that opportunity runs directly through the middle market where Steeple lives. It creates meaningful opportunities for us to advise clients, support capital formation, and provide insight as our clients evaluate how AI will shape their strategies, capital needs, and competitive positioning.

With that, I'll turn the call over to Jim.

Thanks, Ron, and good morning, everyone. Total non-GAAP revenues of $1.45 billion surpassed the consensus estimate by 2%. Investment banking was the primary upside driver, exceeding expectations by $23 million, or 7%, as we benefited from the close of a sizable transaction late in the quarter, which was the primary factor in our IB revenue coming in above our guidance.

In comparison with the street estimate, capital raising revenue was the primary driver of the beat. Transactional revenue came in 2% below expectation and decreased 3% from the prior year. I'll cover the components in more detail when we get to the institutional segment.

Asset management revenue was 1% above consensus and increased 13% from the prior year, driven by market appreciation and net new asset growth. Net interest income came in at the higher end of our guidance and $4 million above consensus, driven by higher interest earning assets. Expenses were again well controlled, and we continue to see the benefits of the efficiency initiatives of the past few years.

Our comp ratio of 57% was 60 basis points below consensus and down from 57.5% in the first quarter. The higher non-compensation expense was primarily the result of growth in our business, excluding the more than $4 million of higher investment banking gross ups and credit provisions, our non-comp expenses would have been relatively in line with estimates. The effective tax rate was 24.4%, slightly below consensus, but within our guidance.

Turning to slide four, global wealth management generated record net revenue of $957 million, up 13% year-on-year. Results were driven by transactional revenue, as well as growth in net interest income and asset management revenue. The record results are even more impressive, given that this was the first full quarter following the sale of SIA, which reduced our asset management and transactional revenue run rate.

We ended the quarter with record total client assets of $580 billion and fee-based assets of $240 billion, up 12% and 16% respectively, as we benefited from stronger equity markets and net new asset growth. Excluding the impact of the assets associated with SIA, total client assets and fee-based assets increased more than 14% and 19% respectively.

On organic growth, net new assets in the low single digits were consistent with the first quarter, Our recruiting pipeline remains robust. The activity is episodic and dependent on changing competitive and market dynamics. As Ron mentioned earlier, we increased our loan book meaningfully in the quarter as we generated an incremental $2 billion in fund banking loans. Based on this incremental growth and a stable NIM, we expect the third quarter net interest income to be in a range of $290 million to $300 million.

Over the past year, our combined wealth management and treasury deposits are up approximately $3.3 billion. This includes a more than $1 billion increase in sweep deposits and a $3.8 billion increase in Treasury deposits, partially offset by a decline in smart rate. In the quarter, our sequential cash balances were impacted by seasonal tax payments, as sweep and smart rate balances declined by $670 million and $930 million, respectively.

Non-wealth client funding increased $410 million, reflecting strong momentum from our venture group. Within venture, we saw more than $700 million of deposit growth, but this was offset by some outflows within fund banking deposits. The second quarter illustrated our ability to fund our loan growth with off-balance sheet deposits. While we moved roughly $2.6 billion of venture deposits onto our balance sheet, we still have more than $3 billion available, and we continue to anticipate additional quarterly growth of $1 billion in venture deposits.

Consequently, we are highly confident in our ability to reach our full-year guidance of up to $4 billion of loan growth, with ample funding flexibility beyond that. Turning to slide five, our institutional group posted its second strongest second quarter in our history. Revenue was $481 million, up 15% year over year, driven by increased capital raising. Through the first half of 2026, institutional revenue was up 21%, driven by an increase of more than 43% in investment banking. In the second quarter, firm-wide investment banking revenue totaled $332 million, up 42% year-over-year, coming in slightly above our recent guidance.

Advisory revenue increased 24% to $157 million, with continued strength in financials, industrials, and technology. Capital raising revenue was $102 million, up 121% year-over-year, and was our second strongest second quarter result with increased issuer engagement led by healthcare, industrials, energy, and financials.

Fixed income underwriting revenue of $64 million was up 18% year-over-year, driven by increased public finance activity and higher corporate issuance. We remain the number one negotiated issue manager in public finance by deal count, with a 14% market share year-to-date.

Investment banking and advisory pipelines remain very strong. Strategic dialogue is active, the new issue market is reopened, and financial sponsor activity, which remains below historical levels, represents a meaningful upside as it recovers. We continue to anticipate a strong 2026. Transactional revenue declined 19% year-over-year, primarily because of lower fixed income revenue, as our second quarter 2025 results benefited from a roughly $30 million gain in our aircraft business.

Excluding that gain, our results would have been relatively comparable to a year ago. Equity transactional revenue was down 4 reflecting the impact of our European restructuring The solid operating environment and benefits of our improved efficiency are evident in the institutional group pre margin which was 19.5% in the first half of 2026, an 850 basis point improvement from the prior year.

Moving on to expenses, we're able to recognize some of our improved operating efficiencies through a lower comp ratio in the core. We capitalized on the strong operating environment, as well as the benefits of our European reorganization and the sale of SIA by lowering our comp ratio by 50 basis points sequentially to 57%. Assuming market conditions hold up for the remainder of 2026, we anticipate additional comp flexibility in the second half of the year.

Non-compensation expenses totaled $309 million, up 11% year over year, with essentially all of the increases tied to growth in our business, including higher investment banking gross-ups, credit provisions, advertising, and data processing. Our operating non-comp ratio was 19.6%, which was within our full-year guidance of 18% to 20%.

Turning to slide seven, our capital position remains strong and provides meaningful strategic flexibility. Tier 1 leverage ratio came in at 11.2%, while the Tier 1 risk-based capital ratio declined to 17.3%, reflecting the deliberate deployment of capital into loan growth. Based on a 10% Tier 1 leverage target, we ended the quarter with nearly $480 million of excess capital, and this is after funding $2.6 billion of loan growth and repurchasing 2.4 million shares of stock during the quarter.

Finally, we have 7.8 million shares remaining under the current authorization. Assuming no additional repurchases and a stable stock price, our fully diluted share count for the third quarter is expected to be approximately 160.5 million shares.

With that, Ron, back to you.

Thanks, Jim. Before I turn the call over to the operator, let me come back to where I began. We entered 2026 with a clear plan and six months into the year we've done what we said we would do. Revenue is growing, operating efficiency is improving, we're on pace to achieve our balance sheet growth objectives and we're deploying capital with the same discipline as guided this firm for decades. Let me also say a word about capital allocation because I suspect that question is coming. Our priorities haven't changed and they're all measured against really one standard, return on invested capital. Our first priority has been and always will be organic growth. Investing in our advisors, our bankers, our technology, and our balance sheet is how we built Stifo over the last 30 years and it's how we'll continue to build it in the years ahead.

Second, we'll continue to repurchase shares when we see a disconnect between our business outlook and the price of our stock. We were more active this quarter because, in our judgment, buying back our own stock represented one of the highest risk adjusted returns available to us. Growing our balance sheet substantially while increasing our share repurchase activity illustrates our ability and willingness to put our excess capital to work opportunistically.

Third, we'll remain disciplined on opportunities regarding acquisitions. A key element of our long-term growth strategy has been strategic acquisitions, but we will not compromise our return standards simply to get a deal done. While we are always looking at potential deals, given today's valuations, one of the most attractive returns we see is investing in our own business and buying back our own stock.

Markets never move in a straight line, but we've built this firm by taking disciplined decisions over many years, not by chasing the moment. That will not change. I know that everyone wants to know about what the second half will look like.

Let me start by saying the second half is always seasonally strong. And as we enter the back half of the year, I feel very good about where we are. Asset management revenues are up. Our NII run rate is at the higher end of our full year guide. Investment banking pipelines are robust. Client activity remains healthy. our capital position is strong, and we're building a stronger, more valuable default.

So while we're proud of what we've accomplished in the first half of the year, we're even more excited about where we're headed. So with that, operator, let's open the line for questions.

Yeah, you too. So, Ron, I was quite encouraged by some of the backlog commentary that you offered on the institutional side.

Admittedly, I'm struggling to reconcile that versus some other commentary we've heard through this earnings season about bank M&A activity remaining fairly subdued. The middle market sponsor community is still on the sidelines. recognize you have a diversified business, but was hoping you could just unpack where you're seeing strength in terms of backlog momentum on the M&A or ECM side and just speak to the outlook for both middle market sponsors as well as your expectations for bank merger activity in the back half. A lot of questions on that question, but sure. I mean, look, first of all, you know, like a lot of people, you know, for valid reasons, you know, highly correlate our advisory with bank depository M&A.

And, you know, we just announced in July a very nice transaction, which I think will close this year with a significant fee. But I would say that bank depository M&A relative to what we expect will happen is relatively muted. There's, you know, we've talked about a buyer strike. We've talked about, you know, a lot of uncertainty in the market. But the core fundamentals haven't changed.

But that's not, you know, all that's driving my optimism. In fact, I would say it's not. It's across the other parts of Stiefel's, you know, platform. And people forget that we have a diversified platform in healthcare, in industrials, in technology, in energy, and all of those are improving. And we're just seeing that. So we're not, you know, you shouldn't correlate, although it's important, you shouldn't just correlate us as a bank depository investment bank. That would make a mistake. And so what's kind of interesting for us, Stephen, is that – and I'll let Jim add some color, but from my perspective, the environment's strong. And while I'm optimistic, I see upside because sponsor activity will – if it does pick up, it's really going to help us because a lot of these companies will pick up our middle market.

So the sponsor activity actually shows upside. I think Bank M&A has upside from my remarks here. There's more upside potential. Capital raising has been strong, and we continue to see it outside of financials. It was really strong in health care, for example. So, you know, when I unpack it, what I'd like to say is that while I'm optimistic, sometimes I'll say I'm optimistic when I, you know, look out below. because the market's overly optimistic. Today, I'm optimistic and I see upside.

I think you covered it very well, Ron. The only thing I would add related to Bank M&A, you know, as you sit here today and think about the opportunity for growth there, there's probably around 120 banks over $10 billion today. So you're seeing a little bit more of a measured pace in that M&A cycle. But the 28th presidential election still puts a focus on this open regulatory window. and all the factors Ron talked about, in addition to the fact the economy is good and bank stocks have performed well. You mentioned the recent transaction we just announced. There's a lot of active dialogue there, but we're getting to the point in the year that anything we probably announce at this point is going to be a 2027 transaction, but there's a lot of active dialogue there, and it's a driver of what we, when we come out with our 27 guidance, it'll certainly be a bright spot.

Did I cover all your questions?

Yeah. It was a common thread, I thought, but fair enough. I wanted to actually ask on operating leverage. You talked about some of the sources or drivers of revenue momentum. If I look at first half 26 versus first half 25, you grew revenues 15%, delivered incremental margins closer to 39%. So certainly reinforcing the power of the model and your ability to deliver sustained operating leverage as revenue scale.

I was hoping you could just speak to whether you believe that a 39% incremental margin is something that's sustainable. And whether your efforts on AI that you were alluding to earlier, how that informs your near and medium term expectations for operating leverage. Yeah, I'll take the second question first. I'll let Jim think about the incremental margin. I guess I haven't really thought of it that way, the 39% number you're talking about.

But with respect to AI, it's interesting that my views have changed a little bit, Stephen, and I think AI will have operational efficiencies across the board. But what I've seen and where my perspective has changed, I thought that it would be a replacement for human costs, okay? And what it really is turning out is to be an accelerator of our business. So I thought, oh, you know, we don't need as many people. But what's happened is we, across all of our businesses in wealth and in fixed income and in equities and investment banking, we are becoming more skilled at uncovering opportunities, and that is leading to needing people. And I think about some of the efficiency things that we can do, and it's like the idea that with – and even in your space, Stephen, you must be saying this, the ability to – for analysts to cover more companies because a lot of the historical work can be done.

but what we really want is like your opinion, but what do you think of the results? And I see productivity gains, and that's where I see it. So AI has – I've changed my view about thinking, oh, you know, we don't need as many people. That's not true. In fact, we need more talented people to take advantage of what I see as our ability to even compete and gain greater market share, incremental margins.

Yeah, in terms of incremental margins, I think the answer is different when you look at each of our individual businesses. When you look at the institutional group, that incremental margin should be over 20% on higher revenues. And the private client group, that's probably somewhere north of 20% as well. And then we look in the bank, that's obviously a much higher margin business. But when you look at the consolidated entity and you think about operating leverage and where we're getting that operating leverage, a lot of that is going to come through the compensation line item.

And, you know, year-to-date basis, we've been able to take about 80 basis points off the comp-to-revenue ratio. And that's really a function of the things we hit on, you know, the sale of SIA, the restructuring of European activities. But you also combine that with a higher net interest income, it produces a pretty strong lever there. On the last quarter call, we talked about taking somewhere between $70 million and $80 million of comp costs out of the, you know, with the sale and restructuring transactions. and then you look at NII, we're up over $30 million year to date, and you can look at our guide for 3Q and then layer on kind of our growth assumptions for the full year, you can see we're going to have a pretty nice second half in terms of NII in our forecast.

That comes at a much higher incremental margin. So, you combine those two factors together, we should be getting more incremental comp leverage. And I think where we're at today, we feel pretty comfortable that if the operating environment holds, we'll be at the midpoint to the lower half of the overall guidance range of 56.5 to 57.5.

Yeah, that was that year, Steve, and I, you get all the questions out to the other people online probably thinking, oh geez, but I'll say this, Jim just said a lot of words there. It's been a number of years since we've adjusted our comp ratio in the second quarter, Okay, you go back and look. And so this year we did, which probably speaks to your question about incremental margin and how we're reviewing the second half of the year.

Okay, so thanks for your questions.

Yep.

Yeah look I think that maybe if there a little bit of a wait Maybe it us okay and it me trying to say well wait a minute You know it seems like I wake up one morning and read about some new AI productivity tool and all the wealth management stocks get you know hammered And the same day I'll come in and Jim Z will tell me, oh, man, everyone's upping their recruiting packages. And I'm like, wow, there's a disconnect here. And to me, what AI will do is we'll actually increase the value of advice, just like it's doing in banking. Like I said, what we're saying is, and I always make these comments, you know, AI make talented people more talented and less talented people less talented.

And so it's an amplifier. And I see that with what we can do on the advisor front, since you're talking about wealth, is just make our advisors more productive, easier to communicate, easier to have meetings, and increase the value of advice. because as you get more information in the marketplace, which is what AI is doing, it's making it more abundant, the value of human judgment and advice and relationships increases. Everyone thinks, no, it doesn't. Someone will just use AI as their advisor. I don't see that, okay, and I'm just going to stick with that. And nor does the market, okay, otherwise the market wouldn't be paying what they're paying for the last mile of advice.

So that's how I see it.

Well, your second question first, I mean, I mean, look, there's been there's been fee pressure in this business since 1975. Okay. When May Day occurred and and so you've seen that, but the least amount of fee pressure has been the most has been in the, in the building blocks of advice. So ETFs and all the products, and you've seen those fees get compressed because they're the wholesale side of advice. The, the, the relationship side. the advice, you know, we don't pick stocks really anymore. We provide holistic financial advice. And so, of course, there will always be some fee pressure, but net-net, I see it improving overall because the markets, you know, generally go up over time, at least we hope so.

So with respect to how I insure, I think it speaks to Stifel's culture in that the way I know that it will be is because we leave it to the advisors. I mean, these are individuals who are building individual businesses, and I don't need to tell them to allocate their time to more productive things. They just do it naturally. And, in fact, the fact that I'm not sitting there browbeating people with how to be more productive is why people like Stifel. We give them the tools. They deploy them, and we have a highly incentivized system for advisors to be as productive as they see fit. And that's – I'm very confident that if we put the tools on the table, our advisors will use it productively as each of them see fit, not as I see it fit in some homogenized fashion.

And on the institutional side, look, it'll drive because we, you know, these are all partners and then, you know, across the business and they want to be more productive. So, again, it's an amplifier, all right, not a replacement. And I think that's going to be the new thing that's coming out. You're going to see firms not talk about reducing analysts to MD ratios. So you're going to start seeing people saying, shoot, this makes us more competitive.

Right. Right.

Sure.

You know, with respect to net new assets, you know, it's the same answer every quarter. You know, obviously we watch it closely. You know, we believe that we, you know, a lot of people report this number differently. I'm not quite sure. I've always said measure revenue, not necessarily NNA. I know you like looking at it that way to predict revenue, but we understand, you know, predictive assets. And what I would say philosophically, and this is something we did, I think, eight years ago, was a philosophy that, you know, the advisors in the future and more and more so will not be limited to just what we have in custody at Stiefel. We have been giving technology and tools that allow us to advise on assets held away and being able to consolidate and report not only assets but expenses in a holistic manner.

And when you do that, you start seeing a client's full financial picture. And then advisors, of course, going back to my comments about them being very entrepreneurial and productive, will ask about, well, who's managing this? Can I help you with this? Oh, you've got this loan. We can offer a better rate. You know, TIFO's credit card is at 8%. Your other one's at 18%. Our clients don't borrow, by the way, so that's easy, but it's not a credit card. So, you know, all of this is a holistic view of understanding that what technology will do is firms cannot be just focused on their custody stock record, so to speak. They're going to have to look at and be able to look at a holistic view for clients.

And that's what we, I think we were one of the first full service firms to actually look at that and not just have it be a sidebar, but central to how we look at client assets.

Yeah, well, look, specifically as it points to venture, not only fund banking, but venture in what I would say, we had a big funnel, okay? And we just started and started competing in this business. We've been in it for a while, but we really made an investment three years ago. And we're just getting started. We have things that we have to do or we have to be better on the technology front, providing, you know, venture clients with good treasury type functions. And we've got a big investment in that. And what I see today is this isn't just about collecting deposits and making venture and fund banking loans. This is about, again, broadening the scope and understanding that out of this comes wealth opportunities, investment banking opportunities, fixed income opportunities.

And I, as I have said on previous calls, I am very optimistic and bullish about the investments we've made in this business as I look forward. It's a great ecosystem. It is the new economy. And we, you know, I don't think that any of you have really understood or at least haven't understood what, you know, what we're doing and how we can grow that business. So, but we have a lot of investments that we need to make to be competitive. But I think we're one of the players in that business. And it's not just about deposits and loans, but a lot more.

One thing I'd add there, if you think about the loan growth in the second half to get to the $4 billion bogey for the entire year or guide there, you know, you look at our current excess capital. We use less than half of that to fund that loan growth in the second half of the year. So we have the financial flexibility to do more than that as we look forward in the year if the demand is there for assets with the proper risk-adjusted returns. And obviously, fund banking, as Ron mentioned, is a very low-risk asset class. We feel very comfortable with it.

Yeah, thanks, Tim.

Yeah, I'll go ahead and start with that one. So, you know, obviously you look at the assumption that everything we're growing here is going to be funded by fund and venture, and those are deposits that are priced a little bit more attractive than what you see in smart rate today, and smart rates that call out about 325.

And then you think about where are we investing. We're investing in fund banking loans. Those are yielding six, six and a half today. Venture is yielding six and a half to seven and a half. But then you also have mortgages that are probably in the mid fives to mid sixes. So it kind of depends on the mix of those assets of where we go. And you combine that with the funding. Generally speaking, it's around a flat NIM. There's certainly opportunity for NIM expansion if we see more growth and sweep or other cheaper alternative funding costs. But that's just a dynamic of the yields we're seeing on both the asset side as well as the cost of funds.

Yeah. And my bank guys are generally conservative. I'll just say that. OK, they don't they don't usually tell me we're going to have expanding NIMS and increasing net because that only can lead to harsher conversations later. So I see the dynamic that you're talking about. But there's a lot of things that go into that into that pool, as you know, Bill. but there's sorting, which we don't think is a big issue for us. There is mix. There's a number of things, the shape of the yield curve, all these things that can change. And we want to be comfortable with what we tell you.

I'm sorry. Let me, before you do this, is this question about our view of M&A or on our advisory side of M&A?

Yeah, look, we look at a lot of deals. The deals we've done this year, we've been on the sell side. I'm never on the sell side, okay? I mean, I'm always on the buy side, at least historically.

And we will continue to look at and we always evaluate transactions. At the end of the day, it's pretty simple. I would say that if I would try to ballpark the market today for financial services or advisor, whatever you want, it's 15 to 18 times adjusted EBITDA, and we're trading at eight. All right? So there's a disconnect here. So the best acquisition I see is ourselves. And that's kind of what we've been doing. You saw it in all of our results. That doesn't mean that we'll just shut the door, but when we look at these things, we're looking at return on invested capital. We're not looking at a print. We've grown this firm, and we have a 24% return on tangible equity.

That's the number I look at. And I'm not going to do a deal that has a return on invested capital of sub 10% to show revenue growth. That's dilutive to value, in my opinion. And today assets for a variety of reasons I think are at the high evaluation range at least in the M front And we going to be disciplined Sometimes I disappointed I say shoot I wish I could have done that But we going to stay disciplined But are we still an active participant?

You know, the wealth is a little more, I don't want to say predictable. But, you know, we've already, you know, we already know asset management for the third quarter. We bill in advance. All right. So you have to look at what the markets were on March 31st versus what they were on June 30th, sort of extrapolate that and you'll get that. Jim and the team do a pretty good job on NII, transactional revenues, but a little more volatile. We have a pretty good handle around that. So then it comes down to the more cyclical part of the businesses, which ends up being investment banking. And so our optimism is there and in NII, NII being an increase in interest-bearing assets.

And so we added $2.2 billion in the second quarter. We have a lot of loan demand. I don't think that if I said we wanted to increase more, we'd have a problem doing that. We set a target for $4 billion. That $4 billion will help drive efficiency ratios in the comp. That does it. Productivity also does that. So to answer your question, I see a more constructive environment and a more constructive pipeline in the businesses that tend to be more cyclical for us, which is investment banking and institutional. But I do think that for us to adjust the comp ratio in the second quarter relative to what we've done in the past speaks a little bit to it's a pretty good environment.

Now, by the way, I've been pretty optimistic, and I am optimistic, but I'm going to throw my little caveat in here that the world can change pretty quick, okay? And I don't want to pretend that I'm not and we're not cognizant that we still are in a volatile environment, primarily on the geopolitical front. So I just I would have to have a caveat because I am I am I am optimistic, but I can't certainly under predict or understand that.

Well, we already see it. I mean, I, we measure, you know, what's coming, what clients we're getting in wealth, how we're integrating with investment banks, either on advisory or in pipes, capital raising, you know, private placements on the debt. We are in the early innings of this, okay? And so So I'm not sure that I can give you some numbers to this other than the fact that I've talked about it for a few quarters about how this is an area where we're doing – I don't want to rent our balance sheet. I don't want to be where we're just renting our balance sheet to increase assets. I want to be in a position where that is an integral part of what we do, whether it's doing private credit to our wealth management clients and providing services not only to the venture community, but also the private equity and venture funds that are clients.

And they turn around and they'll say, well, you know, you do this for us. And so you can have a look at this business. It may not be related to the company we made the loan to. So, you know, I guess I'm very optimistic. I sometimes, you know, will be, you know, saying why aren't we doing more, but we're building it, and I think we will. So I like it because it's holistic in the way we're deploying capital, using our balance sheet, and driving, you know, greater – I hate to use the word wallet share, but that's the only thing that comes to mind.

Jim, you got anything? It's also a funnel across the retail as well in terms of net new assets as an opportunity to funnel assets outside of the traditional channel that we have today. And so anything we can do to create those new type of funnels, to create net new assets, is going to be a net positive for our overall business.

Yeah, well, probably the latter in terms of, you know. But there's, I mean, it comes from all over the place, okay, when you have relationships. And, you know, there's a lot of things you can do. But if you wanted to think of it as to what the connecting the dots for this discussion, you know, you meet a founder. are the founders in this ecosystem tend to be, I would say, you know, their stakes in their companies make them very wealthy, but their liquidity isn't at the highest stage with young entrepreneurs. And so that provides the opportunity of us to provide a mortgage, to do a number of things. And so, yeah, I would – there is a definite linkage there.

Believe me, I'm focused on that because I want to make sure that we have the proper systems in place to, you know, make sure that we're touching those opportunities.

Yeah, that's a great question. I'm not sure that I'm, as is the world, is coming to understand this. And on balance, I feel that some of the efficiencies that we can get, operationally speaking, there's, you know, we're a regulated industry. So generally, when a new rule or we have to comply with something, what do we do? And we get a new rule and then we throw people at it, okay? And then people compare the rule book to what we're doing. And there's just a lot of things that build up over the years in a highly regulated industry, especially if you're a bank holding company, which we are. So I see a lot of efficiencies there.

And that's, you know, that's simply, you know, looking at the rule book, looking at what we're trying to accomplish, say in marketing. You know, we have, we want to market to clients and we have to comply with the marketing rules of FINRA and the SEC. Well, that's a perfect application for an agent because it's just, you know, taking, you know, unstructured data and comparing it to a rule and then handing it to a person. We don't need as many people doing that, but we can make them do higher value. But I see efficiencies there. And then I do see additional costs on tokens, okay, just the cost of tokens. It'll be interesting to see how this plays out, frankly.

I've made the comment. If anyone is in the AI hyperscaler universe on this call, they probably won't like what I'm going to say. But, you know, I sort of view tokens being like cell phone minutes. So I think those costs are going to come down because of competitive. You just like everything else, throw a lot of dollars at a product where you don't have monopoly.

What do you do? You compete on price. And so I see that being our benefit or the economy's overall benefit. How that all plays out relative to human costs versus token costs. uh good question uh we we're trying to measure it um i think net net um with the competitive pressures that'll come on open source ai and foreign depends on what we do regulatorily net net it's a big productivity and efficiency benefit for us at least that's what i thought today that could change by next quarter and who knows what the next model is going to be able to do this is think about it, last December we didn't know a lot of the stuff.

So it's incredible what's going on.

Well, I think that – I think it already has, and it is, right? I think that we, you know, if our business was simply, you know, asset allocation, then the old models that, you know, came out with, you know, you can take the slide bar on your phone and just adjust your asset allocation through ETS and, you know, and do that. You know, that didn't really impact the business. But the way it did impact it is that our advisors do a lot more than that. They just – there's a whole part of doing holistic advice that becomes more efficient as you use technology to do it. And it's a hard question to answer. I know this.

Okay, I can say this. And many of you – you must be the same way. I've been CEO of a financial wealth management firm for almost 30 years. I have a Bloomberg. I can pick up a phone and call analysts. They return my calls. I'll answer a question. My own analyst. You know, I've got access to our trading desk. They have all this information. I have all this. And I need financial advice, okay? I do not manage my own business or my own affairs. And that's because I'm busy. And as what's going to happen is as we, like I've said this in repeating myself, but I really believe that advice will go up. And by the way, there is, if you look on a plug on my guest, Bloomberg, there's an interesting chart where they compare the propensity for high net worth people to want financial advice.

And I don't, I'm not going to, I'm going to cite these numbers, probably not correctly, but it went from like 30% said they would want it in 2009 to like 60% in 2023 or 2024. You can look it up, so don't quote me. But it was a significant increase in the number of people through this technology wave that value advice. And I think it's just natural because as you get more information and you don't have time to process it before you had that information, well, then the value of advice goes up. And that's just, you know, that's just my belief.

Well, that's right. I've spoken a lot, so I'll make this brief. I think that I think what I would say is, first of all, thank you for joining us. I look at our results and I say, I kind of even told my partners. I said, well, geez, we just did what we said we would do. And I don't know, is that kind of, that just kind of boring? And it's not. What I want everyone to understand is we'll continue to build this firm from $100 million in revenue when I started a CEO to, you know, $6 billion today. And we'll do it the way we've always done it. It's not some magic thing that we're going to do.

We're going to continue to build it. We're going to build it with shareholder returns in mind. And we're going to do it with a long-term view. And we're not going to be chasing or just doing something for revenue growth. We're going to keep our measure of return on invested capital. And that's just what we're going to do. So I look forward to talking to you in the third quarter and continuing to do what we say. So thank you.