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Edited Transcript of SF earnings conference call or presentation 30-Jul-19 12:00pm GMT

Q2 2019 Stifel Financial Corp Earnings Call

St. Louis Aug 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Stifel Financial Corp earnings conference call or presentation Tuesday, July 30, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* James M. Marischen

Stifel Financial Corp. - CFO

* Ronald James Kruszewski

Stifel Financial Corp. - Co-Chairman of the Board & CEO

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Conference Call Participants

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* Alexander Blostein

Goldman Sachs Group Inc., Research Division - Lead Capital Markets Analyst

* Christopher John Allen

Compass Point Research & Trading, LLC, Research Division - Analyst

* Christopher Meo Harris

Wells Fargo Securities, LLC, Research Division - Director and Senior Equity Research Analyst

* Devin Patrick Ryan

JMP Securities LLC, Research Division - MD and Senior Research Analyst

* Steven Joseph Chubak

Wolfe Research, LLC - Director of Equity Research

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Presentation

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Operator [1]

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I would like to welcome everyone to Stifel Financial's Second Quarter 2019 Financial Results Conference Call.

At this time, I'd like to remind everyone that today's call may include forward-looking statements. These statements represent the firm's beliefs regarding future events that, by their nature, are uncertain and outside of the firm's control. The firm's actual results and financial condition may differ possibly materially from what is indicated in those forward-looking statements. For a discussion of some of the risks and factors that could affect the firm's future results, please see the description of risk factors in the current annual report on Form 10-K for the year ended December 2018.

I would also direct you to read the forward-looking disclaimers in Stifel's quarterly earnings release, particularly as it relates to the firm's ability to successfully integrate acquired companies or the branch offices and financial advisers, changes in the interest rate environment, changes in legislation and regulation. You should also read the information on the calculation of non-GAAP financial measures that's posted on the Investor Relations portion of the firm's website at www.stifel.com.

This audio cast is copyrighted material of Stifel Financial Corp and may not be duplicated, reproduced or rebroadcast without the consent of Stifel Financial Corp.

I will now turn the call over to Stifel's Chairman and Chief Executive Officer; Ron Kruszewski.

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Ronald James Kruszewski, Stifel Financial Corp. - Co-Chairman of the Board & CEO [2]

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Thank you, operator. Good morning, and thank you for taking the time to listen to our second quarter 2019 results. Earlier this morning, we issued an earnings release and posted a slide deck on our website. Joining me on the call today are our Co-President, Jim Zemlyak and Victor Nesi; as well as our CFO, Jim Marischen. I'm going to run through our quarterly and year-to-date highlights and Jim Marischen will then take you through our business segments, balance sheet, expenses and our outlook. I'll then come back with my concluding thoughts.

I am very pleased with our second quarter results. Stifel posted $801 million in net revenue, our second-highest quarterly revenue, while also achieving record revenue for the first 6 months of $1.6 billion. Revenue has increased 8% as compared to the second quarter of 2018. Second quarter non-GAAP earnings per share totaled $1.41, up nearly 16% over 2018. In addition to our revenue growth, our expense discipline contributed to margins of nearly 20%, driving non-GAAP return on tangible common equity of 23%.

We are committed to growth, both organically and through accretive acquisitions. So far in 2019, we've announced the acquisitions of Mooreland Partners, which we closed at the beginning of this quarter and the capital markets business of GMP Capital. Additionally, we closed on the acquisition of First Empire in the first quarter.

Wealth management posted record revenue. And the strength of our recruiting efforts was again on display as we added 46 new advisers with the estimated annual production of $36 million. Equally impressive is only 3 regrettable departures with estimated production of $1.8 million. Year-to-date, we have recruited 80 financial advisers with expected revenue of $68 million. Reflecting our growth and market performance, we finished the quarter with record client assets of $305 billion, including record fee-based assets of $104 billion.

I am also pleased with our institutional results as this business generated quarterly revenue of $271 million. We continue to benefit from the diversity of this business as well as the breadth of our product suite. Our results in the second quarter illustrate the increased stability of our institutional revenue as sequential growth was driven by a 51% increase in our equity business that more than offset the 21% decline in advisory and a 3% decline in our fixed-income business. This is noteworthy because in the first quarter, fixed income and advisory revenue offset weakness in our equities business.

We continue to generate significant cash flow, which enabled us to return nearly $150 million to our common shareholders through share repurchases and dividends in the first half of the year in addition to investments in our platform, recruiting and the acquisitions we've announced so far this year.

Moving on to our Investment banking business, we had a strong quarter with revenue of $180 million, up 12% over 2018. Capital raising revenue totaled $97 million, up 31% over 2018 and nearly 70% over the first quarter of 2019. Equity capital raising revenue of $59 million was driven by solid activity in health care, technology, real estate and our European business. As compared to 2018, equity capital raising revenue increased 34% and increased 112% over the first quarter of 2019, which as previously noted, was adversely impacted by the government shutdown. Debt capital raising, driven primarily by public finance totaled $27 million, up 23% from 2018. Our public finance business ranked #1 nationally in the number of senior managed negotiated new issues, with roughly an 11% market share in the first 6 months of the year.

Our advisory business generated fees of $83 million, with transactions across multiple sectors, emphasizing the diversity of our platform. We generated strong results despite a lower advisory revenue from KBW in the second quarter. That said, KBW is having a very strong advisory year, having advised on 6 of the top 10 bank mergers announced in 2019, none of which have yet closed from a financial perspective. Noteworthy, the Chemical transaction is expected to close on Thursday. As such, KBW's second half advisory results are expected to be stronger than the first 6 months. And we expect Stifel's overall advisory revenue to be higher in the second half of the year.

Brokerage revenues were up slightly from 2018 and sequentially. Institutional brokerage revenue increased 2% over 2018 as strength in fixed income offset a decline in equity brokerage. Sequentially, brokerage revenue was up 1% as increases in wealth management and institutional equity offset a decline in fixed income. I would note that our institutional fixed income business was particularly strong in the first quarter of 2019. Reflecting strong recruiting efforts and improving markets, asset management and service fees were a record $211 million, up 8% over the first quarter. On a combined basis, brokerage revenue and fees of $374 million increased 4% year-on-year.

As expected, net interest income totaled $135 million, up 15% over 2018, yet down 5% from the first quarter. The sequential decline was attributed to an 8-basis-point decline in our consolidated net interest margin to 2.67%. This was due to a 6 basis point decrease in our bank net interest margin as lower asset yields tied to declines in LIBOR rates during the quarter and increased deposit costs negatively impacted our bank's net interest margin.

Let me now turn the call over to Jim Marischen, who will review segment results, expenses and our balance sheet. I will then conclude -- will have concluding remark.

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James M. Marischen, Stifel Financial Corp. - CFO [3]

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Thanks, Ron, and good morning, everyone. Starting with Global Wealth Management. We posted quarterly net revenue of $532 million, which was up 7% from 2018. Brokerage revenue increased 2%, primarily due to higher mutual fund and insurance revenues as well as continued strength in recruiting. Our asset management revenues were up 6% year-on-year, which was expected due to the impact of our fee-based assets for the first quarter market improvement. Additionally, our net interest income improved 10% year-on-year as both net interest margin and interest-earning assets increased from the second quarter of 2018. We generated a pretax margin of 36.1% for the segment as the costs associated with recruiting higher-producing advisers as well as slower bank growth impacted margins.

In terms of our institutional business, we generated $271 million in net revenue, which was up 7% year-on-year. The growth was driven by double-digit increases in both our equity and fixed income businesses that more than offset a modest decline in advisory revenue. Our equity business had revenue of $101 million. Equity underwriting of $59 million increased 112% sequentially as we got a very strong bounce back in the quarter following last quarter's weakness due to the government shutdown. Equity brokerage revenues totaled $41 million and were consistent with our flattish guidance for the quarter. Our fixed income business generated $87 million in revenue and increased 15% year-on-year, as underwriting revenue rose 23% to $27 million, while fixed income brokerage revenue of $58 million was up 14% year-on-year, as we benefited from investments we've made in our business as well as improved market volumes. We generated pretax margins of 14.5% for the segment, which increased 30 basis points from 2018 as improved revenue and a 57.6% comp ratio, which was down 170 basis points, more than offset 140 basis point increase in our noncomp ratio.

Moving on to our balance sheet. Total assets increased sequentially to $24.3 billion. Total consolidated average interest-earning assets were $20.3 billion, which were down roughly $250 million sequentially due to lower cash levels. Average yields on our loan portfolio increased by 6 basis points during the quarter due to an increase in C&I loans, while our investment portfolio yield decreased by 6 basis points as a result of the decline in LIBOR rates from first quarter levels. The average yield on our liabilities increased by 10 basis points sequentially due to the increases of CDs that were used to offset cash declines associated with client tax payments during the quarter.

We finished the quarter with a Tier 1 leverage ratio of 10% and a Tier 1 risk-based capital ratio of 18%. Our Tier 1 leverage ratio increased as a result of growth in retained earnings and limited growth in average assets. Our Tier 1 risk-based capital ratio declined by 50 basis points due to an increase in risk-based assets as a result of increased client brokerage activity at the end of the quarter, which resulted in additional 100% risk-weighted assets. Book value per share of $44.68 increased by $1.50 in the quarter as a result of strong earnings growth, partially offset by share repurchase activity.

In terms of Stifel Bancorp, total assets were $16.6 billion, a decline of approximately $175 million. The reduction in assets was due to a $440 million decrease in investments that was partially offset by roughly $275 million increase in loans, as we continue to implement our strategy of using cash flow from our investment portfolio to reinvest into higher-yielding loans. Total bank loans increased 21% year-on-year to approximately $9.1 billion, which was driven by growth in C&I and mortgage loans. Total investments decreased 17% year-on-year to $6.7 billion due to decline in asset-backed and mortgage-backed securities.

Cash as a percentage of client assets totaled 4.5% versus 5% in the prior quarter. While investors continue to seek higher-yielding alternatives for their cash, we'd also note that the second quarter was negatively impacted by tax season as nearly 40% of the net cash withdrawals for the full year, occurred in the 15 days prior to April 16. Since the end of the quarter, we've begun to see cash levels increase, and we believe that the strong FA recruiting pipeline will continue to add to client cash levels. Additionally, our new deposit gathering initiatives, such as direct treasury capabilities and other direct deposit relationships at Stifel Bank are expected to gain traction by year-end.

Our provision for loan loss expense was $2.4 million, which was relatively flat with the prior quarter. The allowance for loan loss as a percentage of loans remained at 100 basis points. Overall, our credit metrics remained solid as the nonperforming asset ratio was 13 basis points. The asset quality metrics compare very favorably to the overall market and reflects our conservative approach to credit.

Moving on to the next slide, we review our expenses. Our comp ratio came in at 57.9% in the second quarter, and we are reiterating our full year targeted comp range of 57% to 59%. Non-GAAP operating expenses excluding the loan loss provision and expenses related to investment banking transactions totaled approximately $164 million and were at the high end of our guidance range for the quarter. Sequential increase was a result of higher travel, legal and professional fees. While we remain focused on cost discipline, given our recent investments and the timing of revenues associated with them as well as further business development costs, we expect our targeted noncomp operating expenses in the third quarter to come in between $165 million to $170 million.

In terms of share count, our average fully diluted share count was down roughly 130,000 shares sequentially as a result of our share repurchase activity that offset the impact of issuance of equity-based compensation and the overall higher share price during the second quarter. In the third quarter, we expect our fully diluted average share count to be approximately 78.7 million shares. This includes the share repurchases that have already occurred during 3Q but excludes any assumption for further repurchases.

Next, we'll touch on our revenue outlook. In our Global Wealth Management segment, our third quarter asset management revenue will benefit from nearly 4% increase in the S&P 500 during the second quarter as the vast majority of our fee-based assets are priced on a trailing quarter-end asset levels. In terms of our bank, we'd expect third quarter average interest-earning bank assets to remain at similar levels to those in the second quarter and our bank net interest margin to be between 305 and 315 basis points.

Our lower NIM guidance versus last quarter is based on the impact of the expected 25 basis point cut in the Fed funds rate and current LIBOR rates. I'd also note that our net interest calculation assumes at a positive beta of 60%. Looking out to the back half of the year, we estimate firm-wide net interest income of $260 million to $280 million, which incorporates the impact of 2 rate cuts.

Moving on to the institutional business, we'd expect to see an increase in investment banking revenue in the second half of the year versus the first half, as this business is typically more back-half weighted. I'd also note that as our Investment banking business has grown and we've become more relevant to our clients, we're seeing larger fee opportunities from each of our product lines, which can make revenues slightly lumpier. For our institutional brokers business, we expect to see a seasonal slowdown for both equity and fixed income revenue as activity levels on the institutional trading desk during the summer months historically have been quiet.

And now let me turn the call back to Ron.

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Ronald James Kruszewski, Stifel Financial Corp. - Co-Chairman of the Board & CEO [4]

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Thanks, Jim. So look, year-to-date and in the second quarter, we've generated very strong results. And I remain optimistic about the back half of this year. As such, I believe overall revenue will be stronger in the second half of 2019 as compared to the first 6 months. My optimism is based upon our belief that the U.S. economy, in particular, will remain strong, and equity markets, while fairly valued at prevailing -- these prevailing low rates, can benefit from the avoidance of a recession and a more accommodative Fed.

It is notable, for instance, that while second quarter U.S. real GDP was only 2.1%, real final sales to domestic purchasers, the engine of our economy, rose 3.5%. While I agree that the Fed will cut tomorrow, the market also has priced in a roughly 60% probability of an additional 25 basis point rate cut in September. I am less certain of a second rate cut as being necessary for the U.S. economy on a stand-alone basis, but it is possible that weakness abroad, with adverse effects on overall U.S. GDP as well as developments in trade policy may necessitate a second Fed rate cut in September. As always, the Fed will continue to monitor the data.

In terms of the growth in our business, I'm encouraged by not only our recruiting success in 2019 but also our very strong pipeline of high-producing financial advisers. Stifel is also committed to investing in technology, which will further enhance our recruiting momentum but also position us very well in today's disruptive technologies, particularly in aggregation and mobile banking. As I said, I expect second half revenues to be better than the first half, as this will not only be driven by our wealth management business, but improved institutional revenue.

Finally, while I'm pleased with the nearly 50% year-to-date increase in our stock price, I still believe we are undervalued relative to our growth, outlook and our peers. For the second quarter, we repurchased 1.3 million shares. And given our current share price and outlook, we will continue to repurchase our shares.

And with that, operator, please open up the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Devin Ryan from JMP Securities.

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Devin Patrick Ryan, JMP Securities LLC, Research Division - MD and Senior Research Analyst [2]

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And congratulations on the strong recruiting momentum here. So I would just want to touch on that to start here. So the pretax margin in wealth management was impacted a bit by the recruiting and also, you mentioned lower net interest income. Just curious how we should think about the trajectory of expenses within GWM and the impact on both the kind of the margin and overall pretax income, just to the extent recruiting remains strong? As you know there can be a lag in revenues with some of the upfront expense. And then just trying to think about some of that higher expense, is it tied more to transactional costs like paying headhunters and the other costs to transfer accounts? Or is there kind of a natural inflation tied to just higher infrastructure costs or the technology investments you're making?

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Ronald James Kruszewski, Stifel Financial Corp. - Co-Chairman of the Board & CEO [3]

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Some of it's definitely just the cost of recruiting and fees and ACAT fees and all of that, that we pay when we have strong recruiting. But we've also -- our advisers have become more productive, and just the way that our payment grid works , the comp expense will go up, although margins improve as well. It's -- at least in terms of the gross numbers.

So look, our margins are very strong. If you look at our overall firm-wide margins of 20% that they're strong. I think you see also a little bit of a compression season because we've limited the growth in our bank this year. And those are net interest income within wealth management is a higher -- much higher net margin contributor.

So I'm pleased with the results. I don't think there's anything embedded in that number that should concern you regarding our overall business profitability in wealth management.

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Devin Patrick Ryan, JMP Securities LLC, Research Division - MD and Senior Research Analyst [4]

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Great. Helpful. And then just a follow-up here. So the 6% increase in -- sequential increase in the wealth management commissions, that was, obviously, a strong number, a little bit surprising. Was that from trailing commissions recovering? Or what was the driver of that stepping up as nicely as it was? Because we did see some lighter transactional activity in wealth management in some of your peers.

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Ronald James Kruszewski, Stifel Financial Corp. - Co-Chairman of the Board & CEO [5]

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Yes. We -- well, some of it is just the overall improvement in the market. We had mutual fund fees that were higher, asset management services. Unless you're just talking about commissions. Commissions was primarily in the mutual fund area but just higher balances and higher assets under management that drove that number. What was -- and I agree with you, it wasn't just transactional. Transactional volumes were relatively slower.

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Operator [6]

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Steven Chubak with Wolfe Research.

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Steven Joseph Chubak, Wolfe Research, LLC - Director of Equity Research [7]

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So wanted to start off with a question on capital targets and the balance sheet composition. So the balance sheet was flattish, we saw some remixing, out of securities and into loans. And Jim, you also cited some elevated brokerage activity, which drove your Tier 1 risk-based capital ratio lower. It's now at the lowest level that we've seen at around 18%. I'm just wondering do you have an internal target for risk-based capital? And is the a sequential uptick in that higher RWA density assets expected to stick on balance sheet?

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James M. Marischen, Stifel Financial Corp. - CFO [8]

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So I think the key thing you got to think about there is that the Tier 1 leverage and Tier 1 risk-based ratios really play together. You've also seen a tick up in the leverage ratios. We're adding more 100% risk-weighted loans, particularly on the C&I space. And so you will see those converge over time and I think that's really what you're seeing there. But it is down to 18%. I think as you continue to see the balance sheet evolve in more of our investments reinvested in the loan portfolio, you'll see those converge a little bit to where they have been historically. But we feel very comfortable with where we're at and where we could even break it down some from here.

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Ronald James Kruszewski, Stifel Financial Corp. - Co-Chairman of the Board & CEO [9]

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And I would add that as we've said at the beginning of the year, we projected that our balance sheet, our bank balance sheet would be relatively flat to up, and that our strategy this year was to remix from our investments to loan. So when all those play together, you'll see our leverage ratio will go up, our risk rates here will go down because the density, the asset mix density increases. And that's just on our strategy. So it's all in line with and expected for what we set up to do.

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Steven Joseph Chubak, Wolfe Research, LLC - Director of Equity Research [10]

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It's helpful color. And then just on the operating margin commentary. This year, you guided to a pretax margin range of 17% to 21%. You've been running at the higher end of that in the first half, it sounds like given the revenue momentum that you're seeing in the back half that, that should continue. I was just hoping, Ron, you could speak to pretax margin sensitivity in anticipation of multiple rate cuts. And what are some of the offsets you might highlight to help mitigate the impact of some of those rate pressures?

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Ronald James Kruszewski, Stifel Financial Corp. - Co-Chairman of the Board & CEO [11]

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Well, first of all, I think it's interesting that we are -- while we are a bank and people look at NIM, you have remember how much of our revenue is not related to NIM. And so one of those first mitigating factors of rate cuts is just the support that it provides the U.S. economy and what happened in our other businesses, which constitute to, what, $2.67 billion. So that's one case.

The other is that, while we have said that we see some NIM contraction, if you listened to what we said about actual net interest income, we think net interest income will still be -- will be relatively flattish, but up for the year. So you were not going to see contraction in our net interest income, we'll see a little bit of a NIM, and I think that, that's actually a little dry powder for the future.

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Steven Joseph Chubak, Wolfe Research, LLC - Director of Equity Research [12]

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That's helpful. And just one more for me on equity brokerage business, the revenues were down 10% year-on-year, the compares to other small broker peers, which are down comparable amounts. I was hoping if you could speak to what you're hearing from clients regarding MiFID and payment for services? And do you believe that you're appropriately rightsized, given the shrinking industry people?

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Ronald James Kruszewski, Stifel Financial Corp. - Co-Chairman of the Board & CEO [13]

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Yes, I think we are -- I think we're -- that you're reading a lot about the industry resizing really to tepid client activity on the buy side. And so we're certainly in line. We're seeing the same trends as everyone else. I believe that we're doing a lot of things to stay relevant to our clients in investments that we're making on the trading side. But overall, the business, the equity brokerage business is a part of our overall institutional equity business, and it's an important component as it relates to our equity capital business, which was very strong, and we see continued strength in that, even our M&A businesses, these are all linked businesses. So our research, sales, trading and banking are certainly appropriately -- not only appropriately sized but we continue to invest in those businesses as we see an ability in where we are, which is mid-market, to gain market share.

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Operator [14]

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Alex Blostein with Goldman Sachs.

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Alexander Blostein, Goldman Sachs Group Inc., Research Division - Lead Capital Markets Analyst [15]

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First question around the new advisers, so the 46 advisers you guys brought in this quarter, I think you said $36 million of annual production. Can you talk a little bit about the composition of this between kind of brokerage and advisory? And how quickly do you expect these advisers to ramp to these kind of production levels once they're fully onboarded?

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Ronald James Kruszewski, Stifel Financial Corp. - Co-Chairman of the Board & CEO [16]

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In general, our recruits have tended to be higher fee-based. We'll just say that, in general. We don't disclose the percentages, but they're generally higher fee-based. And I think it's fairly consistent that it takes to get to the full level -- it takes 6 months to 9 months to onboard assets. And even then, I don't think you get to the full level. Of course, we've had a -- we've got a pipeline of people in the past that are also still ramping their business. So you have to look at it sort of on a continuum.

But we're very pleased with our recruiting, especially pleased with the reception and the enthusiasm that we have seen for people that want to join our platform in this environment. So recruiting has been good, and we expect it to continue.

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Alexander Blostein, Goldman Sachs Group Inc., Research Division - Lead Capital Markets Analyst [17]

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And then as a follow-up to that, I think you guys mentioned that cash balances have stabilized in so far in the third quarter, and you expect maybe that to grow a little bit as these recruits come in, any way to help us size how much in kind of cash balances would come in with -- given with the pipeline you currently have?

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Ronald James Kruszewski, Stifel Financial Corp. - Co-Chairman of the Board & CEO [18]

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We don't actually -- we haven't discussed that. I don't know, Jim, if you...

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James M. Marischen, Stifel Financial Corp. - CFO [19]

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The only thing I would say is, since quarter end, we have seen an improvement in cash balances. They're up to almost nearly $14 billion today. So that has rebounded somewhat. But again, it's going to depend on how quickly the brokers bring their assets over.

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Alexander Blostein, Goldman Sachs Group Inc., Research Division - Lead Capital Markets Analyst [20]

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Got it and the last one for me, just really a follow-up to Steve's question earlier. Do I hear you correctly that with the forward rate curve, you still expect to be sort of around the same pretax margin for the company overall, when you kind of put all the pieces together?

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James M. Marischen, Stifel Financial Corp. - CFO [21]

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Yes, absolutely.

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Operator [22]

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Chris Allen from Compass Point.

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Christopher John Allen, Compass Point Research & Trading, LLC, Research Division - Analyst [23]

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I just wanted to ask about the NIM guide and just how to think about that, you gave us kind of a second half guide, how to think about that in terms of step-down quarter-to-quarter, if you could provide some clarity there?

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James M. Marischen, Stifel Financial Corp. - CFO [24]

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So we talked about that, and the 3 component pieces you want to think about is your deposit beta and the mix of your assets and the mix of your liabilities. So we talked about -- in our base case, we're using a 60% deposit beta, but we brought down our net interest margin guidance by 5 basis points. So that would imply essentially an 80% deposit beta. I think the differential there is really the remix on both the asset side, as we continue to take investments in the loans as well as optimizing how we're structuring ourselves on the deposit side.

So again, what we're showing there with the rate cut for 3Q, 305 to 315 in terms of guidance. And really, the 260 to 280 for the entire back half. So I think that kind of gives you a good analysis of where we'd be.

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Christopher John Allen, Compass Point Research & Trading, LLC, Research Division - Analyst [25]

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And then just on the advisory outlook, obviously, a positive outlook there. Is it really just -- most of it being driven by kind of what you're seeing on the KBW side? Or is there other areas that you're seeing pockets of strength in terms of expected closings and things like that?

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Ronald James Kruszewski, Stifel Financial Corp. - Co-Chairman of the Board & CEO [26]

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Overall, well, certainly, KBW is going to have a good second half, just based upon announced transactions that we've seen. But overall, our advisory business, which reflects the investments that we've made over the past few years has been strong, and we expect it to be strong. So the answer is, it's kind of across the board that we're seeing strength in advisory.

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Operator [27]

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(Operator Instructions) Your next question comes from Chris Harris from Wells Fargo.

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Christopher Meo Harris, Wells Fargo Securities, LLC, Research Division - Director and Senior Equity Research Analyst [28]

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With respect to the -- Ron, with respect to the success you guys are seeing with adviser recruiting, can you talk a little bit about what's resonating with advisers? And why advisers are choosing Stifel versus perhaps some of your competitors?

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Ronald James Kruszewski, Stifel Financial Corp. - Co-Chairman of the Board & CEO [29]

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Well, we have really have made and show advisers our investment in our platform and our technology and what we're doing across the digital platform, its test limits in aggregation and mobile banking, and that investment and the focus on the financial adviser as the steward of the client relationship has resonated. And it resonates, especially, in today's environment, where you see the advisers, in many ways, being marginalized across some of these large platforms. So that is the message that has always resonated here, but especially in this environment. So a combination of -- it's an overused term, but the culture, which is -- which truly does matter. But the investment in our platform, which people want to see and in our commitment to using those investments to help attract the client has proven to be a popular story.

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Christopher Meo Harris, Wells Fargo Securities, LLC, Research Division - Director and Senior Equity Research Analyst [30]

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And then ask you one regulatory question. We've seen some individual states talking about implementing their own versions of DOL. What do you guys think is going to be the outcome from this? And is Stifel doing anything ahead of, potentially, what could be these regulatory changes?

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Ronald James Kruszewski, Stifel Financial Corp. - Co-Chairman of the Board & CEO [31]

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It's a question but a difficult answer. The -- I have said that at a broad policy level, that patchwork state regulation regarding fiduciary standards, it's not good for the business, not good for capital formation. And frankly, won't be good for investors in those states that may have significantly different rules than Reg BI, which I've also said, Reg BI is a well-done reg that encompasses fiduciary principles in the brokerage accounts, so duty of loyalty, a duty of care a duty of skill. So I don't believe that it will be good in general for various states to have different requirements. Furthermore, in many ways, I think that there will be legal challenges because you have even national federal preemption issues with respect to this. People do not want our national markets, which are the best in the world, the deepest in the world, to become fragmented because of various state regulations that differ.

So it's an issue for the industry, I expect there to be legal challenges, and we'll monitor it as it goes. I would -- just would hope that this would get, in many ways, the case is political, I'd get out of the political arena as it relates to our capital markets. The SEC is in charge of this. And the SEC should be allowed to do their job, which they did with Reg BI. So it's going to play out, and we will see. I wish I had a better crystal ball to tell you how I thought this was going to play out, I really don't.

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Operator [32]

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We have no further questions at this time.

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Ronald James Kruszewski, Stifel Financial Corp. - Co-Chairman of the Board & CEO [33]

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Okay. Well, I would want to thank everyone for listening to our call. There are -- it's -- business is good, and we're optimistic about the year, and we look forward to reporting on our third quarter in the fall. Thank you very much.

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Operator [34]

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This concludes today's conference call. You may now disconnect.