Stifel Financial (NYSE:SF) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Stifel Financial Corp reported record year-to-date revenue of $4.3 billion, a 9% increase, with earnings per share (EPS) of $4.33, up 57% year-on-year. The company achieved its highest third-quarter EPS of $1.46, a 12% increase from the previous year, despite market volatility and geopolitical tensions.
Net revenue for the third quarter was $1.43 billion, driven by strong performance in Global Wealth Management, although offset by a slowdown in the institutional segment. Stifel made a strategic investment in Meow Technologies to enhance its venture banking platform with cutting-edge fintech capabilities.
The company anticipates a strong fourth quarter with expectations to match last year’s record revenue of $1.56 billion, supported by a robust investment banking pipeline. Stifel continues to focus on capital management, deploying excess capital into loan growth and share repurchases, while maintaining a strong Tier 1 capital ratio.
Management highlighted the disconnect between the company’s performance and its valuation compared to peers like Raymond James and Morgan Stanley.
Full Transcript
OPERATOR
Good day and welcome to the Stifel Financial Q3 2026 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.
Joel Jeffrey (Head of Investor Relations)
Thank you. Good morning and welcome to Stifel’s third 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 stifel.com. Today’s presentation may include forward-looking statements that are subject to 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 earnings release.
I’ll now turn the call over to our Chairman and Chief Executive Officer, Ron Kruszewski.
Ron Kruszewski (Chairman and CEO)
Thanks, Joel. Good morning everyone and thank you for joining us. Our results year to date and for the third quarter again underscore the strength of Stifel’s diversified business model. We’re on track for another record year to date revenue of 4.3 billion, up 9%, earnings per share of $4.33 which is up 57% and if you exclude the impact of last year’s legal charge, EPS is up 22% with return on tangible common equity up 24.1%. Revenue and pre-tax margins in both of our operating segments are up year to date as investments we’ve made in our efficiency initiatives continue to generate strong revenue.
The third quarter began with healthy activity, but conditions got choppier in September as geopolitical tensions, rising energy prices and renewed inflation concerns led to the Federal Reserve’s first rate increase in three years. It was the speed of the move in rates more than their absolute level that unsettled markets. Through it all, corporate earnings and employment stayed supportive and the underlying US economy continued to show real resilience.
Against that backdrop we delivered our highest ever third quarter earnings per share of $1.46, up 12% versus the prior year. Net revenue of 1.43 billion was in line with our guidance of another record quarter in our Global Wealth Management segment, offset by a market-driven slowdown in our institutional business. Our bottom line growth was the result of improved operating leverage as we posted our lowest compensation ratio since the fourth quarter of 2022, which in turn drove a pre-tax margin of 22.5%.
The strength of our business allowed us to continue to generate and deploy significant excess capital. In the third quarter, we increased loans by 1.3 billion and net interest income exceeded our guidance, setting a third quarter record that was essentially in line with our highest ever quarterly total. Additionally, we repurchased 1.6 million shares as our strong capital position enables us to support clients, return capital to shareholders and invest in growth even when markets are volatile.
That brings me to our recent strategic investment in Meow Technologies, one of the leading business banking fintechs in the United States. Along with our investment, we entered into a long-term licensing agreement with the company. Under this agreement we will have access to all current and future capabilities of the platform. This will provide our bank with a leading-edge white label treasury management platform for our venture fund banking and other commercial clients.
This transaction accelerates the build of one of our fastest growing businesses, our venture banking platform. Additionally, this technology broadens our capabilities across our Institutional and Wealth segments, giving Stifel an AI platform and bringing family office capabilities into our wealth management platform. We believe it is a significant enhancement to our growing venture and fund banking platform. Slide 2 should look familiar since we used it about four years ago to point out that we saw the disconnect between our performance and our valuation compared with Raymond James and Morgan Stanley, two firms I respect and whose business models look a lot like ours. Since the end of 2016, our earnings per share are up 406% and tangible book value is up 154%, which is better than either of these peers. And our return on tangible common equity over the last 12 months is more than 26% and is the highest of the three on the stage.
Even so, we trade at 9 times forward earnings compared to 10.2 for Raymond James and 13 for Morgan Stanley. Look, even through challenging times we are growing and have an elite ROTCE. Simply, the numbers don’t support the valuation gap that I see. With that I’ll turn it over to Jim.
James Zemlyak (President)
Thanks, Ron, and good morning everyone. Non-GAAP earnings per share of $1.46 came in ahead of consensus as stronger investment banking revenues, higher net interest income and well-controlled expenses more than offset softer transactional revenue. Total non-GAAP revenues of 1.43 billion were flat with a year ago and 1% below consensus. Investment banking revenue exceeded expectations by $12 million or 4% as both advisory and underwriting revenue surpassed street expectations.
Net interest income of 302 million came in above the high end of our guidance and 4 million above consensus primarily due to strong loan growth and higher loan fee income. Transactional revenue came in 10% below expectations and decreased 17% from the prior year. I’ll cover the components in more detail when we get to the Institutional segment. Asset management revenue increased 14% from the prior year driven by market appreciation and net new asset growth and was essentially in line with consensus.
Expenses were again well controlled. We continue to see the benefits of the efficiency initiatives of the past few years. Our comp ratio of 56.6% was in line with consensus and improved from 57% in the second quarter. Non-compensation expense declined 4% sequentially and beat the street by 3% as lower credit provisions, travel and entertainment and non-bank reserve expenses contributed to the decline. The effective tax rate was 24.4% which was slightly below consensus, but within our guidance.
Turning to slide 4, Global Wealth Management generated record net revenue of $980 million, up 8% year on year. Results were driven by record asset management revenue and record third quarter net interest income, partially offset by a decline in transactional revenue. We ended the quarter with total client assets of 576 billion and fee-based assets of 240 billion, up 6% and 9% 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 8% and 12% respectively. Net flows were slightly negative in the quarter, but our recruiting pipeline remains very strong even with competition for advisors running high. Over the prior 12 months we’ve added 90 total advisors including 28 experienced advisors with trailing production of 19 million. We increased our loan book meaningfully in the quarter as we generated nearly $1 billion in incremental fund banking loans and more than $200 million in residential mortgages.
Based in part on this incremental growth and a stable NIM, in addition to the higher loan fee income in the third quarter, we expect fourth quarter net interest income to be in a range of 295 million to 305 million. As you can see on slide 4, we’ve significantly grown our net interest income since the beginning of 2024 through balance sheet growth as our net interest margin has remained relatively consistent for the year. We’ve already grown our loan book by roughly 3.6 billion, which is just shy of our full-year guidance of $4 billion.
Our strong deposit gathering capabilities continue as our combined deposit channels are up roughly 1.6 billion. Given our mix of assets and liabilities, we are relatively rate agnostic and we’ve been able to maintain a consistent NIM as our funding mix has shifted. As we look forward, our ability to fund further growth is supported by approximately 2.9 billion of deposits held off balance sheet and roughly $18 billion of money market funds and 7 billion in short-term treasuries.
Turning to slide 5, through the first three quarters of 2026, Institutional revenue is up 8%, driven by an increase of more than 23% in investment banking. In the third quarter the segment generated $430 million in revenue, down 14% year on year. In the quarter, investment banking revenue in the segment totaled $300 million, down 6% year on year. Advisory revenue of $173 million increased 10% sequentially with continued strength in financials, industrials, consumer and health care.
Equity capital raising revenue was $69 million, down 13% from a year ago, though issuer engagement is increasing, led by financials and health care. Fixed income underwriting revenue of $58 million was in line with last year’s third quarter results, while higher interest rates weighed on new issue volume in the third quarter. Fourth quarter activity is off to a strong start. We remain the number one negotiated issue manager, as measured by deal count, with more than 13% market share year to date.
Overall, we are optimistic about investment banking as our pipelines remain very strong. We’re seeing increased engagement from sponsors and improved expectations for depository, municipal fixed income. Transactional revenue of $80 million was down from approximately $123 million last year, primarily due to $9 million in trading marks in the quarter as a result of the sharp move in interest rates in September and $32 million in restructuring and aircraft gains in the prior-year quarter. Equity transactional revenue was $41 million, down from $59 million a year ago, primarily due to our European restructuring, lower equity volumes and approximately $7 million of trading marks in our equity facilitation inventory.
Absent another rate move like September’s, we’d expect fourth quarter Institutional transactional revenue to be in a range of 145 to 150 million. Year to date, our pre-tax margin of 18.9% is up 530 basis points from the same period a year ago as we’ve meaningfully reduced our comp and non-comp ratios primarily as a result of our international restructuring. Moving on to expenses, our improved operating efficiency showed up again in a lower comp ratio for the quarter, which was our lowest since the fourth quarter of 2022. For the full year, we are projecting our comp ratio to be at the low end of our full-year comp guidance. Non-compensation expenses totaled 298 million, flat with the same period a year ago as lower provisions and investment banking gross-ups were offset by higher operating expenses.
Our operating non-comp ratio of 19.4% was within our full-year guidance of 18% to 20%. Further, assuming a stable stock price, we expect to see a fourth quarter effective tax rate in the range of 19% to 22% based on the excess tax benefit related to stock-based compensation. Turning to slide 7, our capital position remains strong and provides meaningful strategic flexibility. The Tier 1 leverage ratio came in at 10.8% while the Tier 1 risk-based capital ratio was 17%, reflecting the deliberate deployment of capital into loan growth. Based on a 10% Tier 1 leverage target, we ended the quarter with nearly $360 million of excess capital, and that is after funding $1.3 billion of loan growth and buying back 1.6 million shares during the quarter.
Finally, we have 6.2 million shares remaining under the current buyback authorization. Assuming no additional repurchases and a stable stock price, our fully diluted share count for the fourth quarter is expected to be approximately 158.8 million shares. And with that, Ron, back to you.
Ron Kruszewski (Chairman and CEO)
Thanks, Jim. Before I turn the call over to the operator for questions, let me comment on our outlook. In our wealth management segment, competition for advisors is running at elevated levels and while our recruiting pipelines remain robust, we’re staying disciplined to make sure that our growth generates the appropriate return. We believe AI will make our advisors more productive, not replace them because clients want experienced advisors and a broad set of investment options in uncertain times.
Global wealth management has been and will continue to be the foundation of Stifel’s business and its recurring revenue provides us consistent, predictable growth even in volatile markets. We’re on track for another record year in this segment. We may not target to reach our goal of 1 trillion in client assets. Key component of our wealth segment is Stifel Bank & Trust which supports our wealth and institutional clients. We’ve significantly grown our loan and deposit gathering capabilities in recent years as we continue to execute on our long term strategy to grow net interest income with a stable net interest margin without taking undue credit risk.
Our institutional business is a meaningful driver of top and bottom line growth and strong markets in the third quarter. September’s sharp move in rates produced trading marks in our securities inventory which we don’t expect to repeat in the fourth quarter. In advisory and capital raising, we have strong backlogs and improving client engagement and going forward we see increased activity levels across our diversified investment bank. Putting everything together.
Last year’s fourth quarter was an all time record at 1.56 billion in revenue and we expect to match it this year even with the volatility that slowed what was a very strong investment banking market in the first half. We also expect earnings per share to be higher as we’ve kept our cost discipline and repurchased 6.8 million shares. So let me close by saying that as I look forward I’m optimistic, mindful of geopolitical risk, higher interest rates and energy prices and elevated asset valuation.
But healthy client engagement, strong wealth management fundamentals and an active pipeline of strategic and sponsor-led transactions give us real reason for confidence. Stifel Financial’s diversified model, recurring revenue, disciplined capital management have us positioned to keep compounding value for shareholders regardless. Operator. With that, please open the line for questions.
OPERATOR
Thank you. If you would like to ask a question, please signal by pressing star one 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. Again, press star one to ask a question. We will pause for just a moment to assemble the queue. We will take our first question from Mike Brown with UBS.
Ron Kruszewski (Chairman and CEO)
Morning, Mike.
Mike Brown (Analyst at UBS)
Good morning. Yeah, thanks for taking my question, Ron. I guess you talked a little bit about the recruitment environment as you look at the quarter here. It looks like to us the implied growth was a little bit softer this quarter but obviously the environment remains very competitive. So maybe could you just touch on some of the recruitment trends you’re seeing in the market today and then maybe give us kind of an update on the real term hiring activity.
You talked about the pipeline as robust. Maybe. How does that compare to recent quarters? And what’s your kind of view on converting that pipeline as we look at the balance of the year and then into early 27?
Ron Kruszewski (Chairman and CEO)
I feel that a lot of the things recruiting is strong. It has been strong for us. I mean not only over quarters, over years. I mean it’s hard to look at quarter to quarter, it always has been. But when I look at our recruiting numbers, outlook, what we’re hearing and who we recruit, I feel very good about that business. That said, it’s very competitive. Coupled competition with choppy market that always slows people down. Clients, you know, get nervous, markets become more volatile and, you know, we take a long term view.
So I get this question every quarter and every quarter I say that, you know, we’re from that we have net positive recruiting and will continue to do so. And I’m optimistic about who we’re talking to. I would say that there’s a change over the years. It’s that we probably lowered the absolute number of advisors that we talk to while increasing the trailing 12 coming at meaning or recruiting higher teams. And I think that’s very productive and good. And finally, as I said, for every quarter I’m continually amazed at one question. AI is going to replace all our advisors. On the second meeting I have I talk about that the recruiting competition packages are advised other than so but overall it’s positive for us and positive for our growth rate going forward.
Mike Brown (Analyst at UBS)
Yes, certainly conflicting messages out in the market. Ron, I guess I wanted to ask about the comp ratio and the pre tax margins. Very strong results this quarter and Jimmy gave a guide for the year. As we think about the shift in the business mix at Stifel, you’ve got really strong growth in the venture in the fund finance business, you’ve repositioned Europe. So should we kind of view this as evidence that there’s a structurally lower comp ratio at Stifel and a higher margin profile going forward?
Obviously in a normalized environment, can you kind of sustainably operate at this lower comp ratio level?
Ron Kruszewski (Chairman and CEO)
Well, look, first of all we’re going to pay our people competitively. We’re going to provide this depot is a place where you can do business but you can also, you know, do well for our bankers and advisors and everyone else. And the comp ratio is a result of, you know, frankly driving efficiency and not being, you know, inefficient on a number of things. So as we grow our, as we grow our business and become more productive, one of the things that’s going to happen is going to lower your comp ratio and then finally as you grow our net interest income, frankly that also drives the comp ratio.
It’s always at this time of the year that I like to point out that we’re pretty consistent of not only driving comp ratio lower throughout the year, that’s generally been conservative at the beginning of the year and we’re, we’re driving shareholder returns and margins whereas oftentimes you’ll see, you know what, I always deal with fourth quarter price, you know, oops. Our comp ratio in the quarter is going to be much higher because we under accrued but next year will be much better.
And so I, I, this is very consistent over the years you’ll see, comp ratios generally decline and reach their levels, their best levels in the fourth quarter, which often usually is our best quarter of the year.
James Zemlyak (President)
We’ll come back next quarter, provide some more granular detail on our 2027 outlook. But given our guide that we’re going to get to the lower end of the range for 2026 and you think about some of the dynamics that play into 2027, we’re generating a lot of deposits today. We’re having a lot of loan demand. We’re going to continue to grow the bank balance sheet. We’re going to continue to grow net interest income. And so that going forward is going to be the biggest driver of where the top ratio could go.
But I would say the jumping off point of where we get to for 2026 is a good kind of thought process. How you think about that going forward in 2027.
Mike Brown (Analyst at UBS)
Okay, great. Thank you both.
Ron Kruszewski (Chairman and CEO)
Thanks for the question.
OPERATOR
We’ll take our next question from Devin Ryan with Citizens Bank.
Devin Ryan (Analyst at Citizens Bank)
Great morning, Ron. Good morning, Jim. How are you? Good, good, good. Want to ask a question on loan growth and kind of the book broadly. Obviously you guys are tracking really well relative to the $4 billion objective and we all see the momentum in. So I want to dig in just a little bit more on that component and talk a little bit about the growth there. How much is cyclical, just meaning it’s a good environment, there’s larger draws and that can maybe bounce around versus structural with everything you’re doing to bring in more clients.
And as we think kind of bigger picture. How big are you comfortable this part of the book getting to as a percentage of the overall loan book and maybe weave in the strategic benefits that maybe are outside of just NII that you’re seeing from growing fund banking, fund and venture banking together.
Ron Kruszewski (Chairman and CEO)
I feel we’re, excuse the sports analogy, but we’re early innings into this growth rate. I talked about some of the things we need to do overall, the overall market, especially in fund banking. I think markets increase. There’s a lot of money that’s being raised and refined to refine them and redone it. And so I see that just structurally within the market as a growing bottle within our focus is not only there, but on the venture side, it should be providing technology that gets us the business to begin.
That’s why we did this transaction that I mentioned with this Beyond technology. If you want to look at something similar, you’ll see where Valley acquired Rubai and I think Capital One. You know, we’ve taken a different approach in that we want to white label this but when we looked at our ability to generate significant, I’m talking about significant deposits to drive this business we needed this technology. Genic account opening, you know, USD, the stable of crypto back to USD, cross border corporate credit cards, payroll, all of these things.
We have what we believe is going to accelerate our ability to get clients and build. I’ve talked about an investor call that saying we’re going to be doing something on straddling what I was talking about. And so I, I’m very optimistic and, you know, it’s, it’ll grow faster at least at Adventure certain, faster on the deposit side, 4 to 5 to 1 in deposit and, and then we’ll deploy some of that more in fund banking where the ratios almost flip. It longs to the power.
But it’s a business and we track and measure referrals to wealth, referrals to banking, you know, mortgages that we’re giving to founders, et cetera. So it is a, it is a business where we feel we bring all the capabilities, people to this segment of banking.
James Zemlyak (President)
The investments we’ve made here, and not just in technology, but in people, it’s helped us take market share across both fund banking and the venture space. And you think about a direct output of this. We’ve been talking about generating around a billion dollars a quarter in deposit growth with the technology investment in Meow and the capabilities that has to offer. We should see that number increase as that goes live and we have a more competitive treasury product.
And I think that is a very scalable deposit generation channel as we look forward.
Ron Kruszewski (Chairman and CEO)
You know, it’s across our business. All right. We, you know, with AI what we’re talking about is being able to service clients. In this particular case, we’re talking more of a narrow aspect of fund and venture banking. But when you think about what we’re going to do and how we’re going to grow this business, we’re going to do that without opening a single branch or putting any trucks or mortar. None of it. It’s all going to be incremental. NAI on top of what we’ve already built.
We’ve built the foundation, we just are putting some technology on it and we’re going to gain market share.
Devin Ryan (Analyst at Citizens Bank)
Okay, appreciate all that background. As a follow-up, I want to dig in a little bit on the investment banking commentary. It sounded, I think, relatively constructive in the fourth quarter. Off to a good start, which is good to hear. Can you talk a little bit more about what you’re seeing in the specific businesses? And, like, what, for example, you mentioned depositories seeing additional activity. What’s the catalyst for that? You talk about enthusiasm into 2027 and then, you know, obviously technology has been an area, particularly in software, that’s been challenged.
Are you seeing that stabilize? So any additional flavor for what’s actually happening beneath the surface that’s driving activity across your businesses? And then if you can just hit on some of the sectors that we all know you have strength in.
Ron Kruszewski (Chairman and CEO)
Look, I think what happened was we had a very strong quarter. A lot of engagement, a lot of things that people are talking about not just at Stifel, but across the street. You ran into a quarter where rates, inflation, and geopolitical concerns all converged late August into September, and it slowed activity down significantly, which is to be expected. You throw that uncertainty into the mix, add a little bit now that we’re within a few weeks of an election, that may change some outlook in the short run.
So we’ve seen what I view as a financial condition-induced cost, if you will, in activity. But when we look at the fact that things aren’t getting canceled, it’s not that things aren’t getting done. Because of that, I’m optimistic about the business in specific areas. You’ve had a slowdown in some of the healthcare capital markets that we’ve seen; we expect that to pick up. Depository M&A, I think, is secular trends because of technology, deposit beta, the need for scale, and the political realities of being able to get something done between now and ’28.
If there would be a change in administration, that’s going to drive activity, and we don’t see that change. So I think this quarter will spend a little bit more. It’s off to a good start as we see it. It felt like you had to turn the calendar page out of September, but that’s how I would see it.
Devin Ryan (Analyst at Citizens Bank)
Yep. Okay, excellent. Thanks so much for the color.
OPERATOR
We will take our next question from Steven Chuback with Wolfe Research.
Steven Chuback (Analyst at Wolfe Research)
Hi, good morning, Ron and Jim, and thanks for taking my questions. So wanted to start just on sweep cash. You know, the growth had lagged some of the metrics we’d seen at your wirehouse peers. Just want to better understand what drove some of the more pronounced declines that we saw in the quarter and your outlook for the sweep cash trajectory and just customer behavior in general as we enter a higher-rate backdrop with potentially multiple hikes from the Fed.
James Zemlyak (President)
Right. So I’ll touch on sweep cash. One item we didn’t touch on in our prepared remarks, but one thing we’d highlight: with the sale of SIA, we still kept those assets on our platform and serviced them for a period of time. So that cash was still within our ecosystem. In our balances of cash, that’s probably a half a billion dollars that came out of our sweep balance in terms of activity in the third quarter. So I’d highlight that when you’re looking at when we close and fully move those assets off our systems.
The other thing I would say, just generally speaking, we typically see a seasonal uptick in deposits in the fourth quarter. We’d expect that trend to continue. We’ve talked about other things that are going to drive deposit growth in the future. Obviously, Ron already touched on the investment in Meow and what we can do there in terms of generating additional deposits in that channel. But overall, we’ve got nearly $3 billion of deposits available to fund future growth. We’ve got $18 billion sitting in money market funds. We’ve got $7 billion in short-term Treasuries. We can go attack those and bring those. Those are all the cash and cash equivalents within our ecosystem. Now, some of those things on money funds would be a little bit higher cost, but those are deposits in our ecosystem that we can have. And so we feel very comfortable overall where we’re at from a deposit generation strategy and perspective.
I think the other thing I’d say is as we’ve seen a remix of our deposits, our NIM has been relatively stable. We’ve grown NII and had a stable NIM, even though we’ve seen this kind of reshuffle, remix of deposits. I think that fact gets a little underappreciated at times.
Ron Kruszewski (Chairman and CEO)
Yeah, and I would underscore that. I just feel that as there’s a lot of focus on a small part of our funding base, we can fund this business. We have a tremendous ability to generate deposits and deploy loans and maintain a NIM. Some of the repricing that’s going to be going on—as the deposit base reprices, everyone knows this, it’s economics—so is the asset side going to reprice. And you’re seeing it through our stable NIM, and you’re going to see that throughout the industry.
There’s just somehow a belief that if you reprice cash, the industry is just going to collapse because you can’t make any more net interest income. And I find that to be somewhat not consistent with economic theory. But that’s for another day.
Steven Chuback (Analyst at Wolfe Research)
Understood. And for my follow-up, did want to ask on the brokerage commentary. So you spoke to the headwinds in the quarter. You were certainly not alone in experiencing that, especially on the muni side. You also indicated that we should see a recovery based on the guidance in transactional fees to $145 to $150 million since equities is seasonally better in 4Q. It does imply continued softness in fixed income and just wanted to better understand how much of it’s structural versus cyclical and whether we could see transaction fees get back to that $160 million legacy run rate even after adjusting for some of the business exits.
Ron Kruszewski (Chairman and CEO)
Look, I think you can. I think we’ve been trying to say that at least in fixed income we have transactions that are non-recurring. That’s the way I say it. They just don’t seem to recur quarterly, okay? But last quarter we had almost $32 million in restructuring and aircraft. Both departments are up and running. They’re doing business. The rate environment, as you can imagine, any time you’re restructuring to an aircraft, that impacts getting something done during that quarter.
So, you know, that leaves fixed income $95 to $100 million today at run rate. We’re growing that business. We’re growing businesses. Equities is around $50. I think equities tends to be more challenging, but I think we can grow it. You’re seeing the decline because we completely restructured Europe. But, I mean, $160 million, that’s a blink of an eye. That’s nothing. $10 million or $40 million on a $6 billion revenue base. And we’ve got a lot of people.
I find that to be rounding error.
Steven Chuback (Analyst at Wolfe Research)
Fair enough. Thanks so much, Ron, for taking my questions.
OPERATOR
We will take our next question from Michael Cho with J.P. Morgan.
Michael Cho (Analyst at J.P. Morgan)
Hi, good morning. Thanks for taking my question, Ron and Jim. I just wanted to touch on the valuation slide that you put up and reminded us about. I mean, it feels like larger deployment of capital toward M&A now. I guess, one, is that fair? And then, two, I think repurchases stepped down a touch quarter to quarter. I get the volatility in stock price. But is there maybe a more aggressive approach to buybacks that you might consider if the disconnect continues to persist?
Ron Kruszewski (Chairman and CEO)
Well, I think as it relates to your first question, yeah, we’re going to be very thoughtful about paying market multiples that are significant multiples of ours in terms of EBITDA and capital required to run businesses. So I just would think that shareholders, when they want us to look at the acquisition landscape, we want to grow, but we want to grow and be the firm that has higher than 20% ROTC, which isn’t common in the banks—certainly in the bank-only—coming in margins that are robust.
We’re running this for shareholder value, not just for growth. As it relates to your second question, I think it’s a good one in that when we are looking at acquisitions, there is an attractive one out there. It’s called our own stock. Jim, in terms of how much we’re doing, I’ll repeat that to you.
James Zemlyak (President)
Right. So the pace of buyback did decline some in the quarter. The thing I’d highlight is we did grow loans $1.3 billion in the quarter in addition to buying back 1.6 million shares. So we deployed a fair amount of capital. We brought our capital ratios down. Our excess capital still stands at a strong level of about $360 million, and we have flexibility to do both: to grow the loan book as well as buy back our shares. We’ve got plenty of authorization left on what we currently are authorized to buy back to continue to see us very active in that.
You just look at the share count on a year-to-date basis and get a sense of how many shares we’ve taken out, and it’s been pretty meaningful.
Ron Kruszewski (Chairman and CEO)
Yeah, but that’s a good point. Just looking at numbers, if you use a 10% leverage ratio, we could have not grown our loan book and bought back another, you know, $200-something million. But our loan growth, we think, is adding to our franchise and our return on tangible and all of that. So that’s a good use of capital. Dividends are a good use of capital. The investment we made in technology, which isn’t an acquisition investment—that’s a great use of capital.
But as an absolute acquisition of something, I just feel that if I came out and told you we’re buying something at 15–18 times EBITDA, the street wouldn’t react well. No, we’re not. So we’re aligned.
Michael Cho (Analyst at J.P. Morgan)
Fair enough. No, I appreciate the color. I guess just along the similar conversation around capital priorities, Ron, in the past you talked about increasing allocation toward recruiting, I guess in terms of dollars and resources. Within this conversation around capital priorities, does that also impact how you’re thinking about allocating toward advisor recruitment going forward?
Ron Kruszewski (Chairman and CEO)
Yeah, I mean, in a lot of ways it’s different math in advisor recruiting as it relates to capital and capital ratios. We look at that more from a return on invested capital or, you know, hiring people. We’re amortizing acquisition costs over, you know, 10 years, call it. And sometimes it’s easy just to do that because you’re kicking a lot of that expense down the road. And so, by coming up and saying, well, you know, based on our recruiting, our top ratio is going up, well then that might signal that we’re either being aggressive in recruiting or maybe we’re overpaying a little bit.
But that’s hard to see in the short run. We have done this for nearly 30 years, and we built this firm from $100 million in revenue and we’re at $6 billion with a 24% ROTC. And that’s because we’re capital disciplined. And I’m going to keep saying that. And if that means that we pass on things that don’t meet our capital returns, well then shareholders should be—that should be a premium, not a discount to shareholder valuation, in my opinion.
Michael Cho (Analyst at J.P. Morgan)
Great, thank you.
OPERATOR
We will take our next question from Bill Katz with TD Cowen.
Bill Katz (Analyst at TD Cowen)
Great, thank you very much. Just like to stay on the FAA recruiting discussion if we could. I think you mentioned in your prepared remarks you had negative growth in the quarter. I was wondering if you could maybe unpack that a little bit, maybe by channel what you might be seeing. I think, Ron, you mentioned that competition is still pretty elevated and underneath that, one of the things we’re hearing is that these PE platforms are leveraging AI to really reduce the back office costs and then drive up the recruitment and TA packages.
Where are you in terms of potentially including such technology in your own footprint which may allow you to be more competitive on pricing if needed. Thank you.
Ron Kruszewski (Chairman and CEO)
Well, I think we are utilizing AI more. I got something on, you know, back office and then using AI tools to settle trades or something like that. I haven’t seen that. But none of them are self-clearing, so that’s not possible anyway. But in terms of tools and being able to help advisors maybe have less assistance, I guess that’s possible. We’re not taking that approach; we’re using AI as a tool to help us, and it’s a powerful tool for preparatory meeting, pre-meeting, follow-up, analysis, discussion.
There’s a whole bunch of things, but we’re combining that with humans, and I actually see the need for more people, not less. So I don’t know if I don’t—it’s not sure human recruiting pitch. And I say, hey, look, I can add a little bit more your recruiting but you can’t have an assistant because you got to use this AI bot. I think I’m going to go down in my recruiting ability. I just do. But that’s just—again, the private equity firms are dealing more in the independent and RIA space, so I don’t really know.
But AI is clearly a productivity enhancer. We’re making significant investments, we’re re-skinning a lot of our tools, we’re putting new tools in place, and I think it’s a tailwind to what we’re doing. I’m not going—we’re not going to reduce people and recruit up recruiting, but we’re not doing that, not now. We’re just not—everything within our wealth business is also in the employee channel after the sale of SIA, that we’re no longer in the independent space at all.
Bill Katz (Analyst at TD Cowen)
Okay, it makes sense, and just maybe coming back to your guidance. So it seems like you’re going to be south of the $6 billion number for the full year on your top line net revenue number, and you guided to NII bouncing back, rising a little bit more, and that you have a little bit of a recovery on the transactional side due to lack of mark-to-market, and you talked to the better investment banking backlog. So can you talk a little bit about where the residual weakness might be relative to expectation at this point in time?
And then how long is the lead-lag between the pipeline and actually revenue recognition through the advisory line? Thank you.
Ron Kruszewski (Chairman and CEO)
Yeah, well, look, we expect to have—we had a record quarter in the fourth quarter. We expect that to be in that range. This is still not a hugely robust environment. That can change. Let’s see how the elections go and what happens after that. There are going to be a lot of repositioning of things that will happen post the election. But look, as it relates to the guide, there’s a couple things. We did a lot of—some of it’s accounting. For instance, we were conservative on the sale of SIA. We recorded a 50-plus million dollar gain on that and we… we just thought that that probably shouldn’t be important. We were doing it at the beginning of the year. That was in our thought process of revenue. Same with our restructuring of Europe that we, you know, we were doing up run-rate revenues.
Both of those items increased our margins, increased our return on tangible equity, but probably took out of our run rate $70–$75 million of revenue. So if you add that in, you’re back close to $6 billion, our range. Now, why were we above that range? I would point—I think we thought the fixed income would have a better year. The rate environment, everything that’s happened, some of the marks we took muted those returns. But I’m optimistic about that business too. So I feel we’re at the low end of the range of what we said in January, and, you know, we can quibble about rounding.
Bill Katz (Analyst at TD Cowen)
Okay, thank you.
Ron Kruszewski (Chairman and CEO)
If you look—I mean, look at our GAAP numbers, our GAAP numbers just—you know, we recorded some of the revenue in GAAP and we took them out of non-GAAP.
OPERATOR
We will take our next question from Brennan Hawken with BMO Capital Markets.
Brennan Hawken (Analyst at BMO Capital Markets)
Good morning. Thanks for taking my question, Ron. Just start with a follow-up. I believe when you were answering Steve’s question on trading, you mentioned 50 million bucks for revenues in equities in the fourth quarter. Normally we see a seasonal pickup. So is the seasonality that you historically have seen tied to Europe, or is just the core operating environment softer, and so therefore the seasonality is just not going to provide the same sort of uplift that we would normally see versus the typical run rate?
Ron Kruszewski (Chairman and CEO)
When I say—and I think this is good, and I’ll let Jim go ahead, but I’ll see if he disagrees with me—when we say 145 to 150, that’s kind of our run rate absent these marks on the inventory, absent, you know, the one we tried to tell you isn’t always recurring. So that’s not necessarily the fourth quarter. That’s just trying to say, look, we’ve got a little bit of noise here and this is what we see settling out. The fourth quarter generally is seasonally better.
We’ll see. That seasonality often, you know, depends on, you know, the election. We also get checks, you know, for our, you know, type thing where we get research checks. That always helps too. So that wasn’t meant to be just a fourth quarter look. That’s just trying to reset your expectations of what sort of the normal—if there is such a—run rate in institutional transactional revenue.
James Zemlyak (President)
I, first of all, agree with what Ron said, but I’d add to that the European restructuring has an impact on this, on what is a normalized run rate. That probably took out five or six million dollars in a year-over-year comparison when you look at the fourth quarter, and so that’s going to have an impact on that absolute number based on what we did with those restructuring activities. So you have to take that into consideration when you’re looking at these numbers year over year.
Brennan Hawken (Analyst at BMO Capital Markets)
Okay. I mean, the transcript does say that you’d expect fourth quarter rev, but okay, fine, got it. Follow-up question on the slide two point and some of the discussion around net new. So one thing I’d point out is that both of those comps do disclose net new assets, so that might be something to consider. Maybe you said that net new was helpful—was that quarter over quarter and year over year? And if it was year over year, was it positive quarter over quarter?
And then for maybe a subpart of the consideration, one part that could result in this delta in the metrics could be scale. So would you consider looking to partner to be part of a larger, more powerful, more scaled organization potentially, which might allow for that realization and valuation to be gapped or bridged?
Ron Kruszewski (Chairman and CEO)
Did you ask me—did you just ask me if I would sell?
Brennan Hawken (Analyst at BMO Capital Markets)
That is a very indirect way of doing it, yes.
Ron Kruszewski (Chairman and CEO)
Let me just give you a very direct clarification. Okay, so that’s—I don’t mind. Look, that’s a fair question. It’s just a long way of asking it, but it’s a very fair question. Look, I—where, okay, so you, wherever it is we were going to with those two, I don’t want to say because I’m not doing it there. But most financial institutions, we’re going to scale into someone that has a lower growth rate and a lower return on tangible equity. And because of scale, I mean, it makes sense to me.
If I’m going to scale, then I want to scale into someone with higher margins, higher returns, higher growth rate. So, you know, I understand a quarter can stand on its own, but we put on that slide since 2016, so don’t check those numbers. So why—who’s growing faster? So I hear you. Now if your question is do we get a higher multiple even though we combine with someone with lower financial metrics? The answer is no. But I understand the question. That’s fair. I don’t mean to suggest it’s not a fair question.
Okay, well, thanks for—thanks for tolerating me. That’s right. I’m gonna come on earnings call and ask the same question. That’ll be fun. But—no, that’s fair. But most institutions that try to, you know, combine for scale in a people business and in a culture business, a business that’s long and establishes people with our growth rates—not like we’re not growing—will find out that those lead to diseconomies of scale, not economies. Okay, I’ll leave you with that thought.
Brennan Hawken (Analyst at BMO Capital Markets)
Yep, gotcha. Thanks, Ron.
OPERATOR
There are no further questions at this time. I will turn the conference back to Mr. Kruszewski for any additional or closing remarks.
Ron Kruszewski (Chairman and CEO)
Well, I mean, we appreciate everyone. I really often—I want to compliment all of our analysts. I like thought-provoking questions. I like questions that I want people to be comfortable asking. I want you also to be comfortable in my answers if you ask the questions. But I really do appreciate the fact that our analyst community takes the time to think about things that are outside the box. And to our shareholders, what I would say is that our business model—people really can put almost in three buckets. First and foremost, we want to serve our clients. And we want to put all our resources to providing the best products, services, and advice that we can on the table. The benefit of serving our clients well falls under two buckets. One, that our associates and partners can do well. And second is that our shareholders—not second, but equally—our shareholders do well.
And that’s how we manage the place. So we do not manage it to maximize employees at the expense of shareholders. And frankly, we’re not going to maximize shareholders at the expense of employees. Both of those are not good long-term ways to run a human capital financial services firm. But with that, I look forward to reporting in the fourth quarter. And thank you for your time.
OPERATOR
This concludes today’s call. Thank you for your participation. You may now disconnect.
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