Stifel Financial Q3'26 Financial Results Conference Call - STIFEL FINANCIAL CORP

Please stand by. Good day and welcome to the Stiefel Financial Q3 26 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Joel Jeffrey, Head of Investor Relations. Please go ahead. Thank you, Operator. Good morning and welcome the Stieffel's third quarter 2026 earnings call. On behalf of Stiefle Financial Corp., I will begin the call with the following information disclaimers. This call is being reported. during today's presentation we will refer to our earnings release and financial supplement copies of which are available at stifle.com today's presentation may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially default financial court does not undertake to update the forward- looking statements in this discussion please refer to our notices regarding forward- looking statements and non-gap measures that appear in the earnings release i'll now turn the call over to our chairman and chief executive officer ron krashevsky 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 Stiefel's diversified business model. We're on track for another record year, where today revenue is $4.3 billion, up 9%, earnings per share of $4 and 33 cents, which is up 57%. And if you exclude the impacts of last year's legal charge, EPS is up 22%, with return on tangible common equity of 24.1%. pre-tax margins in both of our operating segments are up here today as investments we've made in our efficiency initiatives continue to generate strong returns the third quarter began with healthy client 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 moving rate more than their absolute level of settled market through it all corporate earnings and employment states of florida and the underlying u.s economy continue to show real resilience against that backdrop we delivered our highest ever third quarter earnings per share of a dollar forty six of twelve percent versus the prior year net revenue of 1.43 billion was in line with our guidance as another record quarter our global wealth management segment offset 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 and a half percent the strength of our business allowed us to continue to generate 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, shareholders, and investing growth even when markets are volatile. That brings me to our recent strategic investment in Miao 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 future capabilities of the AI 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 steeple 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 two 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, in this case, Raymond James and Morgan Stanley, two firms I respected whose business models look a lot like Since the end of 2016, earnings per share are up 406% and tangible book value is up 154%, which is better than either of these pairs, and our return on tangible common equity over the last 12 months is more than 26% and is the highest of the three on this page. Even so, we traded nine time forward earnings compared to 10.2 for Raymond James and 13 from Morgan Stanley. Look, even through challenging times, we are growing and have an elite ROTC. Simply, the numbers don't support the valuation gap that I see. With that, I'll turn it over to Jim. 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-gap revenues of 1.43 billion were flat with a year ago and one percent low consensus investment banking revenue exceeded expectations by 12 million dollars for four percent 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 previous year, driven by market depreciation and net new asset growth, and was essentially in line with consensus. 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 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 estimate 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 four, 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 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 a billion dollars in incremental fund banking loans and more than 200 million in residential mortgages. Based on part of this incremental growth and a stable NIM, 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 four, we have significantly grown our net interest income since the beginning of 2024 through balance sheet growth as our net entrance 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 five, through the first three quarters of 2026, institutional revenue is up 8% given 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 healthcare. Equity capital raising revenue was $69 million, down 13 percent 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 and public finance 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 M&A. 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 our European restructurings, lower equity volumes, and approximately $7 million dollars of trading marks in our equity facilitation inventory. Absent another rate move like September's, we'd expect fourth quarter institutional transactional revenue being 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 the 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 guide non compensation expenses total 298 million flat with the same period a year ago, as lower provision and investment banks and 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 percent. Further, assuming a stable stock price, we expect to see a fourth quarter effective tax rate in the range of 19 to 22 percent based on the excess tax benefit related to stock-based compensation. Turning to slide seven, the capital position remains strong and provides meaningful strategic flexibility. The tier one leverage ratio came in at 10.8%, while the tier one risk-based capital ratio was 17%, reflecting the deliberate deployment of capital into loan growth. Based on a 10% tier one leveraged target, we ended the quarter with nearly 360 million of excess capital and that is after funding 1.3 billion of loan growth 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 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 in a broad set of adjustment options in uncertain times. Global wealth management has been and will continue to be the foundation of Steeple'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, and we may not target to reach our goal of $1 trillion in client assets. Key components of our wealth segment is people, bank, and 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 sharp move in rates produced trading marks in our securities inventory which we don't expect to repeat in the fourth quarter advisory and capital raising we have strong backlogs and improving client engagement and going forward we've seen 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's low but 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. People's diversified model, recurring revenue, disciplined capital management have a position to keep compounding value for shareholders regardless of market engagement. Operator, with that, please open a live request thank you if you would like to ask a question please signal by pressing star 1 on your telephone keypad if you are using a speakerphone please make sure the mute function is turned off to allow the signal to reach our equipment in the interest of time we ask that you please limit yourself to one question and one follow-up again press star 1 to ask question. We will pause for just a moment to assemble the queue. We will take our first question from Mike Brown with UBS. Good morning, Mike. Good morning. Yeah, thanks for taking my question. Ron, I guess you talked a little bit about the recruitment environment. You know, 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 on the real term hiring activity you talked about the pipeline as 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 the year and then into early 27th yeah i i feel that a lot of the things recruiting is is strong it has been strong for us i mean not only over quarters over years i mean that uh 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 and who we recruit i'm i feel very good about that that business that's that is very competitive couple kind of competition with the choppy market that always blows people down clients you know get nervous markets become more volatile and you know we're we take a long-term view so i get this question every quarter and every quarter i say that you you know, we're a firm that can have net positive recruiting and will continue to do so. And I'm optimistic about who we're talking to. I wouldn't say that there's a change over the years. It's that we've probably lowered the absolute number of advisors that we talk to while increasing the trailer 12 coming in, meaning we're recruiting higher teams. And I think that's very productive and good. And finally, as I said prior to the quarter, I'm continually amazed at, again, one question we use is gonna replace all our advisers on the second meeting I have, I talk about that the recruiting competition packages are higher than other events. So, but overall, it's a positive for us common for our growth rate all forward. Great. Yes, certainly conflicting messages out in the market. Ron, I guess I wanted to ask about the comp ratio and the pre-tax margins. A very strong result this quarter, and Jimmy gave a guide for the year. As you think about the shift in the business mix at Stifel, you've got really strong growth the venture in the fund finance business you've repositioned europe so should we kind of view this uh as evidence that there's a structurally lower comp ratio at steeple and a higher margin profile going forward obviously in a normalized environment can you kind of sustainably operate at this lower comprehensive level well look first of all we're gonna we're going to pay our people competitively we're going to provide this people the place where you can do business but you can also uh you know do well for our bankers advisors and everyone else and the comp ratio is a result of you know frankly uh driving efficiencies and not being uh you know inefficient on a number of things so as we grow um our as we roll our business and become more productive one of the things that's going to happen is going to lower your company so then finally as you grow our managed income frankly um that also drives the cop ratio you know and it's always at this time of year that i like to point out that we're pretty consistent of not only you know driving our cop 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 worst price you know hopes are copper shows in the quarter that is going to be much higher because we under the crew but next year will be much better and so i i this is very consistent people over the the year, you'll see comparatials generally decline and reach their level, their best level in the fourth quarter, which often, usually is our best quarter of the year. We'll come back next quarter to 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 think about some of the dynamics that play into 2027 we're generating a lot of deposits today we're having a lot loan demand we're going to continue to grow the bank balance sheet we're going to 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'd say the the jumping off point of where we get to for 2026 is a good kind of thought process how you think about that going for in 2027. Okay, great. Thank you both. Thanks for the question. We'll take our next question from Devin Ryan with Citizens Bank. Hi, great morning, Ryan. Good morning, Jim. How are you? Good. Good, good. I 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 fund banking. 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 is percentage of the overall loan book and maybe weave in the strategic benefits uh that maybe are outside of just nii that you're seeing from uh growing uh fund banking a fund and venture banking together yeah you know i uh i feel we're we're it's used to support the analogy but we're early innings into this growth rate i've talked about some of the things we need to do overall the overall market especially with fund banking i think the market's increasing there's a lot of money that's being raised and refined to refine them and reach out and so i see that just structurally within the market as a growing up within um our our focus has that is not only there but on the on the venture side is to be providing uh technologies that gives us the business to begin that's why we did this transaction that i mentioned about this technology if you want to look at something similar you'll see where over valley acquired blue by and i think uh required uh right capital one um you know we've taken a different approach uh in that we want to white label this but when we looked at our ability to generate significant i'm talking about significant problems to drive this business we um we needed this technology to generate account opening you know usd to stable a crypto back to usd cross-border corporate credit cards payroll all of these things we we have what we believe is going to accelerate our ability to get clients and build I've talked about an investor column I can say I'm going to be doing something I'm struggling with what I was talking about and uh so I I'm very optimistic about this and you know it'll grow faster uh at least an adventure certain faster on the deposit side four to five to one in deposit and uh and then we'll deploy some of that more in fund banking where the ratios almost slip uh it longs to uh departments but uh it's uh it's a business and we track and measure referrals to wealth for us to banking you know like mortgages that we're giving to founders etc so it is a it is a business where we fail we bring all the capabilities people to this segment of banking the investments we've made here and not just in technology but at 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 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 uh deposit generation channel as we look forward you know and again it's across our business all right we uh you know we ai what we're talking about is being able to serve a client in this particular case we're talking more of a narrow aspect of funding venture banking so when you think about what we're going to do and how we're going to grow this business we're gonna do that without opening a single branch or putting any tricks or mortar none of this is all going to be incremental um nai on top of what we've already built so we've built the foundation we just are putting some technology on it and and we're we're going to gain markets. Okay. Appreciate all that background. As a follow-up, I want to dig in a little bit on the investment banking commentary. Sounded, I think, relatively constructive in 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 like what do you what's the catalyst for that um you talk about enthusiasm um into 2027 uh and then you know obviously technology has been an area particularly in software that's been challenged are you seeing that stabilize uh so to any additional flavor for like 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. Look, I think what happened was we had a very strong core and a lot of engagement. A lot of things that people are talking about and not just the people, it's across the street. And not just at people but across the streets. You ran into a quarter where rates, inflation rates, geopolitical all converged late August into September. And it slowed activity down significantly which is which is to be expected uh you know you throw that uncertainty into the mix i add a little bit now that's worse within a few weeks of an election that that may change the model up in the short run so we've seen a what i view as a you know financial condition um you induce pause if you will in activity but when we look at the fact that things are getting canceled and we're not it's not the things that are getting done because of financial conditions i'm optimistic about the business in specific areas you know we've had a slowdown and in some of the health care capital markets that we we've seen we expect that to pick up uh depository m a i think is secular friends because of technology deposit data uh you know skating the need for scale oh and and the political reality realities of being able to get something done between now and 28 uh 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 sell a little bit more It's off to a good start as we see it. It sounds like, you know, you have to turn the calendar page out of September. But that's how I would see it Yep. Okay, excellent. Thanks so much for the caller. We will take our next question from Steven Chuback with Wolff Research. Good morning, Ron and Jim, and thanks for taking my questions. Good morning. So I wanted to start just on sweep cash. The growth had lagged some of the metrics we'd seen at your wire house 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? Right. So I'll touch on sweet cash. You know, one item we didn't touch on this in our prepared remarks, but one thing we'd highlight with the sale of SINA, we still kept those assets on our platform and serviced them for a period of time. So that cash was still within our ecosystem and our balances of cash. That's probably a half billion dollars that came out of our sweet balance uh in terms of activity in the third quarter so i just highlight that when you're looking at this when we close when we closed and fully moved those assets off our our our systems so the other thing i would say just generally speaking we typically see a seasonal uptick in 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 what we can do there in terms of generating additional deposits in that channel but overall we've got nearly three billion dollars of deposits available to fund future growth we've gotten 18 billion dollars sitting in money market funds we've had seven billion in short-term treasures we can go attack those and bring those so those are all the you know cash and cash equivalents within our ecosystem now some of those things on money funds would be a little bit more a little bit higher cost but those are deposits in our ecosystem that we can can go get. 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's 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 is a little underappreciated at times. 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 could fund this in the last week. We see tremendous ability to generate deposits and deploy loans and maintain a nil. Some of the repricing that's going to be going on as the deposit just everyone knows this. It's economics. like this as the deposit base reprices, so is the asset side going to reprice? And you're seeing it through our stable NIP and you're gonna see that throughout the industry. There's this, somehow there's this belief that if you reprice cash, the industry is just gonna collapse because you can't make any more net interest income. And I find that to be somewhat not consistent consistent with economic theory. But that's for another day. Understood. And for my follow-up, I 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. I 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. Look, I think you can. I think we've been trying to say that we have, 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? So, we last quarter had almost $32 million in restructuring and aircraft both departments are up and running they're doing business the rate environment uh as you can imagine uh in any time you're restructuring to an aircraft that impacts the you know 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 for growing businesses equities around uh 50 million i think equities text is more challenging uh you know but i think we could we can grow it you're seeing the decline because we completely restructured europe but uh i i i don't do 160 million i mean that's a blink of blink of an eye that's nothing 10 million dollars on a you know or 40 million dollars a six billion dollar revenue base uh and we've got a lot of of people, I find that to be rounding error. John Lumpkin Sure enough, thanks so much, Ron, for taking my questions. We will take our next question from Michael Cho with JPMorgan. Michael Cho 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. It feels like larger deployment of capital toward M&A is off the table for now. I guess, one, is that fair? And then, two, I think repurchases step down a touch quarter to quarter. I get the volatility stock price, but is there maybe a more aggressive approach to buybacks that you might consider if the disconnect continues to persist? 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 that's shareholders wouldn't they want us to look at the acquisition landscape we want to grow what we want grow and be the firm that has you know some higher than 20% ROTC which isn't common in in the bank certainly bank all the company and 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 leave that to you. Right. So the pace of buyback did decline some in the quarter. You know, the thing I'd highlight is, you know, we did grow loans of $1.3 billion a quarter in addition to buying back $1,600,000 a year. 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. So, 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 that you just look at the share count on a year-to-date basis to get a sense of how many shares we've taken out it has been pretty meaningful to that number yeah but if that's a good point we you know it's just looking at numbers if you use the 10% leverage ratio we could have not grown our loan book and bought back another you know yeah uh 200 something million dollars but what uh but our loan growth we think is adding to our franchise and our return on tangible and all of that so that's that's a good use of capital dividends is a good used to capital uh the investment we made in technology well which isn't an acquisition of investment that's the greatest of capital but as an absolute you know acquisition of something i i just feel that if i came out and told you we're buying something at you know 15 to 18 times even dot you wouldn't you would not the street wouldn't react well so we're not so we were lying there fair enough no i appreciate the color um i think it's 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. I mean, within this conversation on capital priorities, does that also impact how you're thinking about allocating toward advisor recruitment going forward? Yeah, I mean in a lot of ways, it's different math and advisor recruiting as it relates to capital and capital ratios are we look at that more from a return on invested capital or you know hiring people we're amortizing acquisition costs over 10 you know 10 years call it and you know sometimes it's easy just to do that because you're kicking a lot of that expense uh down the uh road and so you you know by coming up and saying well you know uh based on our recruiting our top ratio is going up uh well then you know that might signal that uh that we're either being aggressive in recruiting or maybe we're overpaying a little bit so but that's hard to see in the short run we have done this for 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 discipline. And I'm gonna 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, my opinion. Great. Thank you. We will take our next question from Bill Katz with TD Cowen. Great. Thank you very much. I'd just like to stay on the FAA recruiting discussion, if we could. I think you mentioned your prepared marks. 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. Well, I think, I mean, we, we are utilizing AI more productivity. I, I got something on, you know, back off of me using AI tools to, to settle trades or something like that. I haven't seen that, but no self-clearing, so that's not possible anyway. So, 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 preparation, meeting prep, meeting follow-up, analysis, discussions, 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. I'm just not sure if I'm in a recruiting pitch and I say, hey, look, I can add a little bit more to your recruiting, but you can't have an assistant because you've got to use a say I bought. I think I'm going to go down in my recruiting ability, I just do. 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've reached getting a lot of our tools. We are 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 and recruit up recruiting but we're not doing that not now we're just not everything within our wealth business it's also in the employee channel after the sale of SAA that we're no longer in the independent space at all okay it makes sense and just maybe come back to your guidance so 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're guided to an AI bouncing back, rising a little bit more, and that you have a little recovery on the transactional side due to lack of mark-to-market, and you talk to the better investment banking backlog. So can you talk a little 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. Yeah, well, look, like we said, we expect to have, we had a record, record quarter, fourth quarter. We expect that to be in that range. This is still not a hugely robust environment. that can change let's have the elections go and what happens after that they're going to be a lot of uh repositioning of things that will happen post the election but look as it relates to the guys a couple things we did a lot some of us accounting for what for instance we were conservative on the sale of fia we reported a 50 plus million dollar gain on that and we called we put it not for uh because we just thought that that probably shouldn't be important we were doing 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 dollars for revenue so if you add that in you're back close to six billion enough of 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 we could put them out rounding. Okay, thank you. If you look, I mean, look at our GAAP numbers. Our GAAP number, we reported some of those revenues in GAAP and we took them out of non-GAAP. We will take our next question from Brennan Hocken with BMO Capital Markets. Good morning, thanks for taking my question. Ron, just to start with a follow-up, I believe when you're answering Steve's question on trading, you mentioned $50 million for revenues and equities in the fourth quarter. Normally, we see a seasonal pickup. So was the seasonality that you historically have seen tied to Europe, or is just the core operating environment softer, and so therefore the seasonability is just not going to provide the same sort of uplift that we would normally see versus the typical run rate? When I say, and I think this is good and I'll let Jim go in, but I don't see if he disagrees with me. It looks really good. when we say 145 to 150 that's kind of our run rate absent these marks in the inventory absent uh you know the one with you we've 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 uh the fourth corner generally is seasonally better We'll see that seasonality often, you know, depend on the election. We also get, we get checks for our, the old type thing where we get research checks. That always helps too. So that wasn't meant to be just a fourth quarter look. just trying to reset the you're all expectations of what sort of the normal if there is such a word run rate in institutional transactional revenue I first of all I agree with rock when Ron said and I'd add to that the European restructuring has an impact on this on what is a normalized robbery that price hook out five or six million dollars in a year-over-year comparison look at the fourth quarter and so that's going to have an impact on that absolute number on you know what we did with those restructuring activities so you have to take that in consideration when you're looking at these numbers uh year over year okay i mean i the the transcript does say that you'd expect fourth quarter rev but but okay fine got it um follow-up question on on the slide to point and and uh some of the discussion around um net new so um one thing i point out is that both of those comps do disclose net new assets so that might be something to consider um maybe yeah you said that net new was helpful you know was that quarter per quarter and year over year and and if it was year over a year was it positive quarter over quarter and then and then you know for maybe be a sub-part 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? Did you ask me, did you just ask me if I would sell? That is a very indirect way of doing it, yes. I just give you a very direct clarification, okay? So that's it. Hey, I don't mind. Look, that's a fair question. That's just a long way of asking it, but it's a very fair question, look, where, okay, so wherever it is we we're going to with with those two I don't want to say I'm not doing it there but most financial institutions we're gonna scale into someone that has a lower growth rate and a lower return on tangible equity and because of scale I bet it makes sense to me I if I'm going to scale then I'm I want to scale into someone that's got higher margins, higher return, higher growth rate. So, you know, I understand a quarter can stand on its own, but we've 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 do we get a higher multiple even though we combine with someone with lower? financial metrics I the answer no, but I understand the question that's fair. I don't mean to suggest it's not a fair question Okay, good, thanks for us. Thanks for tolerating me I'm going to come on your call and ask the same question, so that'll be fun. But no, that's fair, but what is it? Most, and I'm just taking a moment here because most institutions that try to, you know, you know, to combine for scale in a people business and in a culture business and a business that's long and establishes people with our growth rate. Not like we're not growing. We'll find out that those lead to just economies of scale. Not economies of scales. So, I'll leave you with that thought. Okay. Yep, got you. Thanks, Ron. There are no further questions at this time. I will turn the conference back to Mr. Kruszewski for any additional or closing remarks. No, that, 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 all 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 at Seafold really can put almost in its three buckets. First and foremost, we want to serve our clients and we want to put all our resources to providing the best product services and advice that we can on the table the benefit of serving our clients well falls into 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 expenses 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 this concludes today's call thank you Thank you for your participation. You may now disconnect.