Stifel Financial (NYSE:SF) held its second-quarter earnings conference call on Wednesday. Below is the complete transcript from the call.
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Summary
Stifel Financial Corp. reported record net revenue of $2.9 billion for the first half of 2026, a 15% increase from the previous record, with a significant 28% increase in earnings per share.
The company experienced strong growth in Global Wealth Management and net interest income, with a $2.6 billion loan book increase during the quarter, supporting their full-year guidance for up to $4 billion in balance sheet growth.
Stifel was ranked number one in Employee Advisor satisfaction by J.D. Power for the fourth consecutive year, highlighting their successful advisor-first strategy.
Investment banking drove second quarter revenue, with a 42% year-over-year increase, and the Institutional Group posted its second-strongest second quarter ever.
Management remains optimistic about future growth, driven by robust investment banking pipelines, strong capital positions, and the strategic use of AI to enhance productivity and client service.
The company is focused on organic growth, disciplined capital allocation, and strategic acquisitions, while maintaining a strong return on tangible equity at 24%.
Full Transcript
Joel, Investor Relations
Thank you, operator. Good morning and welcome to Stifel second quarter 2026 earnings call. On behalf of Stifel Financial Corp., I will begin the call with the following information and disclaimers. This call is being recorded. During today's presentation, we will refer to our earnings release and financial supplement, copies of which are available at 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 will 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. We enter 2026 with a clear plan. At the beginning of the year we said we would grow revenue, increase our loan book by up to 4 billion and increase treasury deposits, improve operating leverage and deploy our substantial excess capital where it would earn the best risk-adjusted returns. Six months into the year, we're doing what we said we would do. Our second quarter and first half results reflect the strength of our business and the momentum we're seeing across the firm.
Second quarter net revenue of 1.45 billion increased 13% from a year ago while non-GAAP earnings per share of $1.42 increased 25%. Both represented the second highest second quarter results in our history following our strongest first quarter ever. The result was our strongest first half in Stifel's history, generating record net revenue of 2.9 billion, 15% above our previous record, and record earnings per share of $2.87, up 28% from our prior record.
Return on tangible common equity was approximately 24% for both the quarter and the first half of the year, while tangible book value per share increased 15% over the prior year. Our top line growth was driven by another quarter of record Global Wealth Management revenue and continued growth in net interest income as we increased our loan book by 2.6 billion during the quarter, keeping us well on pace to achieve our full-year guidance of up to 4 billion of balance sheet growth.
Just as importantly, our strategy of putting advisors first continues to differentiate. Stifel advisor recruiting remains as competitive as I've ever seen it, client engagement remains strong, and earlier this month Stifel was ranked number one in Employee Advisor satisfaction by J.D. Power for the fourth consecutive year. I'll come back to why that's so important in just a moment. Our institutional business also continued its strong momentum, led by investment banking, as the breadth of our platform continues to generate growth across ever-changing market environments.
At the beginning of the year we said we'd improve the profitability of our institutional business, and we've done just that. Institutional pre-tax margins improved to 19.5% in the first half of 2026 compared to 11% a year ago through revenue growth and lower expense ratio, reflecting the benefits of the efficiency initiatives we implemented in 2025. Our business continues to perform well and we're generating significant capital. As I've often said, we have four levers for deploying capital.
During the second quarter, we pulled three of them: reinvestment into the business, share repurchases, and dividend payments, which combined for more than a half billion dollars of capital deployment in the second quarter alone. This illustrates our ability and willingness to opportunistically deploy our excess capital when we believe the risk-adjusted returns are compelling. Looking ahead, the broader market remains constructive, although volatility is likely to remain part of the landscape.
The economy is healthy, client dialogue remains high, and the capital markets continue to broaden. At the same time, we remain mindful of the secular forces shaping our industry, including artificial intelligence, expanding capital needs, private credit, changes in market structure, and geopolitical uncertainty. In an environment like this, trusted advice becomes even more valuable. Given the breadth of our business and the depth of our client relationships, we believe Stifel is exceptionally well positioned to help clients navigate an increasingly complex world.
Before turning the call over to Jim, I'd like to spend a few minutes talking about service, technology, and why I believe they go hand in hand. As I mentioned earlier, Stifel was ranked number one in Employee Advisor satisfaction by J.D. Power for the fourth consecutive year. I'm especially proud of that recognition because it comes directly from our advisors. It tells us we're executing on our mission of making Stifel the firm of choice for advisors.
Our overall score was well above the Employee Advisor segment average, and we ranked number one in leadership and culture, operational support, and products and marketing. Look, awards don't define us, but four consecutive number one rankings tell us we're doing something right. You don't earn the trust of advisors four years in a row by standing still. You earn it by listening, investing, and continually improving. Our advisors are the foundation of our success, and that philosophy also shapes how we're thinking about artificial intelligence.
Technology shouldn't ask advisors to adapt to software. Software should adapt to the way advisors work. That's the philosophy behind what we are building. In the first half of the year, market reactions have suggested that advances in AI will at least diminish the value of financial advice and at worst eliminate the need for financial advisors altogether. This, however, is completely disconnected from what we are seeing in the market for financial advisors.
Transition packages are elevated, and advisor recruiting remains as competitive as I've seen it for experienced, trusted financial advisors. So either the largest wealth management firms in the world are increasing investments into a business that apparently is going away, or, as we see it, the industry will continue to evolve with more capable and efficient advisors using AI to benefit their productivity and their clients' service. I think markets sometimes confuse access to information with judgment.
AI is making information more abundant. That only increases the value of judgment, trust, and relationships. At Stifel, we always believed our people are our competitive advantage. AI simply raises the ceiling on what great people can accomplish. It is proving to be far more of a productivity accelerator than a replacement for talented people. It enables our bankers to evaluate more opportunities, our research analysts to uncover more insights, our advisors to spend more time with clients, and our associates to focus on higher value work.
The result isn't less opportunity for our people, it's more. In short, we don't see AI as replacing human judgment, we see it as expanding human potential. In terms of the revenue potential for AI, look, by all indications we're still in the early innings. AI is creating one of the most important secular investment opportunities of our time. And that opportunity runs directly through the middle market where Stifel lives. It creates meaningful opportunities for us to advise clients, support capital formation, and provide insight as our clients evaluate how AI will shape their strategies, capital needs, and competitive positioning.
With that, I'll turn the call over to Jim.
James Zemlyak, President
Thanks Ron, and good morning everyone. Total non-GAAP revenues of $1.45 billion surpassed the consensus estimate by 2%. Investment banking was a primary upside driver, exceeding expectations by $23 million or 7% as we benefited from the close of a sizable transaction late in the quarter, which was the primary factor in our IB revenue coming in above our guidance. In comparison with the Street estimate, capital raising revenue was the primary driver of the beat.
Transactional revenue came in 2% below expectation and decreased 3% from the prior year. I'll cover the components in more detail when we get to the Institutional segment. Asset management revenue was 1% above consensus and increased 13% from the prior year, driven by market appreciation and net new asset growth. Net interest income came in at the higher end of our guidance and $4 million above consensus, driven by higher interest-earning assets.
Expenses were again well controlled, and we continue to see the benefits of the efficiency initiatives of the past few years. Our comp ratio of 57% was 60 basis points below consensus and down from 57.5% in the first quarter. The higher non-compensation expense was primarily the result of growth in our business. Excluding the more than $4 million of higher investment banking gross ups and credit provisions, our non-comp expenses would have been relatively in line with estimates.
The effective tax rate was 24.4%, slightly below consensus but within our guidance. Turning to slide 4, Global Wealth Management generated record net revenue of $957 million, up 13% year on year. Results were driven by transactional revenue as well as growth in net interest income and asset management revenue. The record results are even more impressive given that this was the first full quarter following the sale of SIA, which reduced our asset management and transactional revenue run rate.
We ended the quarter with record total client assets of $580 billion and fee-based assets of $240 billion, up 12% and 16% respectively, as we benefited from stronger equity markets and net new asset growth. Excluding the impact of the assets associated with SIA, total client assets and fee-based assets increased more than 14% and 19% respectively on organic growth. Net new assets in the low single digits were consistent with the first quarter. Our recruiting pipeline remains robust.
Productivity is episodic and dependent on changing competitive and market dynamics. As Ron mentioned earlier, we increased our loan book meaningfully in the quarter as we generated an incremental $2 billion in fund banking loans. Based on this incremental growth and a stable NIM, we expect the third quarter net interest income to be in a range of $290 million to $300 million. Over the past year, our combined wealth management and treasury deposits are up approximately $3.3 billion.
This includes a more than $1 billion increase in sweep deposits and a $3.8 billion increase in treasury deposits, partially offset by a decline in SmartRate in the quarter. Our sequential cash balances were impacted by seasonal tax payments as Sweep and SmartRate balances declined by $670 million and $930 million respectively. Non-wealth client funding increased $410 million, reflecting strong momentum from our venture group. Within venture, we saw more than $700 million of deposit growth.
This was offset by some outflows within fund banking deposits. The second quarter illustrated our ability to fund our loan growth with off-balance-sheet deposits. While we moved roughly $2.6 billion of venture deposits onto our balance sheet, we still have more than $3 billion available, and we continue to anticipate additional quarterly growth of a billion dollars in venture deposits. Consequently, we are highly confident in our ability to reach our full-year guidance of up to $4 billion of loan growth, with ample funding flexibility beyond that.
Turning to slide 5, our Institutional Group posted its second-strongest second quarter in our history. Revenue was $481 million, up 15% year over year, driven by increased capital raising. In the first half of 2026, Institutional revenue was up 21%, driven by an increase of more than 43% in investment banking. In the second quarter, firmwide investment banking revenue totaled $332 million, up 42% year over year, coming in slightly above our recent guidance.
Advisory revenue increased 24% to $157 million, with continued strength in financials, industrials, and technology. Capital raising revenue was $102 million, up 121% year over year, and was our second-strongest second quarter result, with increased issuer engagement led by healthcare, industrials, energy, and financials. Fixed income underwriting revenue of $64 million was up 18% year over year, driven by increased public finance activity and higher corporate issuance.
We remain the number one negotiated issue manager in public finance by deal count, with a 14% market share year to date. Investment banking and advisory pipelines remain very strong, strategic dialogue is active, the new issue market has reopened, and financial sponsor activity, which remains below historical levels, represents meaningful upside as it recovers. We continue to anticipate a strong 2026. Transactional revenue declined 19% year over year, primarily because of lower fixed income revenue as our second quarter 2025 results benefited from a roughly $30 million gain in our aircraft business.
Excluding that gain, our results would have been relatively comparable to a year ago. Equity transactional revenue was down 4%, reflecting the impact of our European restructuring. The solid operating environment and benefits of our improved efficiency are evident in the Institutional Group's pre-tax margin, which was 19.5% in the first half of 2026, an 850 basis point improvement from the prior year. Moving on to expenses, we're able to recognize some of our improved operating efficiencies through a lower comp ratio.
In the core, we capitalized on the strong operating environment as well as the benefits of our European reorganization and the sale of SIA by lowering our comp ratio by 50 basis points sequentially to 57%. Assuming market conditions hold up for the remainder of 2026, we anticipate additional comp flexibility in the second half of the year. Non-compensation expenses totaled $309 million, up 11% year over year, with essentially all of the increases tied to growth in our business, including higher investment banking gross ups, credit provisions, advertising, and data processing.
Our operating non-comp ratio was 19.6%, which was within our full-year guidance of 18% to 20%. Turning to slide 7, our capital position remains strong and provides meaningful strategic flexibility. Tier 1 leverage ratio came in at 11.2%, while the Tier 1 risk-based capital ratio declined to 17.3%, reflecting the deliberate deployment of capital into loan growth. Based on a 10% Tier 1 leverage target, we ended the quarter with nearly $480 million of excess capital, and this is after funding $2.6 billion of loan growth and repurchasing 2.4 million shares of stock during the quarter.
Finally, we have 7.8 million shares remaining under the current authorization. Assuming no additional repurchases and a stable stock price, our fully diluted share count for the third quarter is expected to be approximately 160.5 million shares. With that, Ron, back to you.
Ron Kruszewski, Chairman and CEO
Thanks Jim. Before I turn the call over to the operator, let me come back to where I began. We entered 2026 with a clear plan, and six months into the year we've done what we said we would do. Revenue is growing, operating efficiency is improving, we're on pace to achieve our balance sheet growth objectives, and we're deploying capital with the same discipline that's guided this firm for decades. Let me also say a word about capital allocation because I suspect that question is coming.
Our priorities haven't changed, and they're all measured against really one standard: return on invested capital. Our first priority has been and always will be organic growth. Investing in our advisors, our bankers, our technology, and our balance sheet is how we built Stifel over the last 30 years, and it's how we'll continue to build it in the years ahead. Second, we'll continue to repurchase shares when we see a disconnect between our business outlook and the price of our stock.
We were more active this quarter because, in our judgment, buying back our own stock represented one of the highest risk-adjusted returns available to us. Growing our balance sheet substantially while increasing our share repurchase activity illustrates our ability and willingness to put our excess capital to work opportunistically. Third, we'll remain disciplined on opportunities regarding acquisitions. A key element of our long-term growth strategy has been strategic acquisitions, but we will not compromise our return standards simply to get a deal done.
While we are always looking at potential deals, given today's valuations, one of the most attractive returns we see is investing in our own business and buying back our own stock. Markets never move in a straight line, but we've built this firm by taking disciplined decisions over many years, not by chasing the moment. That will not change. I know that everyone wants to know about what the second half will look like. Let me start by saying the second half is always seasonally strong.
And as we enter the back half of the year, I feel very good about where we are. Asset management revenues are up, our NII run rate is at the higher end of our full-year guide, investment banking pipelines are robust. Client activity remains healthy, our capital position is strong, and we're building a stronger, more valuable Stifel. So while we're proud of what we've accomplished in the first half of the year, we're even more excited about where we're headed.
So with that, operator, let's open the line for questions.
OPERATOR (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 your mute function is turned off to allow your signal to reach our equipment. Please limit yourself to one question and one follow-up. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. And we'll take our first question from Steven Chubock with Wolfe Research.
Steven Chubock, Analyst at Wolfe Research
Good morning, Ron. Good morning, Jim. Hope you're both well.
Ron Kruszewski, Chairman and CEO
Yeah, you too.
Steven Chubock, Analyst at Wolfe Research
So, Ron, I was quite encouraged by some of the backlog commentary that you offered on the institutional side. Admittedly, I'm struggling to reconcile that versus some other commentary we've heard through this earnings season about bank M&A activity remaining fairly subdued. The middle market sponsor community is still on the sidelines. Recognize you have a diversified business, but was hoping you could just unpack where you're seeing strength in terms of backlog momentum on the M&A or ECM side and just speak to the outlook for both middle market sponsors as well as your expectations for bank merger activity in the back half.
Ron Kruszewski, Chairman and CEO
A lot of questions on that question, but sure. I mean, look, first of all, a lot of people, for valid reasons, highly correlate our advisory with bank depository M&A. And we just announced in July a nice transaction which I think will close this year with a significant fee. But I would say that bank depository M&A relative to what we expect will happen is relatively muted. There's, you know, we talked about a buyer strike. We've talked about, you know, a lot of uncertainty in the market, but the core fundamentals haven't changed.
But that's not all that's driving my optimism. In fact, I would say it's not. It's across the other parts of Stifel's platform. And people forget that we have a diversified platform in health care, in industrials, in technology and in energy. And all of those are improving. And we were just, we're seeing that. So we're not, you know, you shouldn't correlate, although it's important. You shouldn't just correlate us as a bank depository investment bank.
That would make a mistake. And so what's kind of interesting for us, Steven, is that, and I'll let Jim add some color, but from my perspective, the environment's strong. And while I'm optimistic, I see upside because sponsor activity will, if it does pick up, it's really going to help us because a lot of these companies will pick up our middle market. So this sponsor activity actually shows upside. I think bank M&A has upside. From my remarks here, there's more upside.
Potential capital raising has been strong and we continue to see it outside of financials. It was really strong in healthcare, for example. So, you know, when I unpack, what I'd like to say is that while I'm optimistic—sometimes I'll say I'm optimistic, but I, you know, look out below because the market's overly optimistic—today I'm optimistic and I see upside.
James Zemlyak, President
I think you covered it very well, Ron. The only thing I would add related to bank M&A, you know, as you sit here today and think about the opportunity for growth there, there's probably around 120 banks over $10 billion today. So you're seeing a little bit more of a measured pace in that M&A cycle. But the 2028 presidential election still puts a focus on this open regulatory window and all the factors Ron talked about in addition to the fact the economy is good and bank stocks have performed well.
You mentioned the recent transaction we just announced. There's a lot of active dialogue there, but we're getting to the point in the year that anything we probably announce at this point is going to be a 2027 transaction. But there's a lot of active dialogue there and it's a driver of when we come out with our 2027 guidance. It'll certainly be a bright spot.
Ron Kruszewski, Chairman and CEO
Did I cover all your questions?
Steven Chubock, Analyst at Wolfe Research
Yes, you did. Thanks so much for that, Ron. If I could squeeze in one more—yeah, it was a common thread, I thought, but fair enough. I wanted to actually ask on operating leverage. You talked about some of the sources of drivers of revenue momentum. If I look at first half ’26 versus first half ’25, you grew revenues 15%, delivered incremental margins closer to 39%. So certainly reinforcing the power of the model and your ability to deliver sustained operating leverage as revenue scales.
Was hoping you could just speak to whether you believe that a 39% incremental margin is something that's sustainable and whether your efforts on AI that you were alluding to earlier, how that informs your near and medium term expectations for operating leverage.
Ron Kruszewski, Chairman and CEO
Yeah, I'll take the second question first. I'll let Jim think about the incremental margin. I guess I haven't really thought of it that way, the 39% number you're talking about. But with respect to AI, it's interesting that my views have changed a little bit, Steven. And I think AI will have operational efficiencies across the board. But what I've seen and where my perspective has changed—I thought that it would be a replacement for human costs, okay?
And what it really is turning out to be is an accelerator of our business. So I thought, oh, you know, we don't need as many people, but what's happened is we, across all of our businesses—in wealth and in fixed income and in equities and investment banking—we are becoming more skilled at uncovering opportunities and that is leading to needing people. And I think about some of the efficiency things that we can do. And it's like the idea that with—and even in your space, Steven, you must be seeing this—the ability for analysts to cover more companies because a lot of the historical work can be done.
But what we really want is your opinion: what do you think of the results? And I see productivity gains and that's where I see it. So AI has—I've changed my view about thinking, oh, you know, we don't need as many people. That's not true. In fact, we need more talented people to take advantage of what I see as our ability to even compete and bring greater market share. Incremental margins.
James Zemlyak, President
Yeah. In terms of incremental margins, I think the answer is different when you look at each of our individual businesses. When you look at the institutional group, that incremental margin should be over 20% on higher revenues. In the private client group, that's probably somewhere north of 20% as well. And then when we look in the bank, that's obviously a much higher margin business. But when you look at the consolidated entity and you think about operating leverage and where we're getting that operating leverage, a lot of that is going to come through the compensation line item.
On a year-to-date basis, we've been able to take about 80 basis points off the comp-to-revenue ratio. And that's really a function of the things we hit on—the sale of SAA, the restructuring of the European activities. But you also combine that with a higher net interest income. It produces a pretty strong lever there. On the last quarter call, we talked about taking somewhere between $70 and $80 million of comp costs out with the sale and restructuring transactions.
And then you look at NII—we're up over $30 million year to date. And you can look at our guide for 3Q and then layer on kind of our growth assumptions for the full year. You can see we're going to have a pretty nice second half in terms of NII in our forecast. That comes at a much higher incremental margin. So you combine those two factors together, we should be getting more incremental comp leverage. And I think where we're at today, we feel pretty comfortable that if the operating environment holds, we'll be at the midpoint to the lower half of the overall comp guidance range of 56.5 to 57.5.
Ron Kruszewski, Chairman and CEO
Yeah, that was that. You know, Steven and I, we—you get all the questions. Obviously other people online are probably thinking, oh geez. But I'll say this—Jim just said a lot of words there. It's been a number of years since we've adjusted our comp ratio in the second quarter. Okay, you go back and look. And so this year we did, which probably speaks to your question about incremental margin and how we're viewing the second half of the year. Okay, so thanks for your questions.
Steven Chubock, Analyst at Wolfe Research
Thanks so much for taking my questions.
OPERATOR (Operator)
And we'll take our next question from Mike Brown with UBS.
Ron Kruszewski, Chairman and CEO
Hey, Mike.
Mike Brown, Analyst at UBS
Great. Good morning. Good morning, Ron. Good morning, Jim.
Ron Kruszewski, Chairman and CEO
Good morning.
Mike Brown, Analyst at UBS
So I have a similar theme here. I'm going to maybe split it—two questions though, two different focuses. So Ron, you brought up a really interesting point on the AI advisor threat concerns that are out there in the market. Given the market's fears, I figured there would be maybe greater uncertainty out in the recruitment market and maybe that there would be a little bit less competitive pressure there. Sounds like from your comments that's not the case.
Do you think that that holds or do you think that there may eventually be a bit of a wait-and-see moment and a little bit more maybe rational activity on the recruitment front?
Ron Kruszewski, Chairman and CEO
Thank you. Yeah, look, I think that maybe—if there's a little bit of a wait and see, maybe it's us, okay. And it's me trying to say, well, wait a minute. You know, it seems like I'll wake up one morning and read about some new AI productivity tool and all the wealth management stocks get hammered. And in the same day I'll come in and Jim Z. will tell me, oh man, everyone's upping the recruiting packages. And I'm like, wow, there's a disconnect here.
And to me, what AI will do is actually increase the value of advice, just like it's doing in banking. Like I said, what we're seeing is—and I always make these comments, you know, I make talented people more talented and less talented people less talented. And so it's an amplifier. And I see that with what we can do on the advisor front, since you're talking about wealth, is just make our advisors more productive, easier to communicate, easier to have meetings, and increase the value of advice.
Because as you get more information in the marketplace, which is what AI is doing—it's making it more abundant—the value of human judgment, advice, and relationships increases. Everyone thinks, no it doesn't, someone will just use AI as their advisor. I don't see that and I'm just going to stick with that. Otherwise the market wouldn't be paying what they're paying for the last mile of advice. So that's how I see it.
Mike Brown, Analyst at UBS
Okay, great, great color. And then sticking on the AI theme, kind of builds on what you were just saying there. We've certainly heard stats and read the studies about how advisor productivity can pick up. I think the numbers we've seen are about 10 to 30% pickup in productivity for advisors—interested in your take on that. But how do you ensure that the advisors redeploy this freed-up time to be more productive? I mean, you talked about kind of the equity research angle.
There's an opportunity for analysts to perhaps expand coverage and focus more on the value-added aspects of the value chain. But in the advice space, just curious how you ensure that that productivity could drive better same-store sales growth over time. And is there a risk that the industry eventually starts to face some fee pressure there as advisors can do more and then perhaps competitors begin to compete that pricing lower to win share?
Ron Kruszewski, Chairman and CEO
Well, your second question first. I mean, look, there's been fee pressure in this business since 1975, okay, when May Day occurred. And so you've seen that. But the least amount of fee pressure has been in the building blocks of advice. So ETFs and all the products, and you've seen those fees get compressed because they're the wholesale side of advice. The relationship side, the advice. You know, we don't pick stocks really anymore. We provide holistic financial advice.
And so of course, there'll always be some fee pressure. But net-net, I see it improving overall because markets, you know, generally go up over time. At least we hope so. With respect to how I ensure, I think it speaks to Stifel's culture in that the way I know that it will be because we leave it to the advisors. I mean, these are individuals who are building individual businesses. And I don't need to tell them to allocate their time to more productive things.
They just do it naturally. And in fact, the fact that I'm not sitting there browbeating people with how to be more productive is why people like Stifel. We give them the tools, they deploy them, and we have a highly incentivized system for advisors to be as productive as they see fit. And that's... So I'm very confident that if we put the tools on the table, our advisors will use it productively as each of them see fit, not as I see it fit, you know, in some homogenized fashion.
On the institutional side, look, it'll drive because we, you know, these are all partners across the business, and they want to be more productive. So again, yeah, it's an amplifier, not a replacement. And I think that's going to be the new thing that's coming out. You're going to see firms not talk about reducing analyst-to-MD ratios. You're going to start seeing people saying, shoot, this makes us more competitive. Sure, thanks.
OPERATOR (Operator)
And we'll take our next question from Devin Ryan with Citizens Bank.
Ron Kruszewski, Chairman and CEO
Hello, Devin.
Devin Ryan, Analyst at Citizens Bank
Great morning, Ron. Good morning. How are you, Ron? Good to hear from you and Jim.
Ron Kruszewski, Chairman and CEO
I'm good. You?
Devin Ryan, Analyst at Citizens Bank
Yeah, doing great. Yeah. So first question, just want to ask about organic asset growth and wealth and kind of the algorithm and specifically love to hear about just kind of client wallet and how that's been evolving just as you guys have added a lot more capabilities over the last five, 10 years. Are you winning more assets per client? As we think about that part of the algorithm and then on the advisor recruiting run you've mentioned, some of the large firms are doing better. We see that as well. Do you think they found a new economic model or formula to make this work? Or maybe it's not sustainable. Just be good to hear thoughts on both.
Ron Kruszewski, Chairman and CEO
Thanks. You know, with respect to net new assets, you know, I... It's the same answer every quarter. You know, obviously we watch it closely. You know, we believe that we, you know, a lot of people report this number differently. I'm not quite sure. I've always said measure revenue, not necessarily NNA. I know you'd like looking at it that way to predict revenue, but we understand, you know, productive assets and what I would say philosophically, and this is something we did, I think eight years ago, was a philosophy that, you know, the advisors in the future and more and more so will not be limited to just what we have in custody.
At Stifel, we have been giving technology and tools that allow us to advise on assets held away and being able to consolidate and report not only assets but expenses in a holistic manner. And when you do that, you start seeing a client's full financial picture. And then advisors, of course, going back to my comment about them being very entrepreneurial and productive, will ask about, well, who's managing this? Can I help you with this? Oh, you've got this loan.
We can offer a better rate. Stifel's credit card is at 8%, your other one's at 18%. Our clients don't borrow, by the way, so that's easy, but it's not a credit card. So, you know, all of this is a holistic view of understanding that what technology will do is firms cannot be just focused on their custody stock record, so to speak. They're going to have to look at and be able to look at a holistic view for clients. And that's what we, I think we were one of the first full service firms to actually look at that and not just have it be a sidebar, but central to how we look at client assets.
Devin Ryan, Analyst at Citizens Bank
Did I miss great? No, I think that's great. Appreciate it. And then ask a follow up here just on lending and just the fund banking. Lending has obviously been a great growth story for the firm. Love to hear about just how you're thinking about that from here and kind of relative capacity, kind of supply, demand and then considerations from a risk perspective. I appreciate it's maybe lower risk, but just hear about that and then other strategic elements in doing that.
Kind of the multiplier that maybe you're seeing in other revenue lines across the firm or you expect to see and just how that's helpful there as well.
Ron Kruszewski, Chairman and CEO
Yeah, well, look specifically as it points to venture, not only fund banking, but venture in what I would say we had a big funnel. Okay. And we just started and started competing in this business. We've been in it for a while, but we really made an investment three years ago and we're just getting started. We have things that we have to do. We have to be better on the technology front, providing venture clients with good treasury-type functions. And we've got a big investment in that.
And what I see today is this isn't just about collecting deposits and making venture and fund banking loans. This is about, again, broadening the scope and understanding that we... Out of this comes wealth opportunities, investment banking opportunities, fixed income opportunities. And I, as I have said on previous calls, I am very optimistic and bullish about the investments we've made in this business as I look forward. It's a great ecosystem. It is the new economy.
And we, you know, I don't think that any of you have really understood, or at least haven't understood what, you know, what we're doing and how we can grow that business. But we have a lot of investments that we need to make to be competitive. But I think we're one of the players in that business. And it's not just about deposits and loans. About a lot more.
James Zemlyak, President
One thing I'd add there, if you think about the loan growth in the second half to get to the $4 billion bogey for the entire year, or guide there, you know, you look at our current excess capital, we use less than half of that to fund that loan growth in the second half of the year. So we have the financial flexibility to do more than that as we look forward in the year if the demand is there for assets with the proper risk-adjusted returns. And obviously fund banking, as Ron mentioned, is a very low-risk asset class.
We feel very comfortable with it.
Ron Kruszewski, Chairman and CEO
Yeah, thanks, Jim.
Devin Ryan, Analyst at Citizens Bank
Yeah, yeah, appreciate that. We see the opportunity, which is why we asked, but thank you.
OPERATOR (Operator)
We'll take our next question from Phil Katz with TD Cowan.
Ron Kruszewski, Chairman and CEO
Hey, Bill.
Bill Katz, Analyst at TD Cowen
Good morning, everybody. Thank you so much for taking the questions. Maybe pick up on your outlook for NII. I think the math is pretty straightforward, but I was intrigued by the notion of a flat NIM in there. Maybe that's just sort of common conservatism, but just sort of thinking why wouldn't the margin potentially improve a little bit? My thinking is it seems like loan growth is picking up, probably has better yields relative to securities. A, is that fair, and B, just given a bit more of a hawkish rate backdrop, all else being equal, I would imagine just the incremental reinvestment rates are a bit better.
So how should we think about maybe the NIM dynamic within that NII discussion? Thank you.
James Zemlyak, President
Yeah, I'll go ahead and start with that one. Obviously you look at the assumption that everything we're growing here is going to be funded by fund and venture, and those are deposits that are priced a little bit more attractive than what you see in Smart Rate today. And Smart Rate's at about 3.25. And then you think about where are we investing? We're investing in fund banking loans. Those are yielding six, six and a half today, venture's yielding six and a half to seven and a half.
But then you also have mortgages that are probably in the mid fives to mid sixes. So it kind of depends on the mix of those assets of where we go. And you combine that with the funding, generally speaking, it's around a flat NIM. There's certainly opportunity for NIM expansion if we see more growth in sweep or other cheaper alternative funding costs. But that's just a dynamic of the yields we're seeing on both the asset side as well as the cost of funds.
Ron Kruszewski, Chairman and CEO
Yeah. And my bank guys are generally conservative. I'll just say that, okay? They don't usually tell me we're going to have expanding NIMs and increasing net... That only can lead to harsher conversations later. So I see the dynamic that you're talking about, but there's a lot of things that go into that pool. As you know, Bill, there's sorting, which we don't think is a big issue for us. There is mix. There's a number of things, the shape of the yield curve, all these things that can change.
And we want to be comfortable with what we tell you.
Bill Katz, Analyst at TD Cowen
Okay, that's helpful. And then Ron, you mentioned a couple times in your prepared comments, I figured I'd sort of ask a little bit further. You mentioned that you remain disciplined on M&A and that your stock still has good value. So is that still true here with today's price? And then on the M&A side, putting maybe the bid-ask spread to the side for a moment, where are you most focused relative to the momentum you have on the organic side? Thank you.
Ron Kruszewski, Chairman and CEO
I'm sorry, let me, before you do this, is this question about our view of M&A or on our advisors?
Bill Katz, Analyst at TD Cowen
Yes, right, right. The corporate side as you see the evolution of Stifel.
Ron Kruszewski, Chairman and CEO
Yeah, look, you know, it's been... We look at a lot, lot of deals, and the deals we've done this year, we've been on the sell side. I'm never on the sell side. I mean, I'm always on the buy side, at least historically. And we will continue to, you know, look at... And we always evaluate transactions. You know, at the end of the day, it's pretty simple. I would say that if I would try to ballpark, you know, the market today for, you know, financial services or advisor, whatever you want, it's, you know, it's 15 to 18 times adjusted EBITDA, and we're trading at 8.
All right, so there's a disconnect here. So the best, the best acquisition I see is ourselves. And that's kind of what we've been doing. You saw it in all of our results. So it doesn't mean that we'll just shut the door. But when we look at these things, we're looking at return on invested capital. We're not looking at a print. We have... We've grown this firm and we have 24% return on tangible equity. That's the number I look at. And, you know, I'm not going to do a deal that has a return on invested capital of sub-10% to show revenue growth that's dilutive to value, in my opinion.
And today assets, for a variety of reasons, I think are at the high end of valuation ranges, at least in the M&A front. And we're going to be disciplined. Sometimes I'm disappointed. I'd say, shoot, I wish I could have done that. But we're going to stay disciplined. But are we still an active participant? Absolutely.
Bill Katz, Analyst at TD Cowen
Great. Thank you for the call.
OPERATOR (Operator)
And we'll take our next question from Brandon Hawken with BMO Capital Markets.
Brandon Hawken, Analyst
Good morning. Thanks for taking my questions to start out. I'd just love to maybe drill down on part of Steve's question that opened it up and some of your comments around the comp leverage. You know, there's sort of two ways to get to comp leverage. But was the implication that you guys are optimistic about the revenue momentum in the back half of the year? And if so, is that optimism coming out of more from the institutional side or the wealth side?
Ron Kruszewski, Chairman and CEO
You know, the wealth is a little more, I don't want to say predictable, but you know, we've already, you know, we already know asset management for the third quarter. We bill and we bill in advance. All right. So you have to look at what the markets were on March 31 versus what they were on June 30. Sort of extrapolate that and you'll get that. Jim and the team do a pretty good job on NII. Transactional revenues, while a little more volatile, we have a pretty good handle around that.
So then it comes down to the more cyclical part of the businesses, which ends up being investment banking. And so our optimism is there. And in NII—and NII being net, an increase in interest-bearing assets. All right. And so we added 2.7 billion in the second quarter. We have a lot of loan demand. I don't think that if I said we wanted to increase more, we'd have a problem doing that. We set a target for 4 billion. That $4 billion will help drive efficiency ratios in the comp.
That does it. Productivity also does that. So to answer your question, I see a more constructive environment and a more constructive pipeline in the businesses that tend to be more cyclical for us, which is investment banking and institutional. But I do think that for us to adjust the comp ratio in the second quarter relative to what we've done in the past speaks a little bit to—it's a pretty good environment now. By the way, I've been pretty optimistic and I am optimistic, but these—I'm going to throw my little caveat in here that the world can change pretty quick.
Okay. And I don't want to pretend that I'm not—and we're not—cognizant that we still are in a volatile environment, primarily on the geopolitical front. So I just, I have to have a caveat because I am optimistic, but I can't certainly predict or understand that.
Brandon Hawken, Analyst
Great. Okay, thanks for that. And you touched on it a little bit in your response, Ron, and you spoke to, you know, the fund banking opportunity being and venture being sort of more than loans and deposits in response to an earlier question. So I'd be really interested to drill down there. To me it makes a ton of sense to integrate this with other parts of the institutional business and engage with this cohort of counterparties. Can you speak to how those efforts are progressing and where we would see, expect to see possible benefits manifesting in other parts of the P and L beyond the lending and deposit taking, as you referenced?
Ron Kruszewski, Chairman and CEO
Well, we already see it. I mean, we measure what's coming—what clients we're getting in wealth, how we're integrating with investment bank, either on advisory or in PIPEs, capital raising, private placements on the debt. We are in the early innings of this. Okay. And so I'm not sure that I can give you, you know, some numbers to this, other than the fact that I've talked about it for a few quarters about how this is an area where we're doing—I don't want to rent our balance sheet.
Okay. I don't want to be—or we're just renting our balance sheet to increase assets. I want to be in a position where that is an integral part of what we do. Whether it's doing private credit to our wealth management clients and providing, you know, services not only to the venture community, but also the private equity and venture funds that are our clients. And they turn around and they'll say, well, you know, you do this for us and so you can have a look at this business.
It may not be related to the company we made the loan to. So, you know, I guess I am very optimistic. I sometimes, you know, will be, you know, saying, why aren't we doing more? But we're building it and I think we will. So it's—I like it because it's holistic in the way we're deploying capital, using our balance sheet and driving, you know, greater—I hate to use the word wallet share, but that's the only thing that comes to mind, Jim.
James Zemlyak, President
You got me. It's also a funnel across the retail as well, in terms of net new assets as an opportunity to funnel assets outside of the traditional channel we have today. And so anything we can do to create those new type of funnels, to create net new assets, is going to be a net positive for our overall business.
Brandon Hawken, Analyst
Just to follow up, would those net new assets be sourced from the sponsor where you have the banking relationship, or maybe the private companies where there's some value creation in exits? What's the better way you think about that?
Ron Kruszewski, Chairman and CEO
Yeah, well, probably the latter in terms of founders, you know, but there's—I mean, it comes from all over the place. Okay. When you have relationships and, you know, there's a lot of things you can do, but if you wanted to think of it as to what the connecting the dots, this discussion—you know, you meet a founder, or the founders in this ecosystem tend to be, I would say, you know, their stakes in their companies make them very wealthy, but their liquidity isn't at the highest stage with young entrepreneurs.
And so that provides the opportunity of us to provide a mortgage, to do a number of things. And so, yeah, I would. There is a definite linkage there. Believe me, I'm focused. Makes sense because I want to make sure that we have the proper systems in place to make sure that we're touching those opportunities.
Brandon Hawken, Analyst
Great. Thanks for taking my questions.
OPERATOR (Operator)
And we'll 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. I just wanted to touch back on, Ron, some of your comments on AI efficiencies—or I guess AI opportunities. It sounds like it's quickly becoming an incremental cost, you know, as well as some efficiencies in there. But you provide some perspective in the past—kind of if you could just talk through some of your biggest areas of, or priority areas over the next 12 months or so, and any areas where, you know, you could talk to kind of the pace and size of efforts behind these initiatives.
Ron Kruszewski, Chairman and CEO
Yeah, that's a great question. I'm not sure that I—as is, the world is coming to understand this. And on balance, I feel that some of the efficiencies that we can get, operationally speaking—we're a regulated industry. So generally, when a new rule we have to comply with comes, what do we do? We get a new rule and then we throw people at it. Okay. And then people compare the rule book to what we're doing, and there's just a lot of things that build up over the years in a highly regulated industry, especially if you're a bank holding company, which we are.
So I see a lot of efficiencies there. And that's, you know, that's simply, you know, looking at the rule book, looking at what we're trying to accomplish, say in marketing—you know, we want to market to clients, and we have to comply with the marketing rules of the FCC. Well, that's a perfect application for an agent because it's just, you know, taking unstructured data and comparing it to a rule and then hand it to a person. We don't need as many people doing that, but we can make them do higher value.
But I see efficiencies there. And then I do see additional costs on tokens. Okay. Just as the cost of tokens—it'll be interesting to see how this plays out. Frankly, I've made the comment: if anyone is in the AI hyperscaler universe on this call, they probably won't like what I'm going to say, but I sort of view tokens being like cell phone minutes. So I think those costs are going to come down because of competitive view. Just like everything else, you throw a lot of dollars at a product where you don't have monopoly—what do you do?
You compete on price. And so I see that being our benefit, or the economy's overall benefit. How that all plays out relative to human costs versus token costs—good question. We're trying to measure it. I think net-net, with the competitive pressures that will come on open source AI, depends on what we do regulatorily. Net-net, it's a big productivity and efficiency benefit for us. At least that's what I thought today. That could change by next quarter, and who knows what the next model is going to be able to do.
Think about it: last December we didn't know a lot of this stuff. So it's incredible what's going on.
Michael Cho, Analyst at J.P. Morgan
Great. No, I appreciate all that color. I guess just more open-ended question, similar area in terms of advice and wealth. But Ron, you kind of talked through kind of the history of advice, how advisors move from picking stocks to providing more holistic financial advice. And so it's really open-ended here, but I was kind of curious: is there a natural—you know, as these capabilities and, you know, AI initiatives, as these come to fruition, is there kind of a natural progression from here, you think, where the advisor or the advisory business can take another step in evolving or transforming itself to fit the new normal?
And, you know, are there any particular areas that kind of come to mind as, you know, incremental areas where the advisory business could potentially take the next step?
Ron Kruszewski, Chairman and CEO
Well, I think that—I think it already has and it is. All right. I think that we, you know, if our business was simply, you know, asset allocation, then the old models that, you know, came out with—you know, you can take the slide bar on your phone and just adjust your asset allocation through ETFs and, you know, and do that—you know, that didn't really impact the business. But the way it did impact it is that our advisors do a lot more than that.
They just—there's a whole part of doing holistic advice that becomes more efficient as you use technology to do it. And it's a hard question to answer. I know this, okay, I can say this, and many of you, you must be the same way: I've been CEO of a financial wealth management firm for almost 30 years. I have a Bloomberg. I can pick up a phone and call analysts. They return my calls. I'll answer a question. My own analyst—you know, I've got access to our trading desk.
I have all this information. I have all this. And I need financial advice. Okay. I do not manage my own business or my own affairs. That's because I'm busy. And what's going to happen is, as we—I think I've said this, I'm repeating myself, but I really believe that advice will go up. And by the way, if you look on—a plug on, I guess, Bloomberg—there's an interesting chart where they compare the propensity for high-net-worth people to want financial advice.
And I don't—I'm not gonna—I'm gonna cite these numbers probably not correctly, but it went from like 30% said they would want it in 2009 to like 60% in 2023 or 2024. You can look it up. So don't quote me, but it was a significant increase in the number of people, through this technology wave, that value advice. And I think it's just natural, because as you get more information and you don't have time to process it—before you had that information—well, then the value of advice goes up.
And that's just, you know, that's just my belief. Great, thank you.
OPERATOR (Operator)
And at this time, I will turn the conference back to Ron Kruszewski for any additional or closing remarks.
Ron Kruszewski, Chairman and CEO
Well, that's right. I've spoken a lot, so I'll make this brief. I think that, I think what I would say is, first of all, thank you for joining us. I look at our results and I say, I kind of even told my partners, I said, well, geez, we just did what we said we would do. And I don't know, is that kind of, that just kind of boring? And it's not. What I want everyone to understand is we'll continue to build this firm from 100 million in revenue when I started as CEO to, you know, 6 billion today. And we'll do it the way we've always done it.
It's not a magic thing that we're going to do. We're going to continue to build it. We're going to build it with shareholder returns in mind. And we're going to do it with a long-term view. And we're not going to be chasing or just doing something for revenue growth. We're going to keep our measure of return on invested capital. And that's just what we're going to do. So I look forward to talking to you in the third quarter and continuing to do what we say.
So thank you.
OPERATOR (Operator)
Thank you. And this concludes today's call. Thank you for your participation. You may now disconnect.
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