Earnings Call: Q2 2021

Jul 28, 2021

Ladies and gentlemen, thank you for standing by, and welcome to Stifel Financial Corporation's 2Q 2021 Earnings Conference Call. All lines are currently in a listen only mode. After the speakers' presentation, there will be a question and answer session. As a reminder, today's conference is being recorded. It is now my pleasure to hand the conference over to Mr. Jones Jeffrey. Thank you, operator. I'd like to welcome everyone to Stifel Financial's Q2 2021 financial results conference call. I'm joined on the call today by our Chairman and CEO, Ron Krzyzewski our Co Presidents, Victor Niesi and Jim Zemlyak and our CFO, Jim Marischen. Earlier this morning, we issued an earnings release and posted a slide deck to our website, which can be found on our Investor Relations page at www.stifel.com. I would note that some of the numbers that we state throughout our presentation are presented on a non GAAP basis, and I would refer to our reconciliation of GAAP to non GAAP as disclosed in our press release. I would also remind listeners to refer to our earnings release, financial supplement and our slide presentation for information on forward looking statements and non GAAP measures. This audiocast is copyrighted material of Stifel Financial and may not be duplicated, reproduced or rebroadcast without the consent of Stifel Financial Corp. I will now turn the call over to our Chairman and CEO, Ron Kruszewski. Thanks, Joel. To our guests, good morning and thank you for taking the time to listen to our Q2 2021 results. I'll start the call with some highlights from our quarterly and first half results, and I'll discuss our revised outlook for the full year. Jim Marischen will review our balance sheet expenses, and then I'll wrap up with some concluding thoughts. Before I get into the specifics of our quarterly results, let me start by saying that overall, Stifel Business in the first half of twenty twenty one has surpassed any 6 month stretch by a wide margin and rival some of our most recent full year results. Our record 6 month net revenue was the result of records in both of our major operating segments. The strength of our top line and our continued focus on an operating efficiency resulted in record quarterly and 6 month revenue, as well as record earnings per share. As we head into the back half of this year, we are well positioned to continue our strong performance, which is illustrated by our increased full year guidance, which I'll discuss in greater detail in a few minutes. So looking at our quarterly and year to date snapshot, the numbers really speak for themselves and are the result of the investments over the last several years in a strong operating environment, especially for our investment bank. Revenue in the second quarter was a record of more than 1,150,000,000 an increase of 29%. For the 6 month period, revenue was nearly $2,300,000,000 up 27% and further illustrating our growth was roughly as much as our 2015 full year revenue. The growth in revenue and lower expense ratios resulted in record non GAAP EPS of $1.70 which was up 65% year on year and $3.20 year to date, which is up 75% and when compared to our past full year results would rank as the 4th best in our history. I am also pleased with our operating leverage as we generated record pre tax margin of 24% and our annualized return on tangible common equity was nearly 31%. Tangible book value per share increased 29% in the last year. Turning to the next slide, our record 2nd quarter net revenue was driven by Global Wealth Management that increased 26% and our institutional business, which posted a 31% improvement. Compensation as a percentage of net revenue declined sequentially to 59.5%, which was in line with our guidance on last quarter's call. Our operating expense ratio was 17% and excluding credit provision and investment banking gross subs, our operating ratio totaled 16%. This was again well below our full year guidance due to the strength of our revenue and expense management. As the economic outlook improves, we like other banks have updated our economic models. This coupled with strong credit performance in our loan portfolio resulted in a reversal of more than $9,000,000 of credit provisions during the quarter. I would note that this was comprised of a $4,000,000 release of credit provisions due to improving economic outlook and approximately $5,000,000 relating to loan sales. As it relates to the loan sales, Jim Marischen will provide more color in his remarks. Neutralizing the impact of credit provisions, Stifel's pre tax pre provision income totaled $270,000,000 which increased 31% year on year and 13% sequentially. While the strength of the operating environment, particularly in Investment Banking, has been a primary driver of our results. I do not want to understate the importance of the investments we've made in our business as a meaningful contributor to our performance. Stifel is and will continue to be a growth company. Our focus on investing in our business and making us more relevant to our clients has resulted in not only impressive top line growth, but significant operating leverage. As you can see from the numbers on this slide, our total net revenue on an annualized basis in 2021 has doubled since 2015 and was driven by both our Wealth Management and Institutional businesses essentially doubling in that timeframe. What is particularly interesting is not only has our revenue growth doubled, but our growth rate has accelerated. To illustrate some of the numbers, at the end of 2015, our net revenue totaled approximately $2,300,000,000 with nearly $1,400,000,000 from Wealth Management and roughly $1,000,000,000 from our institutional group. Since that time, we've grown our Wealth Management business by hiring experienced financial advisors and more than doubling our balance sheet. This has led to a more than 70% increase in total client assets and annualized global wealth revenue that would surpass 2015 results by 84%. Our institutional business, we've made 6 acquisitions and our total managing directors have increased 67% in our Investment Banking business, contributing to an 111% increase in our institutional revenue since 2015. While our revenues are on an impressive trajectory, our ability to generate operating leverage, I think, is even more outstanding. In the first half of twenty twenty one, our pre tax margin increased to 23% from 10% in 2015, while our return on tangible common equity improved to 30% from 10% in that same time period. Looking at our operating leverage another way, our EPS has quadrupled on a doubling of revenue since 2015. This increase in our scale and the fact that we continue to be more relevant to our clients are the primary drivers behind my optimism for the back half of this year. Now before I go into details of our updated guidance, I want to note that our revised outlook is based on continued favorable market conditions. There are always risks, such as market corrections or geopolitical crisis that could negatively impact the operating environment and particularly our Investment Banking business. But given the strength of our results in the first half of the year, the current strength of our pipelines and my visibility into the beginning of this quarter, we believe that it is appropriate to increase our full year guidance at this time. We now expect net revenue to be in the range of $4,500,000,000 to $4,700,000,000 up 13% to 18% from the high end of our prior guidance. This is a reflection of the strength of our Investment Banking and Wealth Management businesses. We are tightening our net interest income guidance to $465,000,000 to $485,000,000 as the benefits of the growth in our balance sheet has helped to offset the decline in short term rates. In the second half of twenty twenty one, we anticipate an additional $2,000,000,000 of asset growth at our bank. As a result of our increased revenue expectations, we are lowering our expense ratio guidance. Our comp ratio is lowered to 58% to 60%, given our expected NII results and strong investment banking. Our operating non comp expense ratio expectation has declined to 16.5% to 18.5% as we continue to see improved operating leverage in our business. I would note that the midpoint of our revenue guidance would suggest that Stifel achieved second half revenue essentially equal to our 1st 6 months of revenue. The current market environment and our pipelines clearly support this guidance. And further, historically, the second half of the year, especially the Q4, are strong seasonal periods for Stifel. I would also note that not only is our updated guidance significantly above our original expectations, but also well above the current 2021 Street expectations of $4,300,000,000 in revenue and $5.57 of earnings per share. And with that, let me move on to the results of our operating segments, starting with Global Wealth Management. 2nd quarter revenue totaled a record of $638,000,000 up 26% year on year and with 6 month revenue of $1,300,000,000 also a record and up 17%. Our growth was driven by increased asset management revenue and net interest income. The continued growth in our asset management revenue was driven by higher market valuations and increased client assets, which finished the quarter at record levels. Total assets under administration were $402,000,000,000 and fee based assets of $149,000,000,000 rose 8% sequentially. These asset levels should drive further growth in asset management revenue in the current quarter. Net interest income increased 3% year over year, primarily given our continued ability to grow loans and produce a stable net interest margin. Jim will touch on this further later in the presentation. The next slide highlights the strength of recruiting and the growth drivers of our platform. We added 26 advisors, including 14 experienced advisors, with total trailing 12 month production of 12,000,000. The gross number of recruits is down compared to last year, as the return of advisers to their offices has slowed recruiting. In addition, there is increased competition from larger firms offering what is, in our opinion, very high transition packages. That said, as our inflation experts in Washington like to say, we view this situation as transitory as our pipeline remains robust. Additionally, we definitely are seeing activity within Stifel Independent Advisors and look forward to recruiting to pick up in this channel. Moving on to our institutional group. We posted our 3rd consecutive record quarter in our institutional business as we continue to benefit from increased activity levels and the scale of our business. Our quarterly net revenues totaled a record $521,000,000 which was up 31% from the prior year. 6 month revenue increased 41 percent to over $1,000,000,000 Quarterly advisory revenues more than doubled to $207,000,000 while capital raising posted revenue of $158,000,000 which was up 42%. These results more than offset a 17% decline in our trading revenue. While the decline in trading revenue was expected as compared to the robust activity in the Q2 of 2020, I am pleased with our results relative to The Street, at least to the reported numbers that I have seen. As noted on previous earnings calls, we've been investing in our institutional business with the objective of becoming more relevant to our clients and the market as a whole. The leverage in these investments was on display this quarter as our pre tax margins improved by 6 30 basis points to 27%. Looking at the revenue components of our institutional business, our equities business posted record first half results of $391,000,000 up 52%, while our 2nd quarter revenue totaled $163,000,000 up 29% year on year. Our fixed income business posted quarterly revenue of $147,000,000 while down 13% year over year was up sequentially. On this slide, I'll focus on the trading businesses of these segments and discuss capital raising on the next slide when I talk about Investment Banking. With respect to our trading businesses, equity quarterly revenue totaled $61,000,000 down 22% from record levels in the 1st quarter, which was slightly better than the overall market volume declines, which we witnessed. 6 month revenue was $141,000,000 which was up 5% from 2020. Fixed income trading revenue of $92,000,000 was down 7% sequentially. Similar to my comments regarding institutional equities, our fixed income trading was impacted by lower industry volumes. While an industry wide slowdown in credit trading was the primary driver of our revenue decline, I want to say that our rates and muni revenue experienced solid improvement. On Slide 9, Investment Banking revenue of $376,000,000 was our 3rd consecutive quarterly record, an increase of 73%, driven primarily by record advisory revenue. First half revenue of $716,000,000 increased 81% as we generated record capital raising in the Q1 and record advisory revenue in the Q2 of this year. I noted on last quarter's call that we expected a strong second quarter for our advisory business and that is exactly what we got. Record revenue of $207,000,000 surpassed our prior quarterly record by 19%. In terms of verticals, financials was a standout as KBW had its best quarter since our merger back in 2013. Since the beginning of 2020, KBW has advised on 8 of the 10 largest bank mergers and has the highest market share in the firm's illustrious history. Additionally, we saw strong contributions from technology, consumer and diversified services as well as in the fund placement business from Eaton Partners. Looking at our Q3, barring a substantial change in the market or economy, we expect to see continued strength in advisory revenue. Moving on to capital raising, our equity underwriting business posted revenue of $112,000,000 up 61% and our 2nd best quarter in history, trailing only the Q1 of this year. Strongest verticals were consumer, healthcare, technology and financials. In addition to the strength of our equity business, we generated record results in our fixed income underwriting business of $57,000,000 which was up 16%. Our municipal finance business posted another great quarter as we lead managed 244 municipal issues. For the 1st 6 months, our market share in terms of number of transactions increased to 12.5% from 10.9% in the first half of twenty twenty. I think it's noteworthy that in the first half of twenty twenty one, non public finance revenue, which was minimal just a few years ago, now accounts for nearly 20% of our fixed income underwriting. This is a result of our efforts to diversify both domestically and internationally. In terms of our overall pipeline, they continue to build and remain at record levels. We expect strong performance from all of our major verticals. And as our updated guidance indicates, I am very optimistic for our Investment Banking business in 2021. With that, let me turn off the call over to our CFO, Jim Marishev. Thanks, Ron, and good morning, everyone. Before getting into our net interest income and balance sheet, I want to make a few comments on our GAAP earnings and non GAAP charges. In the quarter, we saw a $0.10 differential between our GAAP and non GAAP results. To add some color to these items, the differential is almost entirely related to 3 basic deal related expenses, including stock based compensation, intangible amortization expense, and an additional true up on an earn out from an acquisition that's performed better than our original projections. And now let's turn to net interest income. For the quarter, net interest income totaled $119,000,000 which was up $6,000,000 sequentially. Our firm wide and bank net interest margins remained at 200 basis points and 2 40 basis points, respectively. As expected, our NIM did not change from the prior quarter, while net interest income benefited from a 6% increase in interest earning assets. I'll touch on this growth in more detail in the next slide. In terms of our Q3 expectations, we see a net interest income in a range of $115,000,000 to 125,000,000 dollars and with a similar NIM to the 2nd quarter. We noted last quarter the significant improvement in our asset sensitivity when compared to just a few years ago. We are maintaining our prior guidance of $150,000,000 to $175,000,000 of incremental pre tax income as a result of 100 basis point increase in rates. This assumes the same set of assumptions discussed last quarter applied to our quarter end balance sheet. Further, the additional balance sheet growth guidance that Ryan described earlier in the presentation would be additive to this rate sensitivity guidance. Moving on to the next slide. I'll go into more detail on the bank's loan and investment portfolios. We ended the quarter with total net loans of $12,900,000,000 which was up approximately $700,000,000 from the prior quarter and was primarily driven by growth in our consumer channel. Our mortgage portfolio increased by $400,000,000 sequentially as we continue to see demand for residential loans from our wealth management clients. Our securities based loan portfolio increased by approximately $240,000,000 Growth in these loans continues to be strong as FA recruiting momentum continues to drive increased loan balances. Our commercial portfolio accounts for 37% of our total loan portfolio and is primarily comprised of C and I loans, which were up slightly from the prior quarter. Our portfolio is well diversified with our highest sector exposure in fund banking, which increased outstanding balances by $325,000,000 during the quarter. We believe these loans continue to represent an attractive risk adjusted return and we expect to continue to be active in this space. I also want to note that we had a nearly $200,000,000 reduction in our PPP loans during the quarter. This was expected as a good portion of these loans were originated as part of a third party origination platform. We also expect to see further reduction of PPP loans in the Q3. Moving to the investment portfolio, which increased by $300,000,000 sequentially. About 2 thirds of this increase was seen within CLOs, while the remainder of their growth was primarily in shorter duration corporate bonds. Turning to the allowance. For the 2nd straight quarter, we recorded a reserve release. In the 2nd quarter, we had a $9,000,000 reversal of our allowance through a negative provision expense as additional reserves tied to loan growth were more than offset by the improved economic scenario in our CECL model. I would also highlight that approximately $5,000,000 of the negative provision expense was tied to $200,000,000 of loans that are being sold at a premium. As we entered into an agreement to sell these loans at a premium, the accounting guidance dictates that these loans be reclassified to held for sale and the allowance tied to these loans reversed. We continually look at our retained loan portfolio and determine this specific pool of loans was not a core area of growth for the bank and as such we made the decision to sell. As a result of the reserve release and the composition of our loan growth during the quarter, our ratio of allowance to total loans declined to 99 basis points, excluding PPP loans. As I stated last quarter, important to look at the level of reserves between our consumer and commercial portfolios given the relative levels of inherent risk. At quarter end, the consumer allowance total loans was 35 basis points, while the commercial portfolio was 142 basis points. We also continue to see strong credit metrics with non performing assets and non performing loans declining to 5 basis points. Moving on to capital and liquidity. Our risk based and leverage capital ratios came in at 18.9% and 11.7% respectively. The increase in the leverage ratio was driven by the strength of our retained earnings and was offset by loan growth in the quarter. During July, we also closed on a $300,000,000 4.5 percent non cumulative perpetual preferred stock offering and announced the redemption of our 6.25 percent Series A preferred. We continued our share repurchase program in the Q2 by buying back 440,000 shares at an average price of $65.85 We continue to feel good about our financial position as our liquidity remains strong. In addition to the $6,000,000,000 available in our sweep program, the bank has access to off balance sheet funding of more than $4,000,000,000 Within our primary broker dealer and holding company, we have access to nearly $2,000,000,000 of liquidity from cash, credit facilities that are committed and unsecured as well as secured funding sources. I would also highlight that Fitch recently affirmed our credit rating and improved our outlook to positive based on our strong operating results and overall financial position. On the next slide, we go through expenses. In the Q2, our pre tax margin improved 6.50 basis points year on year to a record 24%. The increase was a result of strong revenue growth, lower compensation accruals and our continued expense discipline. Our comp to revenue ratio of 59.5 percent was down 50 basis points from the prior year. The ratio came in at the midpoint of our previous full year guidance range. For the 1st 6 months of this year, our comp ratio was 60.2 percent and given our updated guidance, it is safe to assume that we expect the comp ratio in the second half of the year to be below the first half. Non comp operating expenses, excluding the credit loss provision and expenses related to investment banking transactions, totaled approximately $185,000,000 and represented approximately 16% of net revenue. This was also below our prior guidance, primarily due to stronger than expected revenue. We expect the travel and entertainment related expenses will pick up in the second half of the year, but will likely have a larger impact in the 4th quarter than the 3rd. The effective tax rate during the quarter came in at 25%, which was at the lower end of the range and in line with our commentary on last quarter's call. Absent any other discrete items, we'd expect to see an effective rate to be between 24% and 26% in the second half of the year. In terms of our share count, our average fully diluted share count was up 1%, primarily as a result of normal stock based compensation offset by share repurchases. Absent any assumption for additional share repurchases and assuming a stable stock price, we'd expect the Q3 fully diluted share count to total 118,500,000 shares. And with that, I'll turn the call back over to Rod. Thanks, Jim. As you can see from our record first half results and the significant increase in our guidance, 2021 is shaping up to be a far better year than we had originally forecast. Given our performance to date and our outlook for the second half of the year, we should again generate significant levels of excess capital. In addition to the excess capital we generate from operations, as Jim noted, we raised an additional $300,000,000 in preferred shares during July. After redeeming our Series A preferred, we netted an incremental $150,000,000 in capital. I mentioned this to illustrate just how well positioned we are to take advantage of opportunities that come our way. I think it's pretty clear from our results in my comments about the benefits of our increased scale that reinvestment into our business is my preferred use of capital. As our updated guidance illustrates, we believe that we can grow our balance sheet by an additional $2,000,000,000 in the second half of the year. Many bulge bracket firms and smaller regional banks have had muted loan growth rates given their sheer size or geographic limitations. By contrast, our loan portfolio is relatively small compared to the national footprint of our wealth management and institutional businesses. Security based mortgage loans have grown primarily through retail demand and new advisor recruiting. And in recent years, we have expanded our capabilities in new commercial lending businesses. The combination of these growth channels has enabled us to generate an average annual loan growth rate of 30% in the last 7 years, while maintaining a strong credit profile. In terms of growth in our other business lines, we continue to focus on both hiring and acquisitions. While we haven't done an acquisition in 18 months, we continue to believe that this is an attractive use of capital and a key element to our growth strategy. That said, we'll always focus on deploying capital based on where we can generate the best risk adjusted returns and we'll continue to deploy capital through dividends and share repurchases. However, as a growth company, I believe that Stifel and our shareholders have and will continue to see the greatest upside from growth in our franchise. And with that, operator, let's open the line for questions. The first question will come from the line of Steven Chubak with Wolfe Research. Hi. Good morning, Ron. Good morning, Jim. Good morning, Steve. Good morning. So I wanted to start off with a question on capital. I have a very high class problem. You're running with far too much excess at the moment, especially after the preferred issuance that you cited. It just feels like you're struggling to make a dent in those ratios given the current pace of capital return, really strong earnings. I was hoping you could speak, Ron, just to your appetite to accelerate buybacks to more than offset some of that continued capital build and whether there's any appetite to deploy some of the $6,000,000,000 of third party cash given very tepid demand for deposits from 3rd party banks at the moment? As I said, we're always going to look to deploy our capital in the best where we see the best returns for our shareholders, dividends, share repurchases, acquisitions, our growth in our balance sheet. And all four of those are on the table as we continue to grow. I see a lot of opportunity to grow our franchise. I have found that that is the highest return to our shareholders and we'll continue to do that. But we're mindful of our capital build, of course, and don't intend to just sit idly by and let capital accumulate. We will address it in an appropriate manner. And again, what as a shareholder myself, the best returns to our shareholders. And maybe just to add to that, in regards to the $6,000,000,000 of additional sweep balances, and we we're essentially 2 quarters into the year and we've doubled our balance sheet growth projections. So I think we have been able to deploy deposits in that manner and utilize some of that excess. And then in terms of the buyback, we have also talked about trying to offset dilution and to put some numbers to that. For the full year, that'd be about 2,500,000 shares. Got it. But is there any appetite to accelerate that $6,000,000,000 of migration, if you will, away from third party banks, just given that those actions would be very NII accretive, especially given some willingness to at least deploy it into credit sensitive securities where the yield pickup would be pretty substantial? Look, I think it's I think growth in any bank and in our bank, as I said, we've grown 30% a year. I think we need to have balanced growth. So could we flip a switch and try to both through loans and investments increase the size of the balance sheet significantly. Of course, we could. But we believe in balanced growth. It layers us into the market in a measured manner. And again, we said that we would grow our balance sheet at the beginning of the year by $2,000,000,000 We're projecting $4,000,000,000 now. And we see, as I said in my prepared remarks, that we see the ability to grow our loans as a real asset of this company. Our bank is undersized relative to our footprint and other businesses. So we're going to continue to grow, not looking at just flipping a switch and taking NIM compression for the benefit of NII. I think there's risk in that that we want to be more measured on. Fair enough, Ron. And maybe just switching gears to the institutional side. You talked about the fact that you weren't getting enough respect for the share gains that you were posting. I mean, it's certainly evident this quarter in the results. And you mentioned the record backlog as well. At the same time, we do have the executive order that was just issued by Biden, which specifically highlighted greater scrutiny of Financial Services M and A, where you do have heavier gearing. Do you expect any direct impact on financial services M and A or bank M and A specifically in the coming months quarters? And what are you hearing from the bankers and corporates that are on the ground? Well, we announced a deal this morning, if you saw that, which also speaks to to what we've been doing, the investors deal where we advised them and that was a nice transaction. I think certainly the sentiment coming out of Washington is an increased sort of antitrust sentiment, if you will. I believe that from what I'm hearing, we haven't seen anything as it relates to the mid sized banks. I think that primarily would focus on the SIFIs, on the big banks, where I would see it. But haven't seen anything yet. It doesn't mean it won't happen. But I believe that for the health of the industry, consolidation is going to continue to occur, especially where we are most dominant at the greatest market share. As I sit here today, I don't see that being impacted. Thanks. And just one final one for me, just on the independent platform on the wealth side and your efforts to scale that. I was hoping you could speak, Ron, just to some of the early feedback you've gotten from advisors on the offering, how you're going to differentiate the value prop versus peers and whether it makes strategic sense for you to scale that inorganically just given the strength of your capital position? I think that we I'm pleased with our initial feedback. It's we're starting from, frankly, a dead stop. We weren't recruiting in that area. We just announced that in the last effectively 3 months. But our initial feedback is that we have a very competitive offering. As I've said, when we did it, we weren't starting this business from scratch. We've had this business for almost 3 decades, and we have all the tools and the foundation to build this business. And I would say that we expect to show increased recruiting as this channel picks up. And my initial feedback is very positive on this, not only the platform, but our competitive positioning. The next question will come from the line of Devin Ryan with JMP Securities. Good morning, Devin. Good morning. Maybe to hit the question Stephen asked on this Tushall business slightly differently. So obviously heading into 2021, I think some people felt like the bar was pretty high after a great 2020 in the institutional side, and so it might be tough to grow revenues in that business. Clearly, based on what you've done in the first half and the outlook, revenue should be up quite a bit on the institutional side. So I'd love to maybe kind of try to strip through, if we can, how the business is scaling in terms of people. Obviously, you're gaining market share in businesses. And so just trying to understand how much of the momentum feels like it's just the cycle benefiting versus Stifel is actually expanding the footprint over the past year. And then expectations for that heading into next year, kind of where the bar maybe feels a little bit high and where you still feel like that there's really good growth momentum, whether because of the cycle or because of where you've added to the footprint? I mean, it's this seems like the never ending question, right? And let me just give some numbers to talk about what we've built. And then again, we're all benefiting from increased market activity. So myself and all of our peers, whether you're the large bolt bracket or the middle market or independent advisory firms, we're all benefiting from a favorable market environment. I feel that when I talk about not having an understanding, it's that we need to do a better job of explaining how much investment and what we've done to our footprint. So for example, we've doubled the business in terms of revenue since 2015. We've also doubled our Managing Directors. So we have 205 to 10 Managing Directors today, which is double what it was. We participate in much broader swath of the economy in terms of verticals and we do it across a much greater array of product offerings than we did even a few years ago. So we're in the fund placement business. We are in financing business on the corporate debt side. And our M and A, you can see. So the question always is, as I hear this, is about sustainability. Is it sustainable? And so, well, not only is it sustainable, it's growing. And what I sometimes take, not exception, but I throw my brow on, it's how The Street and the analysts will look at our peers and say that banking revenues will be up, but if Stifel are not sustainable, they might be down because the bar is too high. And I think we've proven and we'll continue to prove that we're a growth business and that business is going to grow with the same cyclical ups and downs that our peers will experience. But for me, it's been higher highs and higher lows. And I've been listening to sustainability for 25 years, and we've been 25 consecutive years of record revenue. So the business is sustainable because our platform is so much greater than it was even a few years ago. And we'll just keep putting up the numbers and keep answering the sustainability question every quarter. Well, you'll probably keep getting it, but I appreciate the detail. I just hope you don't keep underestimating it, but okay. Exactly. So maybe to switch gears to acquisitions for Stifel, obviously 18 months without a deal is quite some time, but I also understand and appreciate that acquisitions remain an important part of the growth strategy over the long term. Maybe just thinking about the market right now, is the fact that we haven't seen anything, is that a function of just the expectations in the market are as high as kind of broad valuations and so there's just not a lot of compelling things to do? Or is it just the areas of where there's opportunity in the market just aren't as interesting? Or obviously, you guys have added so many capabilities that there's not maybe quite as much white space in certain parts of the business. So I wanted to maybe just think about why there hasn't been anything and then just what may be the backlog today of how active our conversations, how much is out there that maybe is interesting, but we'll have to just see if something happens. Yes. Well, first of all, I mean, we have spent 18 months. And for us, that's a while. We have been a firm that's grown both organically and acquisition. I would point that out that our growth in the last 18 months has been significant. That's you can say that's organic. If you really think about it, we haven't layered any acquisitions into that. I think it's hard to say that you're disciplined in the marketplace when the way you prove that is by not doing deals. And so you don't know about what we haven't done because our number one criteria for doing an acquisition is that, a, it makes us more relevant, but importantly, it's creative and it adds to our returns. So with our return on equity and tangible equity, it's a high bar and you measure acquisitions against building the balance sheet or frankly buying back stock and that adds a level of discipline. So we haven't had anything that has met our return objectives in this time. But you also have to couple that with the fact that it's one thing to announce an acquisition, it's another thing to integrate and execute and bring everyone on board, which has been one of our real successes. And so during the pandemic and working remotely and all the technology challenges that come with that, we raised our own bar on the risk of execution when we can't even for a while can even see people. That would be that would raise our risk of doing deals because culturally that's been getting to know the people is a very important part of what we do. So we put all that together, it's been slow. But as I sit here today, we're very well capitalized. We see opportunities. And if we can continue to grow as we have for 20 plus years, we will do so. Yes. Okay, great. And maybe just last one here on the recruiting environment in wealth management. Just want to make sure I have kind of the right messaging. So it sounds like competition is very high right now, very high TA packages. How should we be thinking about kind of the push pull between the you said there's a good pipeline, so there's still sounds like quite a bit to do on the other side, is quite expensive. So is the expectation that recruiting may slow a bit or that if prices or costs go up more that maybe you would pull back? Or is it just more a function of it is expensive, but it's still very economic to do? And so just getting that additional context, I'm trying to just make sure I understand what the bottom line of the message is. Yes. I think, look, recruiting is somewhat cyclical. I think you have to look at recruiting over a longer period than just quarter to quarter. I've always said that. Just we are a strong recruiter. We have proven that over not just the last few quarters, but the last few decades. And so we're going to adjust to the marketplace. And the business always gets competitive. What I see and this is somewhat instinctive when I talk to people, we were surprised at the depth that we were able to maintain recruiting going into the pandemic for people that were in the pipeline. And it was I was surprised as our ability to onboard and even open offices during that time. What I'm really seeing besides competition is that the fact that many people don't get to their office has slowed the recruiting on the employee channel. It just has. We have a number of people in the pipeline, but getting through that in this environment has now extended. That's really what we're seeing. But as I look at it and talk to people and see what's coming, I am very optimistic about our recruiting. And then the other thing, as I said earlier, when you talk, at least compared to peers, we're recruiting in just one channel historically, which is the employee channel. And now we're going to be adding the independent channel and that will show a ramp in our just recruited numbers growth. So I think the recruiting business is fine. I think it's always cyclical and we adjust accordingly. I generally probably on balance recruit less when markets are really crazy. They've been that way, same with acquisitions, and we recruit more when we think the returns are higher, but no change. Clear. Thanks, Ron. I will leave it there. Thanks. The next question will come from the line of Chris Allen with Compass Point. Good morning. Hey, morning guys. Maybe just a couple of quick follow ups on Devin's question. I guess first, you mentioned you raised your own bar on the risk of execution for deals because you couldn't see people. Has that been removed now that the economy is reopening? Are you able to kind of travel and get out and see companies right now? Yes, I think so. I mean, based on the last couple of days, we might be seeing them with masks on again. But I think that, yes, for sure, we this economy has been opening up. People are planning on having return to the office as are we. We think that's important. But look, we're all ever diligent as to the updates as it relates to the pandemic and the virus and the delta and all things COVID-nineteen related. But in general, we believe that people are going back to the office and that on balance will help our recruiting. Got it. And then just on the advisor recruiting environment, you mentioned it got more competitive. Is it broad based across kind of the larger firms of warehouses or just maybe 1 or 2 players that are kind of really pushing the envelope here? Both. It's broad based. There's always you always have leaders in who's doing what, they're never always the same. But I would say in general, it's very competitive. It does also track, as you might expect, it tracks the perception or at least the short term rates. And with rates near 0, there might be some models that are discounting that longer than we might be. And so that just results in different IRR type numbers, which might be causing higher transition. But that's a guess. Again, I can't speak for what other people are doing. But again, we're I feel very good about where we are in our value proposition. The most important thing is not necessarily are we competing on the money front. That's a very short term thing. It's important. Most important thing is do we have a competitive platform and the right culture and are we attracting because that's the most important. And on that front, I am very pleased with the improvements we've made in our platform, the technology. This is a great place to come and people know that. So I feel really good about that. Got it. And then just on the increased asset growth outlook, I wonder if you could provide granularity in terms of where you see the biggest opportunities that continue to be in mortgages and set based lending? Is that being driven by your advisorclient base? Or is it more balanced between C and I right now? Or are there other opportunities to kind of grow balances from here? Yes. Let me have Jim take that. Yes. I mean, I think if you look back over the last 2 or 3 quarters, the vast majority of the growth you've seen has been in fund banking, mortgage lending and securities based lending. I think those all provide an attractive risk adjusted return today in terms of balance of credit risk and yield. And I think going forward, those are going to be your main areas of growth. Understood. That was it for me guys. Appreciate the time. Yes. Thank you. The next question will come from the line of Alex Blostein with Goldman Sachs. Hey, Alex. Hey, guys. Good morning. Thanks for the question. Just another maybe follow-up on the independent advisor channel. Obviously, I heard your comments around pick up in TA packages on the employee side. But as you reenter the independent channel, are you seeing similar pressures there as well? And then just curious to get your updated thoughts on sort of Stifel's relative value proposition versus some of the larger independent players like Ray G, Ameriprise LPL that have been doing that for a while. Yes. Well, I must say in some cases, if you're asking about the cost of recruiting on the independent side, I would say that I have I would say that's even gotten to be almost more competitive than on the employee side. It's all everything is relative to expected cash flows. And so that is a competitive also channel for sure. Yet, we believe that our model allows us to compete. We can do that and get adequate returns. I would say that the independent model is more dependent upon rates than the employee channel in terms of achieving returns. So this rate environment doesn't necessarily support some of the things that at least what I see going on. But so yes, we can, we have to get our message out and our platform out. As it relates to the platform, which I think is the most relevant or more relevant in your question, we have we've run our independent channel in many ways as almost a branch or a couple of branches within our employee channel. So what that means is that all the integration, the ability to transact and to provide support is in place. And I think that the people who have come to see our platform have been very surprised as to our capabilities to provide a foundation for independent advisors. Great. And then just another one around M and A. I think in the past, Ron, you talked about adding maybe some of the asset management capabilities as well, particularly around private markets. Is that still a priority as you guys obviously have significant amount of excess capital to deploy? Or as we think about the opportunity set for M and A for Stifel, it'll largely be centered around kind of the core channels, whether it's the wealth or the independent or the I'm sorry, the institutional channel? Well, I think that, I've said and I'll continue to say that on the asset management side, the asset management in terms of alternative space versus, say, index space, broadly speaking, that's where we would be would have interest. I'm not sure that an acquisition is ever a priority. Here, it's always you know, is it just the right situation come along that we believe is not something that will be add to our relevance in the marketplace and to our earnings. So we don't have anything prioritized. I think the firm has developed to the point where we have a pretty broad based offering set. That's where a lot of our acquisition in the last 5 years has been build out our institutional offering. But I think that we will we see opportunity and we will add to will add to our product set appropriately. It's about being relevant and accretive. Great. Thanks very much. With that, we are showing no further audio questions at this time. I'll now hand the conference back over for closing remarks. Well, I would like to thank our shareholders and our analyst to thank our shareholders and our analyst community for participating on the call, some very good questions. And I will end by saying, as I did on my call, that the investments that we've made over the number of years is certainly paying dividends in this marketplace. I am optimistic about not only the rest of this year, but frankly into 2022 based on what I'm seeing today and look forward to reporting to our shareholders after our Q3, which ends in September. So with that, everyone have a great day and stay well. Thank you. This does conclude today's conference call. We thank you for your participation and ask that you please disconnect your lines.