管理層發言
Good day, and welcome to the Stifel Financial Q2 '26 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Joel Jeffrey, Head of Investor Relations. Please go ahead.
Thank you, operator. Good morning, and welcome 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 the 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 our earnings release. I will now turn the call over to our Chairman and Chief Executive Officer, Ronald Kruszewski.
Thanks, Joel. Good morning, everyone, and thank you for joining us. We entered 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, 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 advisers first continues to differentiate Stifel. Adviser recruiting remains as competitive as I've ever seen it. Client engagement remains strong. And earlier this month, Stifel was ranked #1 in employee adviser 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 pretax margins improved to 19.5% in the first half of '26 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 $0.5 billion 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 #1 in employee adviser satisfaction by J.D. Power for the fourth consecutive year. I'm especially proud of that recognition because it comes directly from our advisers. It tells us we're executing on our mission of making Stifel the firm of choice for advisers. Our overall score was well above the employee adviser segment average, and we ranked #1 in leadership and culture, operational support and products and marketing. Awards don't define us, but four consecutive #1 rankings tell us we're doing something right. You don't earn the trust of advisers four years in a row by standing still. You earn it by listening, investing and continually improving. Our advisers are the foundation of our success, and that philosophy also shapes how we're thinking about artificial intelligence. Technology shouldn't ask advisers to adapt to software. Software should adapt to the way advisers 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 advisers altogether. This, however, is completely disconnected from what we are seeing in the market for financial advisers. Transaction packages are elevated and adviser recruiting remains as competitive as I've seen it for experienced trusted financial advisers. 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 advisers using AI to benefit their productivity and their client 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 advisers 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, 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.
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-compensation 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. The activity 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 Smart Rate. In the quarter, our sequential cash balances were impacted by seasonal tax payments as sweep and Smart Rate 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, but 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 $1 billion 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, firm-wide 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 health care, 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 a 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 pretax 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 quarter. 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. And with that, Ron, back to you.
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 has 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 advisers, 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.
分析師問答
And we'll take our first question from Steven Chubak with 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 I 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.
A lot of questions in that question. But sure. First of all, like a lot of people for valid reasons, they highly correlate our advisory with bank depository M&A. 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 a buyer strike. We've talked about a lot of uncertainty in the market. But the core fundamentals haven't changed. That's not all that's driving my optimism. In fact, I would say it's not. It's across the other parts of the Stifel platform. People forget that we have a diversified platform in health care, in industrials, in technology and in energy. All of those are improving, and we're seeing that. So you shouldn't just correlate us as a bank depository investment bank. That would be a mistake. What's kind of interesting for us, Steven, is that while I'm optimistic, I see upside because sponsor activity, if it picks up, will really help us because a lot of these companies we work with are middle market. So 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 health care, for example. So when I unpack it, while I'm optimistic, sometimes I'll say I'm optimistic when I look out because the market is overly optimistic. Today, I'm optimistic and I see upside.
I think you covered it very well, Ron. The only thing I would add related to bank M&A, 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 '28 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. He 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 what we—when we come out with our '27 guidance, it will certainly be a bright spot.
Did I cover all your questions?
Yes, you did. If I could squeeze in one more? 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 or 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 scale. I 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?
Yes, I'll take the second question first. I haven't really thought of it exactly as the 39% number you're talking about. But with respect to AI, my views have changed a little bit. AI will have operational efficiencies across the board. Initially I thought it would replace human costs, but it's turning out to be an accelerator of our business. Across our businesses in wealth, fixed income, equities and investment banking, we are becoming better at uncovering opportunities, and that is leading to needing people. Analysts, for example, can cover more companies because a lot of the historical work can be done by tools, but what we really want is opinion and judgment about the results. I see productivity gains, and that's where I see it. So AI has changed my view from thinking we don't need as many people to recognizing we need more talented people to take advantage of the opportunities. On incremental margins, Jim?
Yes. In terms of incremental margins, 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 the bank is a much higher margin business. Consolidated, a lot of the operating leverage will come through the compensation line. Year-to-date, we've taken about 80 basis points off the comp-to-revenue ratio. That's a function of the sale of SIA and the restructuring of European activities. Combine that with higher net interest income, and it produces a strong lever. On the last quarter call, we talked about taking somewhere between $70 million and $80 million of comp costs out with the sale and restructuring transactions. NII is up over $30 million year-to-date, and looking at our guide for 3Q and growth assumptions for the full year, we're looking at a pretty nice second half in terms of NII. That comes at a much higher incremental margin. So combining those factors together, we should get more incremental comp leverage. 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%.
Yes. Steve, you get all the questions. The other point is it's been a number of years since we adjusted our comp ratio in the second quarter. So this year, we did, which speaks to your question about incremental margin and how we're viewing the second half of the year. Thanks for your questions.
And we'll take our next question from Mike Brown with UBS.
Great. So I have a similar theme here. I'm going to maybe split it to two questions, though, two different focuses. Ron, you brought up a really interesting point on the AI adviser threat concerns that are out there in the market. Given the market's fears, I figured there would maybe be greater uncertainty out in the recruitment market and maybe that there would be a little bit less competitive pressure there. It sounds like from your comments, that's not the case. Do you think 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? Okay. Great color. And then sticking on the AI theme, kind of build on what you were just saying there. We've certainly heard stats and read studies about how adviser productivity can pick up—I think the numbers we've seen are about 10% to 30% pickup in productivity for advisers. I'd just be interested in your take on that. How do you ensure that the advisers redeploy this freed up time to be more productive? You talked about the equity research angle, there's an opportunity for analysts to perhaps expand coverage and focus more on higher-value aspects. But in the advice space, curious how you ensure that productivity could drive better same-store sales growth over time? And is there a risk that the industry eventually faces some fee pressure as advisers can do more and then perhaps competitors begin to compete pricing lower to win share?
Look, maybe if there's a little bit of a wait-and-see, maybe it's us, and it's me thinking I'll wake up and read about some new AI productivity tool and wealth management stocks get hammered. Yet the recruiting packages are increasing. There's a disconnect. To me, AI will actually increase the value of advice, just like it's doing in banking. AI makes talented people more talented and less talented people less talented. It's an amplifier. It will make our advisers more productive, easier to communicate with clients, and increase the value of advice because information is more abundant. I don't see clients just using AI as their adviser. The market values the last mile of advice. That's how I see it. Regarding productivity gains of 10% to 30%, the second question, there will always be fee pressure in this business—it's been present for decades—but the relationship side, the holistic advice, has held up better than the wholesale product side where fees compress more. On ensuring advisers redeploy time productively, it speaks to Stifel's culture. Advisers are entrepreneurial and build individual businesses. We provide tools and leave it to advisers to deploy those tools the way they see fit. We don't need to centrally manage every minute of their day. If we put the tools on the table, our advisers will use them productively, each in their own way. On the institutional side, these tools will also make people more competitive. AI is an amplifier, not a replacement, and I think that's the theme you'll see emerge.
We'll take our next question from Devin Ryan with Citizens Bank.
So first question, I just want to ask about organic asset growth in wealth and kind of the algorithm. Specifically, I'd love to hear about client wallet and how that's been evolving as you guys have added a lot more capabilities over the last five to ten years. Are you winning more assets per client as we think about that part of the algorithm? And then on adviser recruiting, Ron, you've mentioned some of the large firms are doing better. Do you think they found a new economic model or formula to make this work or maybe it's not sustainable? It would just be good to hear thoughts on both.
With respect to net new assets, it's the same answer every quarter. We watch it closely. A lot of people report this number differently. We focus on revenue and productive assets. Philosophically, advisers in the future will not be limited to just assets in custody at Stifel. We provide technology and tools that allow us to advise on assets held away and consolidate and report not only assets but expenses in a holistic manner. When you do that, you start seeing a client's full financial picture and advisers naturally ask who is managing these assets and how they can help. That leads to conversations about management and opportunities such as offering better rates or credit products. Technology enables a more holistic view and helps advisers identify opportunities across a client's entire financial picture. That's been a key focus for us and one of the reasons we can grow wallet share over time. Devin, that's all your question?
No, I think that's great. Appreciate it. And then I'll ask a follow-up here just on lending. Fund banking lending has obviously been a great growth story for the firm. I'd love to hear how you're thinking about that from here and relative capacity—supply and demand—and then your considerations from a risk perspective. I appreciate it's lower risk. But just hear about that and other strategic elements in doing that, the multiplier you're seeing in other revenue lines across the firm and how that's helpful.
Specifically as it points to venture, not only fund banking but venture, we have a big funnel and we've been competing in this business for a while. We made a big investment three years ago and we're just getting started. We need to be better on the technology front, providing venture clients with good treasury functions, and we have a significant investment there. This isn't just about collecting deposits and making fund banking loans. It's about broadening the scope and understanding that out of this comes wealth opportunities, investment banking opportunities, fixed income opportunities. As I've said on previous calls, I'm optimistic and bullish about the investments we've made in this business. It's an ecosystem tied to the new economy. We need investments to be competitive, but we are and will be a meaningful player. It is not just about deposits and loans, but a lot more.
One thing I'd add is that if you think about the loan growth in the second half to get to the $4 billion objective for the year, our guide implies that we would use less than half of our current excess capital to fund that loan growth in the second half. So we have the financial flexibility to do more than that as we look forward in the year if demand is there and assets meet proper risk-adjusted return criteria. Fund banking, as Ron mentioned, is a lower-risk asset class and we feel very comfortable with it.
Yes. We'll take our next question from Bill Katz with TD Cowen.
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 your guidance — maybe that's just conservatism. But thinking why would the margin potentially improve a little bit? My thinking is loan growth is picking up and probably has better yields relative to securities. A, is that fair? And B, given a bit more of a hawkish rate backdrop, all else being equal, I would imagine incremental reinvestment rates are a bit better. How should we think about the NIM dynamic within that NII discussion?
I'll start with that. The assumption is that the growth will be funded by fund and venture deposits, and those deposits are priced a bit more attractively than Smart Rate today. Smart Rate is around 3.25%. On the asset side, fund banking loans are yielding about 6% to 6.5% today, ventures yield roughly 6.5% to 7.5%, and mortgages are in the mid-5s to mid-6s. So it depends on the mix of assets. Combined with funding, generally speaking the dynamic is around a flat NIM, but there's certainly opportunity for NIM expansion if we see more growth in sweep or other cheaper alternative funding sources. It comes down to the yields on assets and the cost of funds.
My bank colleagues are generally conservative. There are many things that go into the NIM equation—mix of assets, yield curve shape, funding sources—so we want to be comfortable with what we tell you. I see the dynamic you're talking about, Bill, but there are many contributing factors and our guidance is appropriately measured.
Okay. That's helpful. And then Ron, you mentioned a couple of times in your prepared comments that you remain disciplined on M&A and that your stock is still good value. Is that still true here with today's price? And on the M&A side, putting the bid-ask spread aside for a moment, where are you most focused relative to the momentum you have on the organic side?
We look at a lot of deals. Historically, my preference is to buy businesses that meet our return thresholds. If you look at market valuations for financial services or adviser businesses, they're generally in the 15x to 18x adjusted EBITDA range, while we trade at around eight. There's a disconnect. The best acquisition we see often is investing in our own stock. That doesn't mean we won't do deals, but our standard is return on invested capital. We won't do a deal with sub-10% return just to show revenue growth. Today, valuations on many assets are at the high end of historical ranges, so we will remain disciplined. But we are an active participant and always evaluating opportunities.
And we'll take our next question from Brennan Hawken with BMO Capital Markets.
To start, I'd love to drill down on part of Steve's question and some of your comments around comp leverage. There's sort of two ways to get comp leverage. 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 more from the institutional side or the wealth side?
We already know some parts of wealth are more predictable — for example, asset management fees are billed in advance, so you can extrapolate from market levels at quarter-ends. Jim and the team have a good handle on NII and transactional revenues, although transactionals are more volatile. The more cyclical part is investment banking. Our optimism is present in NII and in the cyclical businesses where pipelines are constructive—investment banking and institutional. Adding $2.6 billion in the second quarter shows loan demand and helps drive efficiency in comp. We set a $4 billion target and are on pace to reach it, which helps the comp ratio. So optimism is driven by both improved NII visibility and a constructive investment banking pipeline, but we remain mindful of geopolitical and other risks.
Great. You referenced fund banking and venture being more than loans and deposits. Can you speak to how efforts to integrate those clients with other parts of the institutional business are progressing and where we'd expect to see benefits manifest in other parts of the P&L beyond lending and deposit taking?
We already see it. We measure what clients we're getting in wealth and how we integrate with investment banking, whether advisory, PIPEs, capital raising or private placements. We're in the early innings, but this is a real opportunity. We don't want to just rent our balance sheet to grow assets; we want this to be integral to our services. Connecting the dots, a founder in this ecosystem can lead to wealth opportunities, advisory engagements, debt and equity capital needs. So there's a clear linkage and opportunity to funnel more assets to different parts of the firm. We are focused on building proper systems to capture those opportunities.
Certainly, it's also a funnel across retail in terms of net new assets. Anything we can do to create new types of funnels to generate net new assets will be a net positive for the overall business.
Yes.
We'll take our next question from Michael Cho with JPMorgan.
I wanted to touch on Ron's comments on AI efficiencies and opportunities. It sounds like it's becoming an incremental cost as well as providing efficiencies. Could you talk through your biggest priority areas over the next 12 months and any areas where you can discuss the pace and size of efforts behind these initiatives?
That's a great question. Some efficiencies are operational—regulatory compliance, marketing review and other rule-based tasks are perfect applications for AI agents that take unstructured data, compare it to rules and hand items to a person. We're a regulated industry with lots of accumulated processes where AI can streamline work and free people for higher-value activities. I also expect incremental costs related to tokens and compute; it will be interesting to see how that evolves. My analogy is tokens could be like cell phone minutes historically—the cost will likely come down with competition. Net-net, with competitive pressures and open-source developments, there should be significant productivity and efficiency benefits. The balance of token cost versus human cost is still being measured. Overall, I see it as a net positive productivity play for us, but the environment is changing quickly.
Great. One more open-ended question. As advisory capabilities and AI initiatives come to fruition, is there a natural progression for how the advisory business might further evolve or transform to fit the new normal? Any particular areas that come to mind where the advisory business could take the next step?
The advisory business has already evolved from stock picking to holistic financial advice. Technology is making that holistic advice more efficient. As information becomes more abundant, people who don't have time value advice more. Advisers provide judgment and a holistic approach—financial planning, liquidity solutions, mortgages, credit, consolidating held-away assets—and that's where the value accrues. I believe advice will increase in value. The propensity for high-net-worth clients to want financial advice has grown over time. So the natural progression is more holistic, higher-value advice enabled by technology, not replaced by it.
And at this time, I will turn the conference back to Ron Kruszewski for any additional or closing remarks.
I'll make this brief. First, thank you for joining us. I look at our results and I told my partners, we just did what we said we would do. We're going to continue to build this firm from about $100 million in revenue when I started as CEO to $6 billion today, and we'll do it the way we've always done it. We're going to build it with shareholder returns in mind and a long-term view. We won't chase revenue for the sake of revenue; we'll keep our measure of return on invested capital. That's what we're going to do. I look forward to talking to you in the third quarter and continuing to do what we say. So thank you.
Thank you. And this concludes today's call. Thank you for your participation. You may now disconnect.