Q4 2024 Stifel Financial Corp Earnings Call

James Marischen

Thanks, Ron. Looking at our fourth quarter results, we generated record net revenue of $1.36 billion, which surpassed our prior record set in the fourth quarter of 2021 by 5%.
The strength of our performance was widespread as each of our revenue line items generated meaningful growth from the prior year. Commissions and principal transactions increased 15% as both wealth management and our institutional group once again generated double digit increases. Investment banking increased by nearly 50% driven by strong increases in both capital raising and advisory revenue.
Record asset management revenue was up 23%, reflecting organic growth and market appreciation. Net interest income was essentially flat with the same period a year ago, but increased 5% from the third quarter and came in above our quarterly guidance.
I’d also note that our cash suite balances increased by $1.3 billion during the quarter, which is the second consecutive quarter we’ve seen these balances grow. Fourth quarter earnings per share totaled $2.23, which increased nearly 50% from the same period last year.
On slide 4, you can see our results change from the fourth quarter of 2023 and how they compare to consensus estimates. In terms of net revenue, we beat on every line item as revenue came in nearly $80 million or 6% above the street forecast.
Investment banking revenue was the largest contributor accounting for more than half the total revenue to be. While higher advisory revenue was the primary driver, we also surpassed expectations for both equity and fixed income underwriting revenue.
Transactional revenue was 10% ahead of the Street due to a significant beat in fixed income. Asset management revenue was 1% higher than the Street, primarily due to a higher fee capture rate as well as increased third-party sweep deposits. Net interest income was 3% above the Street estimate and above the high end of our guidance as net interest margin came in above expectations.
On the expense side, our compensation ratio was 58%, which was slightly above the Street and in line with our prior guidance. Non-cmop expenses came at 9% higher than the Street due to higher provision and legal expenses, which I’ll touch on later.
The provision for income taxes came in below the consensus number as well as our initial guidance on last quarter’s call, which provided a positive variance for our results.
Turning to slide 5. Global wealth management revenue was a record $865 million and pre-tax margins totaled 37% on record asset management revenue and was our second highest quarterly transactional revenue.
We continue to see investors engage in the market, which has led to increased transactional cash. During the quarter, we added eight total advisers. This included four experienced advisers with trailing 12 month production of $8 million.
As we’ve noted in the past, the fourth quarter is typically seasonally slow for recruiting. However, we entered 2025 with strong pipelines and anticipate continued success recruiting highly productive advisers to our platform.
We ended the quarter with record fee-based assets of $193 billion and total client assets of $501 billion. The sequential increases were due to higher equity markets and organic growth as our net new assets grew in the low single digits.
Moving on to slide 6. Our wealth management platform generated its 22nd consecutive year of record net revenue. Our long term success has been the result of our ability to attract and retain highly productive advisers and give them the support they need to most effectively manage their business to best serve their clients.
Over the past five years, we’ve added more than 450 experienced advisers with cumulative trailing 12 month production of more than $350 million. This has driven our steady revenue growth and has been a significant factor in the shift in our revenues to more recurring sources such as asset management fees and net interest income, which now account for more than 75% of segment revenues.
On slide 7 I’ll discuss our bank results. Client cash levels increased during the quarter led by a $1.3 billion increase in client sweep deposits and an $800 million increase in Smart Rate balances. I’d also note that total third-party deposits available to Stifel Bancorp increased to total $5 billion from $3.1 billion as we continue to see increases in both wealth management and commercial deposits.
Net interest income of $272 million came in above our guidance as firm-wide average interest earning asset levels increased by $1.3 billion and our net interest margin increased by 3 basis points to 3.12%. The increase in NIM was primarily due to lower funding costs.
As I noted on last quarter’s call, our bank balance sheet is relatively rate neutral. However, we could see some modest pressure on our bank NIM in the first quarter of 2025 due to the timing of assets repricing following the last rate cut.
We anticipate NII in the first quarter to be in the range of 260 million to 270 million as we expect to continue to grow our balance sheet. Our credit metrics and reserve profile remain strong. The non-performing asset ratio stands at 51 basis points.
Our credit loss provision totaled $12 million for the quarter and was negatively impacted by the macroeconomic forecast and increased reserves on C&I loans and unfunded commitments. Our consolidated allowance to total loans ratio was 85 basis points.
Moving on to the institutional group. Total revenue for the segment was $478 million in the quarter, which is up 33% year on year. Full year revenue of $1.6 billion was up 30% led by strong increases in each of our revenue lines.
Firm-wide investment banking revenue totaled $304 million as we again experienced sequential and year on year increases in advisory and capital raising revenue. Advisory revenue was 190 million, an increase of 47% from last year and 39% sequentially. We had a strong quarter in our financials, healthcare and consumer verticals.
We are continuing to see activity levels build in our advisory channel, particularly within financials as the backlog at KBW continues to improve, given the pent up demand for transactions and the market’s expectation for more M&A friendly administration. I note that KBW ranked number one in M&A market share in 2024 based on deal value and their announced pipelines are up significantly compared to the same time last year.
Fixed income underwriting revenue increased 24% sequentially and 53% from the fourth quarter of 2023 driven by strong public finance revenue that increased 40% year on year.
Stifel’s public finance team ranked number one by the number of negotiated issues led as sole or senior manager for the 11th consecutive year and had more than a 15% market share. Equity underwriting of $48 million was up 50% over the same period in 2023 as financials, healthcare and technology were our strongest contributors.
Equity transactional revenue totaled $59 million, which is up 20% sequentially driven by increased market activity and seasonality. Fixed income transactional revenue of $119 million was up 50% sequentially as we continue to benefit from the rebound in our rate business due to the shift in Fed policy, which is increased customer activity with our depository and credit union clients. I’d also note that we had a roughly $20 million trading gain during the quarter.
On the next slide, we go through expenses. Our comp to revenue ratio in the fourth quarter was 58%, which was in line with our quarterly guidance that we gave on our third quarter call.
Our full year comp ratio was also at 58%, which was at the high end of our full year guidance due to the mix of revenue. As I mentioned earlier in the call, non-comp expenses came in above Street expectations at $291 million. The higher number was the result of higher revenues leading to increased variable costs as well as higher credit provisions and legal costs.
Despite the increase, our non-comp operating expense ratio was 19.8% for the quarter. It was 20.6% for the full year, which was down from 21.2% in 2023.
Our tax rate for the quarter was 8.3%. As I noted on last quarter’s call, we anticipated a lower tax rate in the quarter given the excess tax benefit associated with stock-based compensation. This came in better than our original guidance through the additional share price increase we experienced after the election in November.
On slide 10, I’ll review our capital position. Our balance sheet continues to be well capitalized. Tier 1 leverage capital increased 10 basis points sequentially to 11.4% and our tier 1 risk-based capital ratio increased by 30 basis points to 18.2%.
Based on a 10% Tier 1 leverage ratio target, we have approximately $525 million of excess capital. We also continue to generate significant levels of additional excess capital as illustrated by the $235 million of GAAP net income that we generated in the fourth quarter. In terms of capital deployment during the quarter, I note that we increased bank assets by a $1 billion to $31.4 billion.
We repurchased roughly 410,000 shares at an average price of approximately $111 with roughly 10 million shares remaining on our current authorization. As Ron mentioned earlier, our board also authorized a 10% increase in our common stock dividend. Absent any assumption for additional share purchases and assuming a stable stock price, we’d expect the first quarter fully diluted share count to be 111 million shares.
And with that, let me turn the call back over to Ron.

Ronald Kruszewski

Thanks, Jim. Let me conclude by going over our guidance for 2025. As I said earlier, we entered 2025 well positioned to capitalize on what appears to be a stronger operating environment than we’ve had in the past few years.
In terms of revenue, we are guiding to total net revenue of $5.25 billion to $5.75 billion as we anticipate growth in both operating revenue and net interest income. In terms of operating revenue, we are targeting a range of $4.15 billion to $4.55 billion.
We expect wealth management revenues to grow as investors continue to redeploy cash into the market and client assets grow through recruiting and market appreciation. Institutional revenues are expected to benefit from increased investment banking activity as well as continued growth in transactional revenues, particularly in our fixed income business.
As we stated before, we believe that we are relatively agnostic to further rate changes due to the mix of our assets and deposits. As such, we anticipate net interest income growth will be driven by balance sheet growth.
Our NII guidance for the year is $1.1 billion to $1.2 billion. We estimate that every $1 billion of balance sheet growth results in approximately $0.20 to $0.25 of earnings per share. Currently, we are forecasting balance sheet growth of $3 billion to $4 billion in 2025.
In terms of expenses, we are keeping the same guidance we had for 2024. We have to make that the compensation ratio to be 56% to 58% and the non-compensation operating revenue to be 19% to 21% in 2024. Our improved pretax margin was the result of a lower non comp operating ratio as the compensation ratio remained flat. Given our assumption that all our revenue line items will increase in 2025, we would anticipate some leverage on the compensation ratio.
So if you do the math, you can see how we can generate $8 of earnings per share, which is a target that we gave all of you a few years ago. Now, the interesting thing about giving guidance is that once you appear to be in reach of your target, everyone wants to know what your next target will be. This is pretty much is what happened to us since we started talking about $8 of earnings per share. Once we appear to be within reach of our target, I started getting questions from all of our investors on this call about how we get to $10 of EPS.
Look, I don’t want this to be perceived as incremental guidance. Let me just say that we view $10 of EPS as a milestone on our way to generating $10 billion of net revenue, much like how we got to $8 of EPS, the math behind it is relatively straightforward. Essentially, we should generate earnings per share of $10 — with $10 per share with a revenue range of $6 billion to $6.5 billion, pretax margins of around 22%, and some assumption for incremental share repurchases.
Now, there are clearly a lot of variables that can impact our performance, but given the track record and our track record is a growth company and our commitment to reinvest in our business, we feel confident in our ability to execute on our long term goals and reaching these types of milestones in the not too distant future.
So as we start 2025, we believe we’re well positioned to capitalize on the improving market environment as we continue to drive growth by reinvesting in our business.
With that operator, let’s let’s open the line for questions.

Operator

Thank you. (Operator Instructions) Mike Brown, Wells Fargo Securities.

Ronald Kruszewski

Good morning, Mike.

Mike Brown

Good morning. Thanks for taking my questions. Ron, I wanted to start on the wealth side. I guess organic growth has been a little bit soft in 2024 for the industry. And you guys mentioned that the pipeline is strong. So do you expect the organic growth here to increase in ’25 versus ’24? And, and I guess what’s the catalyst that’s going to really get some of these advisers to kind of make the move, what’s going to get them off the sidelines?

Ronald Kruszewski

Yeah. It’s a great question. I think that as I’ve said many times, recruiting the long-term game, what we’ve been doing in a long time. And it has ebbs and flows dealing with lots of factors, some of which include compensation, transition packages, client engagement, and frankly, good markets. And in times like this — and we’ve seen two years of 20% increases in the markets and fee-based assets increasing, bottom line is that recruiting in my experience generally slows during those times because transition packages are based on trailing 12 and trailing 12 is going up pretty consistently. So that’s where it is.
But look, as I look forward, I think ’25 — I had to say today, ’25 will be a better recruiting year in terms of numbers when I look at our pipeline and the people we’re talking to. And so I’m optimistic.
But if you look long term, what the success of the long term and the foundational aspects that we’ve done to support our recruiting growth are stronger today. So look, I’m confident but there’s ebb and flows. That’s why we don’t give any specific guidance.

James Marischen

One thing I’d add to that as you think about 2025, we’ll also be closing the B. Riley transaction probably in the first half of the year. And that could add somewhere between 30, 35 advisers somewhere around 18 million to 20 million of T12. So something considered in your forecast as well.

Mike Brown

Okay, great. Thanks for that color. I’ll just change gears to the 2025 guidance. One of the things that stood out to me is the bottom end of the comp range, the 56%. When I look back, 58% has kind of been the historical spot for Stifel and just given the momentum across the franchise, it does make sense that you could certainly get to that level.
I guess, curious what would drive you towards the bottom end of that range in ’25? And then if you play this forward and the capital markets recovery continues into the ’26 and markets remain supportive, is there enough comp leverage to eventually go below 56%?

Ronald Kruszewski

Yeah, it’s a great question. And again, there’s a — I wish it was simple as just putting a couple of numbers in the calculator, right, and giving you the answer. It’s not because of various factors that we’ve discussed numerous times in this call, primarily the need to be competitive in the marketplace.
And in times like this, the recruiting and the need to protect our franchise is acute. Alright. It just it is and it has been. But the one factor that I would say, that happened last year is an illustration. We’ve stayed consistent with our 58% capital revenue. And I feel that that’s really managing it because NII, which is a positive contributor to our leverage in the comp ratio actually declined.
As we go forward, we expect NII to grow and as that grows, that provides the ability to have a little more flexibility in our comp ratio. Also productivity will increase. That also helps.
We also run our — a lot of our investments through that number, right? So we’ve made some significant investments and that’s running through. So net-net, I’m comfortable with 56% to 58%. I’m confident as we increase NII, we can see leverage to reduce the comp ratio, but we’re always going to be cognizant of our competitive position relative to everything else.

Mike Brown

Okay, great. Thanks for taking my question.

Operator

Devin Ryan, Citizens JMP.

Devin Ryan

Hey, good morning, Ron, Jim. How are you?

Ronald Kruszewski

Good.

Devin Ryan

Morning. A question on operating leverage in the institutional segment as the business continues to recover. And I guess tying that to the 2025 guide range for revenues and margins, does that, in that business, reflect kind of that more normalized environment, Ron, where we’re recovering toward something quite a bit better than we’ve been in?
And as we think about your margins specifically in that business here, you were 0% in 2023, 14% this year, 20% in 2020 — 26% in 2021. So just want to think about kind of, are we — is 2025 at normalized number of revenues? And then when does the margin get back to you when the business does normalize if it’s not in 2025? Thanks.

Ronald Kruszewski

Not quite sure I — what do you want me to assume 2025 to be, so I can answer your question.

Devin Ryan

Yeah, I’m just getting at is the ’25 guidance reflecting kind of a normalized investment or institution segment revenue and margin or are we still normalizing towards that, which would imply that there’s still quite a bit of upside even beyond the 2025 number, is really what I’m getting.

Ronald Kruszewski

Look, Devin, I’ll say, and I’ll let Jim, he can add color to what I’m about to say. But our — we’ve been pretty conservative and even getting to — talking about $8 and talking about rebounding and what’s the earnings power. We talked about a retracement from say $2.2 billion in institutional revenue that dropped to $1.2 billion with no margins, as you said, to about $1.6 billion, which is pretty much what we said — what we thought would happen.
And we talked about that getting to $1.8 billion that would begin to normalize. 2021 was an extraordinary time, pulled forward a lot of business into that time frame. I didn’t view that as a normalized operating environment. I viewed it as having a lot of factors. That doesn’t mean it’s our ceiling. It just means that that’s not necessarily normalized.
So look, what I would say would be that we’re looking toward those margins in institutional which, by the way, the institutional business does not get any credit for NII for the most part. We keep that in the bank and wealth and there are some benefits. But look, I target in my mind as we normalize is that margin should get around 20% and in good markets, it can be higher. The real question is going to be, is how does 2025 play out. We have an economy, we have a set of factors including a normalization of a rate curve, a deregulatory environment, an administration that appears to encourage M&A versus discourage M&A. A huge pent up amount of supply, if you will, of companies and private equity that need to return money to limited partners, that’s going to drive capital raising, that’s going to drive M&A.
So if this plays out, absent some geopolitical or some extraneous event that certainly can happen, then 2025 would be a pretty good year. And we can exceed what I’m laying out now. But as we forecast, we’re having the same conservativeness that we always have.

James Marischen

As you think about the normalized environment in 2025, in essence, we’d be guiding to, call it, $200 million of additional revenues. And so we’d be able to, theoretically, get to that 20% margin. Any enhancement from there is really going to be a function of some of the efficiencies we’re trying to obtain with our international operations both across Europe and Canada.
Obviously, we recently announced the acquisition of Bryan Garnier, which will close at some point in 2025. There’s various steps we’re taking there to improve profitability and it really take achieving the efficiencies we’re talking about there internationally to see any upside to the 20%.

Devin Ryan

Yeah. Okay. That’s great color, guys. Thank you for that. Appreciate it. And then on the — and then the net interest income, obviously very good outlook there as well. Relatively resilient NIM outlook, healthy loan demand. Let me just dig into kind of where you’re seeing the loan demand come from. And then more broadly, how you would frame this loan demand today? You’ve obviously widened the funnel within kind of your channels and then just what current capacity looks like for lending as well? Thanks.

Ronald Kruszewski

Jim?

James Marischen

So you look back to 2024, we grew loans in a somewhat defensive posture, more than a $1 billion. And I think as we look to 2025, it’d be more of the same. I think you’re going to see a focus on both fund banking and venture lending as well as the retail lending. The retail lending is a little harder to predict. We grew several $100 million in our mortgage portfolio in the past year. So I think you can see continued growth there.
And from an SBL perspective, securities-based lending, we saw some tick up recently and loan growth there. But again, that that was a little bit harder to determine, but those are the areas where we’re going to see most of the capital allocated to in terms of loan growth as we look forward to 2025.

Ronald Kruszewski

Loan demand is Strong.

Operator

Bill Katz, TD Cowen.

Bill Katz

Great. Thank you very much. I appreciate all the — good morning, everybody, and thank you so much for your guidance and color. Just some of the items that you didn’t explicitly forecast. I was just curious, given — I think you mentioned in your press release that there was a little bit of erosion in the credit book, I wonder if you could talk to how you sort of think about the normalized provision for 2025?
And then Jim, I was sort of curious just to how to think about the tax rate for the year. And underneath that, it seems like you’re assuming flat share count, but how we think about capital deployment, is it all sort of bank lending at this point or are there other opportunities? Thank you.

Ronald Kruszewski

Before Jim answers that, you asking us to expand our guidance? I just want to know the tone. But I don’t know — Jim, answer.

James Marischen

Well, I’ll touch over. We talked about the provision expense during the quarter and that’s kind of a guide as you think forward. But in the quarter, the provision was slightly elevated. We referenced the macroeconomic forecast. And so basically, what you’re seeing there is a higher interest rate environment for longer. You’re also seeing credit spreads widen in later 2025. Those things drive an additional provision expense within the CECL model.
Now, where that forecast is going to go as we think forward into 2025 is very hard to predict. The CECL calculation is somewhat dependent upon that. So we’re not going to try to predict where that forecast is going, but that’s really what had the impact on the fourth quarter.
In terms of the tax rate, obviously, at a little over 8% the quarter came in, well below where we were originally thinking. If we essentially hold the stock price where it’s at today, which again, it’s very hard to determine or make an estimate of, we’d have a pretty big benefit next year.
So historically, we’ve talked about 25% to 26% in terms of a full year effective tax rate or quarterly effective tax rate. But again, this year, we’re more around 21% and absent a material change in the stock price, I would expect, around, maybe a 20% to 21% effective tax rate. Again, that will be back loaded into the fourth quarter. Just giving how the accounting works for that specific discrete item. But 20%, 21% with the Stifel stock price is a good way to think about it.

Ronald Kruszewski

Bill, and you can just think about it, we don’t really disclose. But I will say that the way our stock-based compensation works, we have — we generally just have a little bit longer. We have five and seven year type deferral. So we’re hand — we’re distributing stock for tax purposes that we issued a number of years ago. And so this is — as long as you have a rise in stock price, this is pretty consistent.
And with our performance in the last year, it was even more significant. So even if we just held here, we have a number of historical stock grants that were issued at lower prices that will deduct for tax purposes at higher prices. And that’s why I think what Jim said, at these levels we would look next year and say, oh, this is nice.

Bill Katz

Okay. I was just wondering if you might come in on. So how do you think about capital allocation, seems like maybe bank growth is the primary focus for ’25 and maybe I’m incorrect on that. And then relatedly as a follow up, just sort of curious you mentioned that client cash has improved a little bit. I think wanted to unpack the seasonal dynamic that until the end of the year and how things are trending in the early part of ’25 in terms of cash — client cash trends? Thanks.

Ronald Kruszewski

Yeah, I’ll give — I’ll let Jim hit the trends and maybe a little more detail. Like, the first part of that question. Yeah. (multiple speakers) Well, look, I think if you do the numbers and you talk about balance sheet growth and put capital to that, and then you look at our increase in our dividend of of 10%.
And then you put in some stock repurchase, so you will conclude that we’re building capital. Meaning that we have some excess capital that we will be thinking about how best to deploy that based upon the opportunities that present themselves to us.
As it relates to the capital build, I’ve been pleased with really — I can go back a few years and Jim, tell me when, but I’ll say even four or five years ago, we really had no commercial deposits or very few.
And now today, because of the investments we’ve made in venture lending, we’ve seen significant growth and I think we’re just getting started in our commercial deposits relating to our venture business. Well, that trend if you want to pick up from here, Jim, but it’s — I wouldn’t say it was anything really seasonal, it’s more that we’re getting that business going.

James Marischen

You think about the growth in the fourth quarter. Obviously, we talked about the increase in the Suite program and that was nice to see for a second consecutive quarter. We have seen that pull back a little bit in the last week or two.
Some of that kind of moves around from a day-to-day basis. You could see $100 million swings in and out on a day to day basis there, but it has pulled back some. We have seen continued strong growth as Ron mentioned within the venture deposits. If you go back to the fourth quarter, we had over 700 million of additional venture deposits we brought on to the platform during the quarter.
We’ve been more in the lines of call it, $300 million or $400 million a quarter, I think as we look forward, if you’re trying to run rate that $300 million to $400 million might be a slightly better number. But we just had a strong end of the year in terms of bringing deposits on. So I think that kind of gives you an update kind of through at least yesterday of where we stand in terms of cash balances.

Operator

Alex Blostein, Goldman Sachs.

Alex Blostein

Hey, good morning, guys. Thanks for the question. I mean, I think it’s pretty widely expected for the capital markets dynamics to improve in 2025 and into the ’26 we’ve talked about for a little while. I guess if you look at your investment banking business and definitely not asking you to put an explicit number on this. But if you look at where that peak back in 2021 with the forces in play, how do you think about the peak revenues for this business in this current cycle? Any KPIs you can provide us to think about either in terms of Senior MDs in the banking division or anything else to kind of help us frame the opportunity set in this business for the next couple of years.

Ronald Kruszewski

Yeah, you got to start at maybe the product level and then the segment level and what we’re expecting and as we look at it today. So first, I think the environment is going to be a lot better. You got to remember, I said you had this for a lot of the banks our side, you had the SPAC phenomenon on that that drove a lot of business that was sort of a backwards IPO as we all know. So, I’d like to — one of the things I’d like to do is see the administration make capital raising, the Jobs Act if you will, which I think has a good chance of re-energizing the markets.
So, what I would say, I’m not really going to try and Jim can talk about what he thinks about our numbers. I’m not going to put a cap in any of our numbers. It’s going to be driven though by where we really have seen a growth and that is in financials, healthcare, consumer and tech.
If you ask me today, I would say, the — certainly, the financial looks — markets look strong, consumer and industrial looks strong. Healthcare is taking a little bit of a breath here trying to understand what’s going to happen with the new secretary and et cetera. But all together, it’s, as you said, Alex, it’s going to be a good environment. We feel that we have more capability than we had in 2021. But I’m reluctant to put some numbers on that, albeit to say, I think it’s going to be a better year than ’24.

James Marischen

So specifically, to some of your questions related to MDs, we did disclose the number at 212 in terms of MDs as at the end of the year. And with the Bryan Garnier transaction, we’ll be bringing on an additional 33. But I would just say, Ron talked about ECM and facts and whatnot leading to some of the pretty substantial level of revenues for banking in 2021, but we’ve made a lot of investments in M&A bankers.
And I think as we sit here today, we do see the M&A levels reaching similar to what we saw in 2021, given all those investments we’ve made across our platform, across various different industries. As we sit here today and think about the financial vertical, our announced pipeline is three times what it was a year ago. So it gives you some idea of what we’re looking at.

Ronald Kruszewski

Announced.

James Marischen

Announced.

Ronald Kruszewski

And I think that’s a fair point that that — I focus on the EC and the capital raising of 2021. But I think what Jim just said, I want to just underline, which is that that was a little bit more market driven, capability driven. When you look at our team, we’re putting on the field, you can look at M&A and M&A is reaching those levels of peak market. So that’s just underscoring what Jim just said. And look Alex, I do think it’s going to be a good environment for us.

Alex Blostein

Yeah, that’s really helpful color. Thank you. Second question just around non-comp expense growth. When you normalize for investment banking growth ups and loan reserves, it looks like you guys have been pretty consistently in sort of 10%-ish year over year growth for the last couple of years and non-comp expense.
Your guidance implies, I think, something similar to that for 2025. Any framework to think about how you can sort of bend this cost curve a little, what’s driving sort of this pace of expense growth. So any anything else you guys could provide to help us think through sort of the longer-term expectations for that expense?

Ronald Kruszewski

Well, look, in many ways, non-comp up, there is some leverage in the fact that you know that the fixed components of non comp around some of the communications and quotes and some of that is there. But the big items also are the variable components which we believe drives revenue and drives future revenue. So we’re always pretty consistent. We look at it hard in that.
But where we really saw the curve bent was during the pandemic when no one was traveling and no one was doing conferences and doing all that. And we’re not — we could do that and you’d really see a bend for a year, but you might see some bend in revenues going the wrong way as well.
So I think we’ve been pretty consistent. I think we’ve done a really good job over years of managing margins and non-comp relative to the balance between investing and client acquisition revenues. It’s an important mix in something that we look at.

James Marischen

And if you drill down into the 4Q numbers in what we reported, we had call it $12 million of legal expenses. Those are very episodic. They’re very hard to predict if you exclude that from that number and you look at that from an op ratio perspective, you’d be right at 19.0%.
And so again, it’s hard to predict when those types of costs are going to hit our P&L and over time they periodically show up. But if you look at the core kind of operating expenses, it essentially was at the bottom of our range in the fourth quarter and that shows some of the potential ops leverage, absent some of those episodic costs.

Alex Blostein

Awesome, great. Thank you, guys.

Operator

Steven Chubak, Wolfe Research.

Steven Chubak

Hi, good morning, Ron. Good morning, Jim. Hope you’re both well.

Ronald Kruszewski

Thank you.

Steven Chubak

I wanted to ask on the FIC business. The performance has really started to improve, that full year revenue number of $390 million. It’s approaching a previous record. And as we look at an environment with the recent steeping in the curve potentially sparking some increased engagement from the depositories in particular, just how you’re thinking about the revenue potential for the FIC business, especially since we haven’t seen a normal environment with the contribution from Vining Sparks and just what it can generate in the absence of further trading gains.

Ronald Kruszewski

I’ll let Jim give some color. But I think he said in his remarks that he saw growth in that business. I think your words were especially in fixed income, what you said, you didn’t put any numbers to it. So look, we made some investments, we’ve made some investments in our structure business, our securitization business, we made hires in the SBA business.
And then the [Jenny] type business, all of which are on the origination side of products that go into the so-called Vining Sparksv and our depository business. And you’re seeing an environment with the normalization of the yield curve and some of the credit spread and a number of things coming together that I think bodes well up for fixed income.
In many ways, our timing on Vining Sparks was a little challenged relative to what happened with rates and bank balance sheets. But the good news is we had a great integration. We kept all the talent and now we’re reaping the benefits of that.
So look, I think part of it is a good environment and part of it is is that we put some capabilities in place that’s in the market, didn’t allow us to show you what those capabilities would be able to do in a better environment. And I think you’ll see that.

James Marischen

I’d just supplement that by saying, obviously, the rate is our biggest business, right? And if you see banks start to engage in trading activity, I think that bodes well for an environment for us. The other thing I would say, just generally speaking, is we did have some trading gains throughout this past year. And so as you think about the growth potential, I think we’re talking about the core business, but the — some of those lumpier trading gains are a little episodic in nature. And I wouldn’t necessarily run rate those.

Ronald Kruszewski

Yeah, and importantly, when you get to — when you look at our businesses and how we manage business, importantly, how we manage risk, I just want to just reiterate that we’re seeing a lot of this but you don’t see us taking on risk on our balance sheet. You don’t see us getting transactions done because we’re taking a slice of something and putting it on our balance sheet.
So the principal risk and the risk adjusted return on our fixed income business are quite high. And I would be remiss if I didn’t also mention that within fixed income, we just had a phenomenal year in public winning.
All right. And our public finance team deserves a call out on this call as to — being number one in market share and number of transactions. We’ve become really relevant, maybe not in the biggest deal but across America when you’re talking about financing schools and housing and all of those things. Our team has done a phenomenal job. And that — our look forward in that segment is also very positive.

Steven Chubak

That’s really great color. And for my follow up, I have to ask on Sweep Cash, Jim, and I’m really trying to help you here since you noted that Sweep Cash balances so far in January are down just given the magnitude of the growth that we saw in 4Q. I was hoping you could explicitly quantify the reduction that you’ve seen in January. And what level of Sweep deposit growth is actually underpinning the NII guidance for the coming year.

James Marischen

So in terms of — I won’t give you an exact number, but the num — the Sweep balances are down probably a couple $100 million in January. Again, two weeks ago, they were up a couple $100 million. That number moves around a lot. I’m not going to sit here and try to predict where they’ll be reported at the end of January. But generally speaking, we feel good about a linear step up in some of those balances over 2025.

Ronald Kruszewski

Jim, January, in my experience is — for investor dynamics, a number of things that happen reallocation, people re-getting into the market if they did tax loss selling. January generally is — sees a decline in balances as investors start engaging in the new year. So I wouldn’t put too much into that.

James Marischen

And the other question you talked about is kind of the underpinning for the ’25 forecast. And I’ll just say, we are including in our forecast that all of the loan growth we’re talking about of $3 billion to $4 billion is fully funded by Smart Rate and venture deposits. If we were to see more of a build across the suite balances, that would be incremental performance in terms of NII that we could produce.

Operator

Brennan Hawken, UBS.

Brennan Hawken

Good morning, Ron and Jim. Thanks for taking my question. Ron, you referenced the expectation of comp leverage moving forward, which makes a lot of sense given your outlook for revenue growth. I’m hoping you could maybe help me unpack what happened though in the fourth quarter because both segments actually sort of beat us on the comp ratio but the firm wide missed by a bit. So could you maybe unpack what caused that disconnect?

James Marischen

I could jump in there, Ron, and jump in if you want to supplement that. But generally speaking, you see more of a fill of the admin accrual late in the year, right? So you’re filling the buckets across the models for the commission based, the formulaic more based institutional folks, and a good portion of that kind of what’s left over fills the admin in that pool. And that just historically is back end loaded in the year and that’s what’s reflected in that segment.

Ronald Kruszewski

So Jim is saying that our senior bonuses finally got funded. (multiple speakers) I asked the same question myself. Okay. So — but look, I think it’s — we had forecast, I thought we signaled that we’d be at 58%. And so it’s hard to look at that linear. I appreciate the question.
I think you pointed something out, but it is — it’s kind of normal. Historically though, we have seen a little more comp leverage in the fourth quarter. That’s a fair question. I wouldn’t try to discern any future trend into that.

Brennan Hawken

Fair enough and cheers on that accrual. Okay.

Ronald Kruszewski

I thought — I was saying to Jim, what if we had a bad December and he kind of frowned at me. So I’m not sure what he was saying. Okay. But fair enough.

Brennan Hawken

Great. For my second, I’d love to ask a little about institutional. So one of the things, number one, your fourth quarter advisory was just a lot stronger than the public data normally suggests. So was there a lot more private or smaller deals represented in the advisory this quarter and do you think that’s going to continue based upon the pipeline that you have today? And we’ve also heard some concerns from investors about recent poor performance of IPOs, a couple of them have broken price. What do you think the implications of that could be? I think that it might be.

Ronald Kruszewski

I think, well, first of all, I think I always try to not only track our — see the correlation between our reported results or what I see coming in and what gets reported as activity. And in times for us, we do — we’re more middle market and I just don’t feel that those services that you’re relying on to try to generate will tend to undershoot our actual performance in good times.
We’re just doing a lot of transactions, some of them don’t get picked up. I’m not sure I know the answer to that, but that’s — that doesn’t surprise me because I do the same thing. I’m trying to understand and I’m trying to understand the market and I look at reported results and I say, where do these numbers come from? So I’m not sure if that answers your question, but I don’t see a lot of correlation. Again, the tenth —

Brennan Hawken

It’s under the radar, right? Like, just — got it. Fair enough.

Ronald Kruszewski

We also do more private deals, which tend not to get picked up.

Brennan Hawken

Yeah, that’s what I meant by that. So that makes a lot of sense. There has been — any thoughts on implications of the broken IPOs?

Ronald Kruszewski

In the what?

Brennan Hawken

The IPOs that have broken price recently and whether or not that might have an impact.

Ronald Kruszewski

Well, it’s on balance, it’s not relatively positive. I think it’s the — there’s a lot of things that some errors may be being taken out of some of the valuations here and I think it’s a natural progression. It can be healthy, it’s price discovery. You’d rather see positive performance. But the fact remains that there is a tremendous amount of business that has to be done in the private equity side and a lot of capital that needs to be raised into an environment that’s encouraging capital raising and M&A.
So I view it as something that we need to keep an eye on, but I do not sit here with any particular concern about a few deals that are broken price. I don’t — maybe I should but I don’t.

Brennan Hawken

And it could make M&A a more viable option if it’s a sponsor looking to sell versus the public–?

Ronald Kruszewski

Yeah. Well, I hope not though I want for — I want the overall — the entire process of being able to raise capital for young companies to grow into big companies and investors to participate in the IPO market. I think at the highest level for the United States and our government and our capital markets that issue has to be dealt with. I’m [not sure] now, but I want to see that.

Operator

Michael Cho, JP Morgan.

Michael Cho

Hey, good morning, guys. Thanks for taking my question and squeezing me in here. Yeah, I just wanted to touch on advisory code activity, just to follow up. But I think you referenced MD count of 212, excluding Bryan Garnier. I think that’s just a little bit down from what you disclosed prior. So I think anything to call out in terms of what areas might have saw some change there.
And then when we think about improvement in MD productivity into ’25, I think you called out 21 M&A levels or M&A levels reaching 21. Like is that the benchmark at this point when we think about MD productivity into 25?

Ronald Kruszewski

I think it’s fair. I think part of it counts of us managing productivity levels frankly without getting too specific, but I think the second part of your question contain the answer in it. Okay.

Michael Cho

Fair enough. And then — yeah, no, it does. And then just in terms of recruiting — and you cited strong pipeline again. You gave us kind of a relative comparison when we talk about — think about the banking pipeline. But is there some relative metric that you can help us with when we think about the recruiting pipeline that you’re seeing today maybe versus where you are at the start of 24? And how would you envision the recruiting packages to evolve with markets continuing to reach higher levels and then potentially higher for longer rate environment as well?

Ronald Kruszewski

Yeah, look, I think I would characterize — over time, okay, I feel that that the competitive landscape right now is very competitive, meaning things are very high. We look at almost every recruiting situation as what is our return on investment — how does it impact our return on invested capital so that we’re very disciplined on that?
And at times where people get really competitive, we may lose the marginal deal because ultimately, we don’t want to dilute our return on tangible equity by — at the alter of just having revenue growth on these. These are like CapEx, so you’re putting fixed costs down and I don’t like putting into some Excel spreadsheet perennial 20% increases in the market. That just ain’t going to happen. So we look at it over time and I would say today, if there’s sort of a governor, it’s a very competitive environment right now. And we tend to not adjust our base, if you will, transition deals much with markets. So if markets moderate or maybe have a little bit of a pullback, we tend to overperform in terms of record.

Operator

Thank you. This concludes our question-and-answer session. Mr. Kruszewski, I will turn the conference back to you for any closing remarks.

Ronald Kruszewski

Well, I want to compliment all of the analysts, and all of the questions were very thorough and long and we might have — no, I mean good. Okay. And we — I don’t think we’ve ever exceeded an hour on this call. We just did.
But I appreciate. I appreciate the interest. I feel that I’m looking forward to the next few calls and then into 2025 and maybe even 2026. We have a good environment and we have the — we, as do all my competitive peers, we sit at the fulcrum between people that have savings and people that need capital and the investment environment and the corporate activity and M&A and capital raising environment are all going to improve and we intend to get not only our fair market share, but we intend to increase our market share. And with that, I look forward to reporting to you next quarter. Thank you everyone for your time and attention.

Operator

This concludes today’s call. Thank you for your participation. You may now disconnect.