Stifel Financial Corp. (NYSE:SF) Q4 2022 Earnings Conference Call January 25, 2023 9:30 AM ET
Joel Jeffrey – Senior Vice President of Investor Relations
Ronald Kruszewski – Chairman and Chief Executive Officer
James Marischen – Chief Financial Officer
Conference Call Participants
Devin Ryan – JMP Securities LLC
Michael Anagnostakis – Wolfe Research, LLC
Alexander Blostein – Goldman Sachs Group, Inc.
Brennan Hawken – UBS
Good day, and welcome to the Stifel Financial Fourth Quarter 2022 Financial Results Conference Call. Today’s conference is being recorded.
At this time, I’d like to turn the conference over to Joel Jeffrey. Please go ahead.
Thank you, Justin. I’d like to welcome everyone to Stifel Financial’s fourth quarter and full-year financial results conference call. I’m joined on the call today by our Chairman and CEO, Ron Kruszewski; our Co-Presidents, Victor Nesi and Jim Zemlyak; and our CFO, Jim Marischen.
Earlier this morning, we issued an earnings release and posted a slide deck and financial supplement to our website, which can be found on the 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. 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 audio cast 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 fourth quarter and full-year results conference call. 2022 represented Stifel’s 132nd year in business, and represented our second best annual results as our balanced business model enabled us to deliver return-on-tangible common equity of 22%. Simply stated, Stifel performed as we expected with our more stable Global Wealth Management business, offsetting declines in our institutional segment.
As is well reported, 2022 represented a difficult operating environment characterized by persistent inflation and rapid central bank tightening, which put pressure on equity valuations illustrated by a 19% decline in the S&P 500. The pressure on asset valuations was broad-based and in the case of high-growth technology companies, dramatic. The complex and volatile environment, including the highest inflation in 40 years and significant geopolitical turmoil had a chilling effect on capital raising and related strategic activity, impacting our institutional business worldwide.
Despite this volatility, Stifel revenues totaled $4.4 billion with earnings per share of $5.74. Additionally, we increased our book value by 6% and our tangible book value by 9%. Global Wealth recorded record revenue and record profitability and our institutional business despite a difficult year when compared to 2021 was approximately the same as 2020, which represented record revenue at that time. Again, these results are a testament to the diversity of our business model and our long-term strategy of continually reinvesting for growth.
On the basis of our 2022 results and our belief in consistently increasing our dividend, I’m happy to announce that our Board of Directors has approved a 20% increase to our common dividend, which will now total annually $1.44 per share or $0.36 per quarter.
Moving to Slide 2. We review the significant growth in our business since 2015. Even with the difficult operating environment in 2022, our growth has been stellar. Net revenue was up 86%, net interest income up nearly 600%, advisory revenue up 300% and earnings per share increased more than 350%. Further, comparing our 2022 results to 2020, our growth story is equally clear. We have increased net revenue by 17%. Net interest income nearly doubled, advisory revenue was up 67% and earnings per share grew 26%.
You’ve heard me say a thousand times, but I remind you again, Stifel is a growth company and we will continue to reinvest in our business as it has been instrumental in our long history of consistent profitable growth.
Our focus on long-term growth is a key factor in reaching our strategic objectives. Over the past 25 years, Stifel has grown from a small Regional Wealth Management firm to a premier Global Wealth Management and investment bank. As I look to the future, we will continue to grow both our business segments by redeploying our substantial excess capital with the goal of generating the best risk-adjusted returns.
For our Wealth Management franchise, this means continuing to recruit high-quality financial advisers that choose to make Stifel their firm of choice due to our adviser-friendly culture, expands the product suite, excellent technology and industry-leading yet simple and fair compensation systems.
Since 2018, we’ve added more than 500 financial advisers with trailing 12-month production levels that total more than $350 million. As you’ve heard me say before, we believe that we can reach $1 trillion in total client assets through a combination of strong recruiting, net new asset growth and market appreciation. This growth will not only help us grow our private client asset base, but increase our deposit base at our bank and further expand our bank balance sheet, which has been a significant contributor to our top and bottom line growth.
Speaking of the bank, we are pleased with both our net interest income and expanding net interest margin. As Jim will expand on later in this presentation, we believe our net interest will increase nearly 40% next year with our net interest margin expanding to between 4.05% and 4.25%. We have accomplished this because of our focus on building an asset-sensitive balance sheet over the past several years of near-zero short-term rates. This asset strategy has allowed people to offer competitive saving type accounts and pass more of the rate increases to our clients.
A particular note is our bank’s Smart Rate program, this high-yield savings account has enabled Stifel to increase its client deposits over the past few quarters while many in our industry have been dealing with the impact of cash sorting by clients looking for higher yields on their cash. Also, we will continue to pursue deposits from our corporate clients as our expansion in the fund banking and other corporate banking services has further expanded our deposit base.
Our institutional group has grown from essentially zero, a little less than 20 years ago into a global business that generated average total revenue in the past three years of $1.75 billion. This was accomplished through both organic growth as well as a number of strategic acquisitions. Our growth has been focused on increasing our relevancy to our clients. As we look forward, this will continue to be a driving principle.
In terms of our overall business outlook, we believe that we will achieve our objective of $1 trillion in assets under management, which coupled with loan growth, would more than double the revenue generated from Wealth Management. As such, even considering the substantial growth we expect from our institutional business, we expect Wealth Management to comprise a greater percentage of our revenue in the years ahead. In addition, given our strategic objectives for our business, we anticipate that our excess capital levels will continue to grow meaningfully. That said, we will continue our long-standing policy of focusing on generating the best risk-adjusted returns, which I’ll discuss in greater detail on the next slide.
As you can see from the chart on Slide 4, at year-end, we have approximately $400 million of excess capital. And based on consensus analyst estimates, we could generate an additional $800 million in 2023. Look, it is strategic that we have the capital to be able to take advantage of opportunities in the market, particularly in down cycles. However, as you can see from the chart on the lower left, we have a history of deploying our excess capital to both grow our business and return it to shareholders. Our approach in either case has been and will be based again on risk-adjusted returns.
Over the past two years, we have focused on growing our balance sheet. And as such, we’ve deployed more than $1.8 billion in capital, supporting balance sheet growth of nearly $11 billion. Of course, this asset growth has been funded by deposits, which have grown since 2017 by $16 billion, attributable to strong recruiting as well as an increase in retail and commercial deposit gathered capabilities.
While balance sheet growth has been the recent focus of our capital deployment strategy, we’ve also paid out $275 million in common and preferred dividends, we purchased nearly $280 million of common stock and allocated $136 million to acquisitions. As we enter 2023, we have stated our intention that not to slow our bank growth, which effectively increases capital available for other uses.
Further, we believe in consistently growing our dividend. And as we did again today, our dividends we did today and reinvesting in our franchise for future growth. That said, we also feel that given our current share price, our stock is attractively valued compared to others in our peer group, and we currently have 8.7 million shares remaining on our current repurchase authorization. During the quarter, we repurchased about 1.3 million shares for about $75 million.
I suspect many in the analyst community had expectations for a higher level of share repurchases. I would note two factors impacting the level of buyback; first, we were only in the market two months; and second, we are working on an acquisition during late December. Thus one should not read too much into this, and we will continue to utilize share repurchases as a tool for capital utilization.
Speaking of valuation. On Slide 5, we illustrate how Stifel compares to two high-quality peers; Raymond James and Morgan Stanley. I respect these firms that would note that our business models, which combined Wealth Management, Institutional and a bank are quite similar. Much like these firms, we run our company to be recognized as a consistent high-quality performer.
Look, when we compare our valuation metrics to these companies, we see that we trade at a 25% to 33% discount based on PEs or price-to-tangible book. However, since 2017, our growth in EPS and tangible book value is considerably higher than these two quality companies as is our trailing 12-month return on tangible common equity. Simply, our team’s goal is to continue to perform consistently and as a natural result, close the valuation gap.
Finally, on the next slide, I’ll discuss our outlook for 2023 in terms of current Street analyst estimates. The current consensus estimate for net revenue for 2023 is $4.8 billion, which is up about $425 million from 2022. The primary driver of the increase is the expectation that our net interest income will grow to $1.25 billion, about a $360 million increase. Of note, our fourth quarter NII totaled about $300 million, which, of course, annualizes at $1.2 billion for 2023 and does not take into account any increase in net interest margin or interest earning assets.
Taking out NII. The Street is essentially predicting that our operating net revenue will be flat to up slightly. Said another way, The Street consensus implies the overall market conditions for 2023 will be similar to 2022. Of course, markets can turn very quickly and improving market conditions will positively impact revenues while a recession is also possible. Considering both possibilities, we are guiding to total net revenue of $4.6 billion to $5 billion in 2023. This includes our expectation that net interest income will be in the range of $1.2 billion to $1.3 billion.
Operating revenue has a little less clarity as the environment for our institutional business remains challenging. While we expect the capital raising activity will improve and M&A announcements will pick up, the overall market environment will play an important role in 2023’s revenue, thus, again, the wider range of net revenue guidance.
I would note that given the expected increased contribution from NII in 2023 and our revenue guidance, we expect that our compensation ratio will decline to 56% to 58% and that operating non-comp will be in the range of 18% to 19% of net revenue.
Now let me turn the call over to Jim Marischen to discuss our most recent quarterly results.
Thanks, Ron, and good morning, everyone. Stifel generated quarterly net revenue that surpassed $1.12 billion, our second strongest fourth quarter in our history, and our focus on managing expenses resulted in pretax margins of 23% and non-GAAP EPS of $1.58. This drove an annualized return-on-tangible common equity of 23%.
Looking at the details of our fourth quarter results on Slide 8. We showed solid sequential improvement as revenue increased 7% and earnings per share improved 23%. I’d highlight that the fourth quarter marked the ninth consecutive quarter with a pretax margin of greater than 20%. This is of note, as prior to the beginning of this streak, we only had five quarters with pretax margins above 20% since 1993.
Moving on to our segment results. Global Wealth Management revenue increased 10% to a record $744 million, and our pretax margins were 43%. This is an increase of 810 basis points from a year-ago. For the year, we posted record revenue, driven by net interest income and asset management revenue that both reached all-time highs in 2022.
During the quarter, we added a total of 36 advisers and 152 for the full-year despite an environment that was less than ideal. As market conditions normalize, we anticipate a strong pickup in the number of advisers coming to Stifel as our pipelines remain robust. The markets have also influenced our transactional and asset management revenues. Regardless, we ended the quarter with fee-based assets of $145 billion, the total client assets of $390 billion. Speaking of growth, our net new assets increased 5% in the fourth quarter and 4% over the trailing 12 months.
On the next slide, we illustrate some of the longer-term drivers in our Wealth Management business. Our new recruits typically bring substantial client assets to our platform and generate a large percentage of the revenue in advisory fees. This, combined with our increasing NII contribution has increased our percentage of recurring revenue, which adds greater stability and predictability of results. Our recurring revenue reached 76% for the full-year 2022, which surpassed our previous full-year high by 1,000 basis points.
Moving on to the Institutional Group. In the quarter, revenue was $354 million, and for the full-year, institutional revenue totaled more than $1.5 billion. In the fourth quarter, firm-wide investment banking revenue totaled $224 million. As you can see by the chart on the bottom right of the slide, we’ve significantly grown the number of investment banking managing directors. At the end of 2022, Managing Directors totaled 229, which is up more than 2.5x the number we had in 2012. While market conditions have weighed on this business, our increased scale enabled us to generate $971 million of investment banking revenue in 2022, which was our second strongest year ever.
As market conditions normalize, we believe our increased scale will continue to drive revenue in this segment. Advisory revenue in the quarter was $167 million. We were once again negatively impacted by the delay in deal closings, particularly in our financials vertical. That said, one of our larger deals was recently approved by the FDIC, and we anticipate that it will close in March, which should result in higher than seasonal norms for our advisory revenue in the first quarter. We continue to see positive signs in our business as client engagement remains high, and our investment banking pipelines remain solid, as we’ve seen in the second half of 2022, closings have slowed.
On the next slide, we look at the remainder of our institutional equities and fixed income business. Fixed income generated net revenue of $105 million in the quarter and $504 million for the year. Our equities business was down approximately 50% for both the quarter and full-year. Again, due primarily – due to the industry-wide drought in capital raising. Our full-year fixed income transactional revenue increased 3%. It was the second highest in our history.
Our business benefited from the higher activity levels earlier in the year, particularly in our rates business as a result of the addition of Vining Sparks. Fixed income capital raising for the year was $134 million. Our business was negatively impacted by lower industry-wide issuance activity in both the municipal and credit markets. However, I would highlight that our market share for the number of negotiated transactions increased to 15.3% in 2022, which was 710 basis points ahead of the next highest firm.
For the quarter, revenue came in at $28 million, which is up 3% sequentially and compares favorably with the 25% industry-wide decline in public finance issuance. Equity transactional revenue totaled $52 million, up 13% sequentially. This increase compares favorably to industry-wide volumes that were down 3%. Overall, we see increased engagement in electronic trading as we continue to gain market share as our clients embrace our electronic offerings and value our best-in-class research. In terms of equity underwriting, the market continues to face headwinds from increased volatility. We anticipate that as markets stabilize, activity levels will begin to return to historical norms.
Moving on to Slide 13. Our net interest income has been a standout in 2022 as we benefited from the growth in our balance sheet and the impact of higher interest rates. For the year, NII totaled nearly $900 million, which came in slightly above our full-year guidance. For the quarter, NII was up 24% sequentially to $302 million and also came above the high end of our guidance.
I would note that NII in the quarter was positively impacted by a benefit in the mortgage portfolio as a result of higher interest rates, increasing the duration of that portfolio, which results in deferred costs being amortized over a longer time frame. This accounted for approximately $5 million of the increase in NII during the quarter.
We project net interest income in the first quarter in a range of $295 million to $305 million and bank NIM of 380 basis points to 390 basis points. For the full-year, NII guidance mentioned earlier for 2023, I would note that this is based on loan growth of up to $2 billion, a bank NIM of 405 basis points to 425 basis points and a full-cycle deposit beta of 40% to 50%. I would add that we ended the year with $8.7 billion in the Smart Rate program. The range of our NIM guidance reflects our assumptions for various levels of additional cash sorting throughout the year.
Moving on to the next slide. A quicker we review the bank’s loan and investment portfolios. We ended the quarter with total loans of just under $21 billion, which was down approximately $200 million from the prior quarter. Our commercial portfolio decreased by $300 million, primarily due to the decline in broadly syndicated C&I loans. On the consumer side, our mortgage portfolio increased by more than $300 million, while our securities-based loan portfolio fell by $60 million.
Moving to the investment portfolio. We continue to see improved marks on the available-for-sale and held-to-maturity portfolios, which improved $4 million and $75 million, respectively, during the quarter.
Turning to credit metrics. Our credit loss provision totaled $6 million. For consolidated allowance-to-total loans ratio was 74 basis points, which is up slightly due to the provision expense and the decrease in the loan portfolio. Overall, our credit metrics remain very strong. Our non-performing assets as a percentage of total assets were 4 basis points, while our non-performing loans were 5 basis points.
On the next slide, we go through expenses. Our comp-to-revenue ratio in the fourth quarter was 56.5%, a 150 basis point sequential decline as we continue to benefit from the NII contribution. For the year, we came in at 58%, which was in line with the high end of our updated guidance.
Non-compensation operating expenses, excluding the credit loss provision and expenses related to investment banking transactions, totaled approximately $219 million, which is up $10 million from the prior quarter due to seasonal increases in travel and entertainment expenses.
For the full-year, our non-comp operating expenses as a percentage of revenue were 19%. The core effective tax rate during the quarter came in at 24.5%. Finally, our average fully diluted share count came at above our guidance as the benefit of our share repurchases were more than offset by the increase in our share price. Absent any assumption for additional share repurchases and assuming a stable stock price, we would expect the first quarter fully diluted share count to be 115.9 million shares.
And with that, let me turn the call back over to Ron for his closing remarks.
Thanks, Jim. As you can tell from our guidance, there is still a significant amount of uncertainty in the operating environment in 2023. U.S. economy faces the prospect of a recession. The impact of the war in Ukraine continues to be a drag on the global economy and China’s reopening could further impact the global supply chain, just to name a few. However, as Stifel has shown time and time again, our business is built to perform throughout economic cycles.
To summarize, in 2022, we generated our second highest net revenue in EPS in an environment where our institutional revenues were down 30%. Our focus on reinvesting in our business resulted in record Global Wealth Management revenue and a 79% increase in net interest income. The growth in our investment banking managing directors enabled us to offset the 64% decline and capital raising with strong advisory results. We generated pretax margins of return-on-tangible common equity of nearly 22%, while growing our tangible book value per share by 9%.
As I look into the current year, I am optimistic in our Global Wealth segment, we anticipate further NII growth despite the slower growth rate of our balance sheet. Our strong recruiting outputs will lead to further net new asset growth in our Private Client business. Our Institutional business is more cyclical, but remains well positioned to benefit from any pickup in capital raising activity and we will continue to focus on increasing our relevance to our clients.
Lastly, we continue to generate significant excess capital and given our expectations for significantly less balance sheet growth in 2023, we anticipate additional available capital for share repurchases, dividend increases as we just did and potential acquisitions. And considering all of the above, I look forward to closing Stifel’s valuation gap.
And with that, operator, please open the line for questions.
[Operator Instructions] Our first question will come from Devin Ryan with JMP Securities.
Hey. Good morning, guys. How are you?
Good morning, Devin.
Maybe just to start on the guidance, appreciate heading into 2023, there’s a lot of uncertainty. But I’m assuming kind of a big input here is just trying to understand what happens in investment banking. That’s going to be a pretty big toggle. And so I’d love to just maybe think about some of the underlying assumptions that you guys have in that revenue guidance around equity market movements kind of on the plus and minus side. And then just overall kind of how you’re thinking about the guardrails for investment banking for 2023.
Devin, I think I tried to address it in the call, let me just state it again. Our guidance started with consensus guidance on The Street, which is about $4.8 billion. And as I said, other than an increase in NII, which we can forecast pretty well as we’ve shown, and we’re confident in that number, and The Street is effectively having flat operating revenues. So 2022 on the institutional side was a difficult year as well advertised across the Street. So that $4.8 billion, which is the middle of our revenue guidance assumes for us basically the same kind of environment. I would say that if you look at investment banking, I would say that capital raising would be up, advisory would be down, maybe offsetting each other, but operating revenue is flat in an environment that will be similar to 2022 as the Fed figures out what it’s going to do in the economy, either has a soft landing or a recession.
So the middle is sort of like report stayed the same as 2022. Now if the market gets better, which you can turn on a dime and we’ve seen, and I expect at some point it will, then you get to the higher end of our guidance, which would be driven by improved asset management fees and improved investment banking. The lower end of our range would say that the market environment worsens from 2022, and therefore, it may be a recession. And therefore, you get to the lower end of our guidance, which would be even more difficult institutional markets and asset management fees that would be down because equity markets would correct even more. So that’s the give and take on that. Jim, do you have anything to add?
No, the only thing I would emphasize there is the comment on some of the advisory fees that slipped out of the fourth quarter and into the first and just emphasize the fact that, that’s going to result in some seasonality differences in advisory in the first quarter, particularly the large financial deal. There’s been a couple of other deals that slipped out of the fourth quarter into the first and just would emphasize that as well.
Yes. We got a little bit of a head start on advisory, but okay. So hopefully, that gives some color again. We’re using The Street consensus and then commenting from there, Devin.
Yes. Appreciate that. Good context. Maybe just a big-picture question, Ron. Like the Slide 5, where you frame out kind of the growth of the company and the valuation. Just at a high level, you talked a lot about kind of Wealth Management and that becoming bigger and getting to $1 trillion in assets. Just as you look out over the next handful of years, you grew earnings to 142% over the last five years. Is that type of growth as a firm is obviously the larger scale today? You think you can do that over the next five? And just what are some of the – if you were to kind of highlight a couple of the biggest drivers or opportunities for Stifel right now, what are you most excited about?
Well, certainly, on the Wealth Management side, we see a very strong recruiting pipeline. We’re always looking for accretive acquisitions. I’m not saying that we see that now. I’m just saying that we will do this. But on the Wealth Management side, both our view of the recruiting landscape and the investments that we’ve made to be an attractive destination makes me optimistic about that business.
And look, Devin, I get this question a lot, and it’s hard to sit here today and just say, “Oh, we can do that.” But go back over any five-year period and look at our growth over any five-year period over the last 20 years, and you’ll see very similar characteristics. So I’d say past is prologue, we’re a firm that makes investments, accretive investments, and we grow our returns. And I see as the firm has become more relevant to clients and have a – has more product suites, we are better positioned today to grow our Wealth Management, but also our Institutional business. I don’t just want to lose sight of how difficult 2022 was across The Street in the Institutional business. And we’ve built quite a franchise there, and that’s going to rebound. So you take the combination of those two, and I’m optimistic about our growth. And I think we, as a management team, have shown the ability to bring revenue growth to the bottom line.
I would – just maybe to add to that just a bit. We have more financial flexibility today than we’ve had historically, just given the excess capital we had, the stability in the revenues and the earnings we’re generating and that excess capital we’re generating. So the ability to support the growth and invest in the growth, whether it’s in people, acquisitions, et cetera, buybacks, you name it, we have a lot more financial flexibility today than we’ve had historically.
Yes. And we also – we just announced Torreya as a deal. That deal we expect to be accretive in – and our recruiting has been strong in the first half or the first part of the year. So again, I’d sort of say past is prologue and let’s just go from there.
Okay. Great. I’m sure we’ll get some questions on the excess capital, but I’ll let someone else ask. So I’ll hop back in the queue. Thank you.
And our next question will come from Steven Chubak with Wolfe Research.
Hey, good morning, Ron and Jim. Michael Anagnostakis on for Steven. Just starting off maybe on the topic of comp leverage. The midpoint of your guidance suggests absolute comp dollars will grow roughly $200 million in 2023, while NII is growing $350 million with fees roughly flat. Given much of that revenue growth is coming from NII, why wouldn’t we see better comp leverage in 2023? And just any help understanding the drivers there would be helpful? Thank you.
Well, just based on numbers alone, your observation is correct that everything being equal, we could have an improvement in our comp-to-revenue ratio based on that. Look, I think we’re conservative. We always have been as it relates to this and our range is reflective of many possible outcomes that can occur. We always start the year conservative in our compensation assumptions. We’ll adjust as the year goes on. But I won’t dispute the math that you’re doing here, okay, which would imply that we would have further leverage in our comp ratio, all else being equal. That said, we gave you our guidance.
Yes. And I’d also point out that over the last two years, we’ve been able to knock almost 200 basis points off the comp ratio. And so I think the conservative nature of the guidance, we’re intending to basically show that we’re continuing to get comp leverage there. But there is a wide range of scenarios in that forecast, which makes it difficult to exactly pin down.
Yes. And the other thing that we do, we pay our – when we recruit that – those recruiting costs run through our comp ratio. We don’t exclude those as some form of non-operating – those numbers. So as we anticipate and we do grow our recruiting, which obviously drives our future growth, those initial cost, which can be – well, they’re certainly higher than what the comp ratio would suggest for that individual that we hire. Those are absorbed in our comp-to-revenue guidance.
Great. Yes. That’s helpful color, for sure. For my follow-up, I just wanted to dig into capital management on the excess capital topic a little bit more. You gave some detail on the drivers behind the $75 million during the quarter. How should we think about the magnitude and cadence of buyback given that $800 million of capacity you had cited after dividend and bank growth? Thank you.
Well, if I actually answer that question, it will be the first time in the history that I’ve actually given a future view on buybacks, which, for us, are dependent on market conditions and other opportunities. And so I don’t – I do not and will not provide some number. We don’t look at it that way. That said, you’re right about the $400 million of excess plus $800 million potential, that’s the $1.2 billion. When you – what I will say is that we have because of the market and some of the uncertainty, we want to see where the Fed lands, a whole bunch of reasons that we’ve decided to slow our balance sheet growth in this environment.
That’s taken a lot of capital over the last couple of years. So we just increased our dividend. And you naturally will have left the ability to make acquisitions or make another acquisition, which is called buying our own stock. And today, when I look at it, and I showed on Page 5, that’s a compelling use of capital to make an investment ourselves. So you take that as you will, but we’re increasing. At this point, we believe that our available capital will be less as it has been years into balance sheet growth and more into capital-return options. Yet, we’re always considering accretive acquisitions.
Maybe just one more comment on the share count. As you think about repurchases last quarter, the vast majority of those repurchases happened in the back half of the quarter. And obviously, that’s based on an average count for the quarter. And so when you see our guidance for next quarter absent any additional share repurchases, the guidance going down to 115.9 million shares. You see the benefit of last quarter showing up more in that number. And we will continue to bring that down over time with the additional repurchases that Ron discussed.
And look, I think it’s a great question and something that people can look at because we are generating substantial capital and are well capitalized going into this.
Great. Thanks, so much for taking my questions.
And our next question will come from Alex Blostein with Goldman Sachs.
Good morning, Alex.
Hey, guys. Good morning. Hey, Ron. Good morning guys. So just kind of following up on your last comments around utilization ex capital. It sounds like the discussion around M&A may be is picking up a little bit more, if I’m kind of reading your body language correctly, any particular area that you think you will participate more in whether it’s institutional or wealth when it comes to deploying excess capital, if you’re not going aggressive on the buyback?
Well, I don’t – I certainly didn’t want to imply that we wouldn’t be aggressive on the buyback, Alex. What I’ve said is that we – that the amount – all things being equal, we’ve got a lot more available to point toward a buyback. So I’m not trying to say that – I just don’t like to say we’re going to buy x number of shares at any price come hell or high water. We just – we don’t approach it that way. But one of the best acquisitions out there is our own stock, all right? I always want to put the caveat out there that we’re – we’ve been an opportunistic firm. We’ve done over 30 acquisitions. And when we see a deal transaction that will increase our relevance and build our franchise, we’ll do that as well. So I don’t – I didn’t want to imply – and I’m glad you asked the question that we have some acquisitions around, obviously, I couldn’t talk about it anyway. But let me just say that way, we have a lot of capital.
As I look forward, I would say that we’re going to and we’re always looking at Wealth Management and Asset Management and what I would say more capital-light businesses to leverage our extensive platform. So I would favor that over other transactions. I think our goal in the Institutional growth is to consolidate based on market conditions and improved profitability back to 2020 levels. But look, we just did a nice acquisition in the Advisory side and Institutional and if something like that would appear, that was a very nice fit, we would highly consider it. So again, maybe a roundabout way of saying it, but do not assume that I was saying we’re not going to do buybacks because we have the acquisition.
Got it. All right. That is helpful. Second question for you guys, just wanted to dig into the funding mix a little more. I think I caught it right from Jim, the Smart Rate program was at $8.7 billion as of the end of the quarter. I think it’s up about $4 billion sequentially. So maybe talk a little bit about within your NIR assumptions, how are you thinking about further kind of client utilization and how significant do you think those balances will be in your sort of 2023 outlook? And just a clarification, when you talk about 40% to 50% deposit beta, that’s not accounting for the mix, right? This is just the rate increase on various programs you have.
No, I think it is accounting for the mix, okay? We’re – today or through the end of the year, I would say that our total deposit beta is around 40%, maybe 41%, and that’s total and that includes the remixing into Smart Rate. And so – and our effective interest cost, Jim, which is…
For Smart Rate, it is at 4% today. Total interest cost was about 100 and was 142 basis points in the fourth quarter.
Yes. So that’s all mixed in. And I’ll say that one of the things that I am pleased with because we anticipated at some point, rates were going to rise. We didn’t necessarily anticipate how rapid they would be in 2022. But we built the balance sheet, we’ve actually sort of gave up some NIM to build an asset-sensitive balance sheet. So what we’ve been able to do is watch our NIMs expand while we’ve been what I think is fairly dealing with cash sorting and deposit betas. And so we feel we’re in a good position as we continue to provide a product, to keep deposits on the platform, attract new deposits, which is important, while also forecasting NIM expansion next year.
So I think that this is sort of where a plan came together, and we thought about it. And now we’re trying to maintain a deposit franchise. What I see across The Street in many instances, is NIM is being driven by lower net interest cost because deposit betas are lower and our deposit beta is what we originally anticipated. At the beginning of the cycle, if you remember, we said it would be 25% to 50% through the cycle north 41% including $8.7 billion in a nice high yielding savings account.
Yes. And just maybe to add that a bit, we didn’t – we gave some pretty granular expectations of the assumptions, a full year NIM of 405 to 425 basis points in that beta between 40% and 50%. Now we didn’t give specific mix composition between Smart Rate and the Sweep Program. What I would say is the higher deposit beta assumes a pretty aggressive amount of remixing and the lower deposit beta more along the lines of what we’ve seen over the last few months. And I think that should kind of be able to get you some of the detail on how we came to that calculation.
Got it. Great. Thanks so much guys.
And our next question will come from Brennan Hawken with UBS.
Good morning, Ron. Good morning, Jim.
The question sort of high level. You’ve touched on it a couple of different ways from a couple of different directions here on that Slide 5. Ron, when you think about the recent history, the institutional deals, you’ve been active there, and they’ve been accretive. And so they certainly help drive returns and they help drive earnings growth. But I think they also could end up keeping investors focused on the institutional business at Stifel, which might impact perception despite the case that you lay out on the slide. So how do you plan to strike a balance in thinking about where you’re going to be allocating growth capital to each of these businesses?
Well, again, we – I picked these two peers, the high-quality peers and one has a little bit more Wealth Management and Institutional but still has significant Institutional. The other has more Institutional than even Wealth Management today, and so they’re very similar in terms of their mix. We will focus and continue to focus on building Wealth Management. That’s what investors want to hear, and we certainly have the platform to scale that business, and we will do that. We will not do that at all cost.
One of the things that we focused on is our return-on-tangible common equity, which you can see here. So despite even our – the focus that we’ve had on Institutional, we have great returns here and great returns across – what was just a difficult market cycle. So I think that – I think maybe the perception that – perception, if it was true, we would have had an awful 2022, okay? It would have been as awful. We had a really – across The Street, the Institutional was very difficult. Our business was down over 30%, yet we had our second best year ever and very good results because our model balances the stability of Wealth Management with the cyclical aspects of the Institutional business.
We’ll focus on Wealth, we always have. We will also do accretive transactions in the Institutional space because we believe that’s a business, especially where we’re positioned as a middle-market firm and so many firms are exiting. They’re either not big enough to get there or they’re large enough, they’re focusing up. There’s a huge market for us, and we’re going to take advantage of that.
I’d also reiterate one of Ron’s comments from the prepared remarks. We expect Wealth Management to comprise a greater percentage of our revenues in the years ahead. I think that’s indicative of the investments and the growth we expect to see occur in that segment.
Yes. Appreciate sharing your thoughts on that. That’s helpful. Another thing to consider for you guys might be disclosing the net new asset figure in writing to that might help the other two that you flagged there to do that as well. So that might help. A couple just follow-up items, maybe probably for Jim. You just spoke to premium AM at $5 million tailwind. Where does that stand versus the prior cycle trough at this point? And as far as thinking about the NII guide, was there any specific rate assumptions that underpin that or deposit balance and balance expectation?
Yes. So the comment I made related to the $5 million impact on net interest income was specific to the mortgage portfolio. And basically, as rates rise, the duration extends and you have to recast your expected period of time in which those deferred origination costs are amortized. And so that kind of true-up or catch-up entry was kind of a onetime event, $5 million in the fourth quarter. Unless you see a dramatic change in rates from here forward, you wouldn’t expect that to change materially. In terms of forward rates, I think essentially, what we’re saying in our forecast is consistent with the Fed fund future curve. Almost everything we have on balance sheet is tied to the short end of the curve, and we’re just following Fed fund’s future expectations.
Okay. Great. Yes. The $5 million that – I mean, that was just a premium amortization adjustment on the mortgage book, right? I just wanted to make sure.
So there’s origination costs, right? They get expensed over the life. So not a premium amortization, but so costs that we incurred to originate those loans that are now being cast over a longer period of time. It’s somewhat analogous to that premium amortization topic, but it’s just origination costs.
Got it. Okay.
And our next question will come from Steven Chubak with Wolfe Research.
You are back.
Yes. It’s Michael on again. I just – I want to ask one quick follow-up on the balance sheet. Given some of the volatility on the long end and the forward curve implying Fed cuts in the back half, how is the thinking evolving around managing duration here? Is there any greater desire to remix the balance sheet to lock in some higher yields? Or is the strategy to remain predominantly geared to the short end? Thanks again.
Look, I think the strategy is to remain what we’ve been doing, okay? I get a lot of questions. I think it’s a great question about locking in rates. That always gets me nervous just to tell you that, that’s embedded in that is an interest rate bet. And we – the way we look at it is we’re kind of naturally hedged anyway though. If the rates do get cut, at some point, they will. I’m not sure, the market might be anticipating that sooner than what we think. I think the Fed will be a little bit longer in maintaining rates. It’s my personal view.
But when it comes to saying that we’re going to remix the balance sheet to try to predict the future yield curve, no, we’re not thinking that way. If rates do get cut, that will compress NIM naturally, not as much as you would think. The deposit betas are near 100 on the way down. And so we would see that. But the other thing that happens is that in that kind of environment, cash goes up. Our cash balances go up and our short-term cash available goes up. So what we think is, even though we might get some NIM compression, we’ll increase NII. So that’s how we think about it. A bet of locking in rates, I’ve listened to that over decades, and sometimes it works and sometimes it doesn’t.
Maybe one other thing to add there, too, is if we did see some stability in rates and even a declining rate environment, that could also be a catalyst for our Institutional group. Obviously, the rapid rise in rates over the last year has not been helpful for origination activity, and I think that activity in general.
More activity in the depositories.
Yes. So that could help as well.
Great. Thanks, again.
Thank you. And that does conclude the question-and-answer session. I’ll now hand it back over to you.
Well, that was very productive, very good question. I appreciate that thoughtful. We want to thank everyone for listening. We feel we had a very successful 2022. We look forward to continuing to build this franchise in 2023 and the years beyond and look forward to reporting to our shareholders after our first quarter. So have a great day, and thank you.
Thank you. That does conclude today’s conference. We thank you for your participation. Have an excellent day.