StoneX Group (SNEX) Q3 2025 Earnings Call August 06, 2025 09:00 AM ET Company ParticipantsWilliam Dunaway - CFOSean O'Connor - Executive Vice Chairman of the BoardCharles Lyon - Group PresidentConference Call ParticipantsJeff Schmitt - Research Analyst - Financial Services and TechnologyDan Fannon - MD - Research AnalystOperatorGood day, and thank you for standing by. Welcome to the Stonex Group Inc. Q3 Fiscal twenty twenty five Earnings Call. At this time, all participants are in a listen only mode. After ...

Financial Overview - The third quarter net income was $63.4 million, with diluted earnings per share (EPS) of $1.22, reflecting a 2% growth in net income but a 2% decline in diluted EPS compared to the prior year due to additional shares outstanding [5][44] - Operating revenues reached $1.024 billion, up 12% year-over-year and 7% sequentially [5][6] - Total compensation and other expenses increased by 5% year-over-year and 3% sequentially, with fixed compensation and related costs up 6% year-over-year [6][7] - The trailing twelve months results showed operating revenues up 17%, net income up 26%, and EPS of $5.87, with a return on equity (ROE) of 16.6% [8] Business Line Performance - Growth was observed in securities, payments, and FX CFDs, while declines were noted in listed and OTC derivatives, physical contracts, and interest and fee income on client balances [8][9] - Operating revenues from physical contracts decreased by 17% year-over-year, primarily due to tariff-related uncertainties [9][10] - Securities operating revenues increased by 30%, driven by a 25% increase in volumes and a 15% rise in rate per million [10][11] - The commercial segment's net operating revenues declined by 24%, primarily due to a 44% drop in physical contracts [12][13] - The institutional segment saw record net operating revenues and segment income growth of 27% and 41% respectively [13][14] - The self-directed retail segment's net operating revenues increased by 18%, with segment income up 49% [14][15] Market Data - Interest and fee income on client balances decreased by 11% year-over-year, primarily due to lower short-term interest rates [11][12] - Average daily volume in FX CFD contracts increased by 34%, contributing to the growth in the self-directed retail segment [15][16] Company Strategy and Industry Competition - The company closed the RJO and Benchmark acquisitions, which are expected to be transformational and position the company as a market leader in global derivatives [18][19] - The RJO acquisition is anticipated to enhance earnings and margins, with a focus on integrating capabilities and expanding market reach [19][22] - The Benchmark acquisition is expected to provide robust sales and trading platforms, enhancing the company's investment banking capabilities [25][26] Management Commentary on Operating Environment and Future Outlook - Management noted that the commercial segment faced challenges due to tariff uncertainties and diminished volatility in key agricultural markets [50][51] - The company remains optimistic about the potential revenue synergies from the RJO acquisition, particularly in the commercial segment [56][58] - Management highlighted the ongoing uncertainty in the macro environment but noted that volatility can be beneficial for trading activities [78][79] Other Important Information - The company is focused on expanding its custody and clearing capabilities, including launching digital asset custody solutions [31][34] - The company reported a 27% year-over-year increase in correspondent clearing balances, indicating strong growth across major business lines [33][36] Q&A Session Summary Question: Can you provide more detail on the weakness in the commercial segment? - Management attributed the weakness to tariff uncertainty and lack of volatility in the agricultural sector, impacting trading volumes and revenue capture [50][51][52] Question: Any updates on revenue synergies for RJO now that it's closed? - Management indicated that while it is difficult to quantify revenue synergies immediately, they believe the potential is significant, particularly in the commercial segment [56][58] Question: What are the longer-term plans for the retail segment? - Management discussed plans to expand the retail segment beyond FX trading, focusing on a multi-asset class offering [63][66] Question: What are the priorities for the integration of RJ O'Brien? - Management outlined a focus on realizing synergies quickly, particularly on the international side, while ensuring a seamless integration process for U.S. operations [72][75] Question: Are there any changes in behavior from large financial institutions? - Management noted no significant changes in behavior from banks regarding investment in the FCM business, indicating a continued focus on other strategic priorities [84][85]

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Core Insights - StoneX Group Inc. reported a quarterly net operating revenue of $488.3 million, reflecting a 4% increase year-over-year, and a net income of $63.4 million, with a return on equity (ROE) of 13.1% for the quarter [1][3][21]. Financial Performance - The company achieved total revenues of $34,828.8 million for the three months ended June 30, 2025, a 29% increase compared to $27,069.7 million in the same period of 2024 [6]. - The net operating revenues for the nine months ended June 30, 2025, were $1,467.7 million, up 12% from $1,312.4 million in the prior year [21]. Segment Performance - The Institutional segment saw a significant revenue increase of 23% to $626.0 million for the three months ended June 30, 2025, compared to $508.9 million in 2024 [10]. - The Self-Directed/Retail segment also grew by 19%, reaching $114.2 million, up from $96.2 million year-over-year [10]. - Conversely, the Commercial segment experienced a decline of 14%, with revenues of $225.8 million compared to $262.2 million in the previous year [10]. Acquisitions - The company completed the acquisitions of R.J. O'Brien and The Benchmark Company, enhancing its market position in global derivatives and expanding its capital markets offerings [4][5]. Expenses and Profitability - Total compensation and other expenses increased by 5% to $401.4 million for the three months ended June 30, 2025, compared to $382.3 million in 2024 [7]. - The company incurred $8.9 million in acquisition-related charges during the quarter, impacting diluted EPS by approximately $0.12 [3]. Key Metrics - The diluted earnings per share (EPS) for the quarter was $1.22, a decrease of 2% from $1.25 in the same quarter of the previous year [8]. - The year-to-date ROE stood at 15.9%, down from 16.4% in the prior year [8].

Financial Performance - Net income available to common shareholders was $873 million, or $091 per share, excluding restructuring and merger-related expenses and day 1 provision for credit losses on acquired loans[6, 39] - Net interest margin improved to 359%, up 64 basis points year-over-year and 24 basis points quarter-over-quarter[6, 23] - Return on average tangible equity was 1716%, an increase of 838 basis points compared to the same quarter last year[8] - Efficiency ratio improved to 555%, driven by the benefits of the PFC acquisition and positive operating leverage[7] Loan and Deposit Growth - Total loans increased 536% year-over-year to $188 billion, reflecting $59 billion of loans from PFC and organic growth[6, 10, 11] - Total deposits increased 575% year-over-year to $212 billion, including $69 billion of deposits from PFC and organic growth[13, 15] - Year-over-year organic deposit growth was $850 million, or 63%, fully funding organic loan growth[15] Asset Quality and Capital - Non-performing assets to total assets ratio was 031%[6, 8] - Tangible common equity to tangible assets ratio was 760%[6, 19] - The allowance for credit losses on loans was $2239 million, providing a coverage ratio of 119%[31] Securities Portfolio - Total securities were $439 billion, representing 16% of total assets[17] - The securities portfolio had a weighted average yield of 321%[19]

Financial Performance - The company reported a net loss of $8.5 million, or ($0.53) diluted EPS, for Q2 2025, but excluding the loss on the sale of securities, net income would have been $4.7 million, or $0.29 EPS, using a blended statutory tax rate of 29.56%[8] - Tax-equivalent net interest margin increased to 2.93% from 2.86%, primarily due to new loan production at higher rates[8] - The company sold $185.8 million in AFS securities, resulting in a pre-tax loss of $18.7 million, but expects a 13bp increase in annualized NIM and $0.20 EPS accretion over 4 quarters with a 4-year earnback[8] Capital & Liquidity - The company's total risk-based capital remained strong at 16.25%[8] - The company repurchased $2.2 million in shares during Q2 2025[8, 18] - The company has $1.9 billion in immediately available net funding, representing 200% coverage of estimated uninsured deposits[8, 20] Deposits & Loans - Total deposits decreased by $56.9 million, with non-interest bearing deposits remaining a strong 42.5% of total deposits[8] - The company originated $68.8 million in new loans, including $49.1 million in commercial loans[8] - Non-accrual loans decreased to 1.57% of total loans from 1.59% in the prior quarter, while classified loans increased to 2.95% of total loans[8] Loan Portfolio - The company's loan portfolio is well-diversified, with non-owner occupied commercial real estate (NOO-CRE) representing 62% of the $2.1 billion total loan portfolio[38] - Within the NOO-CRE portfolio, office properties account for 28% of the $1.3 billion, while retail, warehouse & industrial, and multi-family properties represent 19%, 12%, and 15% respectively[38] - The company's non-owner occupied (NOO) CRE office exposure in the City of San Francisco is $61.1 million, representing 3% of the total loan portfolio and 5% of total NOO CRE loans[52, 53]

Financial Performance Highlights - KB Financial Group's 1H25 net profit reached ₩3.436 trillion, a 23.8% year-over-year increase[12, 17] - The Group's ROE for 1H25 was 13.03%, a 2.23%p increase year-over-year[8, 14] - Non-bank subsidiaries contributed 39% to the Group's net profit[16, 17] Shareholder Returns - The company plans a total shareholder return of ₩1.15 trillion, including a ₩850 billion share buyback and cancellation[8] - A proactive return of ₩300 billion was implemented in 2Q25[8, 11] - The CET-1 ratio as of June 2025 reached 13.74%[8, 11] Financial Analysis - Group net interest income slightly decreased by 0.4% year-over-year to ₩6.3687 trillion[24] - Group net non-interest income increased by 10.9% year-over-year to ₩2.7233 trillion[29] - Group G&A expenses increased by 4.1% year-over-year to ₩3.3553 trillion[35] Asset Quality - The Group's NPL ratio was 0.72%, with an NPL coverage ratio of 138.5%[48] - Provision for credit losses totaled ₩1.3107 trillion in 1H25, a 33.6% increase year-over-year[41] Subsidiary Performance - KB Kookmin Bank reported a net profit of ₩2.1876 trillion and an ROE of 11.63%[84] - KB Securities recorded a net profit of ₩338.9 billion and an ROE of 10.10%[87] - KB Insurance's net profit was ₩558.1 billion with an ROE of 20.51%[90]

Group 1 - The issuer of the securities is CMA CGM S.A, with an aggregate nominal amount of EUR 600 million [3] - The securities have a fixed interest rate of 5% and are due in January 2031 [3] - The offer price for the securities is set at 100 [3] Group 2 - No stabilisation activities were carried out in relation to the offer of the securities [2] - The stabilisation managers involved include HSBC, ING, SG, BRED, CIC, CITI, NTX, and SANTANDER [4] - The announcement clarifies that the securities are not offered for sale in the United States and have not been registered under the U.S. Securities Act of 1933 [5]

Group 1 - The announcement indicates that no stabilisation was carried out for the securities offered by Avolta (Dufry One) [2] - The aggregate nominal amount of the securities is EUR 500,000,000, with a description of May 2032 4.5% [3] - The offer price for the securities is set at 100 [3] Group 2 - The stabilisation managers involved in the offering include BNP Paribas, ING, Santander, and several other major banks [4] - The announcement clarifies that the securities are not being offered for sale in the United States and have not been registered under the United States Securities Act of 1933 [5]

Financial Data and Key Metrics Changes - Second quarter net income was $71.7 million with diluted earnings per share of $1.41, representing a 3529% increase year-over-year but down 1617% from the previous quarter [6][50] - Operating revenues reached a record $956 million, up 17% year-over-year and up 1% from the previous quarter [6][50] - Return on equity was 15.7%, despite a 51% increase in book value over the last two years [6] Business Line Data and Key Metrics Changes - Operating revenues from physical contracts increased by 58% year-over-year, driven by strong growth in precious metals and physical agriculture and energy businesses [8] - Operating revenues from listed derivatives were up 15% year-over-year and quarter-over-quarter, primarily from the commercial segment [9] - Operating revenues from OTC derivatives increased by 14% year-over-year and 65% from the previous quarter, particularly in Brazil and European markets [9] - Payments operating revenues were up 2% year-over-year but down 13% from the previous quarter [9] - FX and CFD revenues decreased by 12% despite a 10% increase in average daily volume, due to a 19% decline in rate per million [10] Market Data and Key Metrics Changes - The company experienced a challenging market environment for FX and CFDs, with a significant decline in rate per million [11] - Interest and fee income from client balances decreased by 2% year-over-year, primarily due to lower short-term interest rates [16] Company Strategy and Development Direction - The company announced a planned acquisition of RJ O'Brien, which is expected to enhance its position in global derivatives and financial market infrastructure [18][24] - The acquisition is anticipated to provide significant revenue synergies and enhance margins, EPS, and return on equity [24][51] - The company is also expanding its ecosystem through partnerships, such as with Bamboo Payment Systems for local payment services in Latin America [27] Management's Comments on Operating Environment and Future Outlook - Management expects higher volatility in the next twelve months due to geopolitical tensions and supply chain uncertainties, which could be beneficial for the company [56][60] - The company is optimistic about its growth trajectory following the acquisition of RJ O'Brien and believes it will capitalize on ongoing industry transformations [51] Other Important Information - The company received CME approval for its New York-based metals vault, enhancing its capabilities in the metals market [30] - The company is actively expanding its presence in the Indian market through its establishment in Gift City [46] Q&A Session Summary Question: Health of the markets and near-term outlook - Management noted that while volatility had declined over the past year, recent months have seen a dramatic increase in volatility due to tariffs and trade reform, which is expected to be a net positive for the company [55][60] Question: Catalysts for growth in the payments business - Management discussed the recent technology upgrades that have increased capacity and allowed for higher transaction volumes, indicating a potential turnaround in the payments segment [62][64] Question: Fee per million in the retail segment - Management explained that the decline in fee per million was due to a normalization from previously high levels and a product mix that included tighter spreads [74][75] Question: Risk management policies during higher volatility - Management highlighted the effectiveness of their risk management systems during periods of high volatility, noting that they performed well without significant issues [82]