Good afternoon. My name is Candice, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter and Full Year 2012 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Mr. Jim Zemlyak, CFO of Stifel. You may begin your conference.

Thank you, Candice, and good afternoon. I’m Jim Zemlyak, CFO of Stifel. I’d like to welcome everyone to our conference call today to discuss our fourth quarter and full year 2012 financial results. Please note that this conference call is being recorded. If you’d like a copy of today’s presentation, you may download slides from our website at www.stifel.com. Before we begin today’s call, I would like to remind listeners that this presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not statements of fact or guarantees of performance. They are subject to risks, uncertainties, and other factors that may cause actual future results to differ materially from those discussed in the statements. To supplement our financial statements presented in accordance with GAAP, we use certain non-GAAP measures of financial performance and liquidity. These non-GAAP measures should only be considered together with the company’s GAAP results. And finally, for a discussion of risks and uncertainties in our business, please see the business factors affecting the company and the financial services industry in the company’s annual report on Form 10-K and MD&A of results in the company’s quarterly reports on From 10-Q. I will now turn over the call to the Chairman, CEO and President of Stifel, Ron Kruszewski.

Thank you, Jim. Welcome everyone and good afternoon. 2012 both the fourth quarter and year were good year. 2012 represented Stifel's 17th consecutive year of record net revenue. This was a significant accomplishment particularly given past market cycles. We remain focused on our goal delivering superior client service which has benefited all of our constituencies, clients, shareholders and our associates alike. Our fourth quarter results finished the year with record revenues, both segments, our Global Wealth Management, our Institutional Group reflected strong underlying performance even in light of the political and economic uncertainty which was present during the fourth quarter. We continue to selectively add talent to the professionals to expand our product offering and gain market share. At the end of the last year, we finished our acquisition so to speak of Miller Buckfire which is a preeminent franchise in restructuring advisory, and most recently closed our merger with KBW, the leading financial services investment bank. As we've done in the past, we’ll continue to position Stifel to take advantage of opportunity. Turning to our financial results for the quarter, we posted record quarterly revenues of $426 million, which was up 17% from a year ago. Net income was $40 million or $0.63 per diluted share, which compares with net income of $27 million, or $0.43 per diluted share last year. Results for the quarter included gains on our investment in Knight Capital of -- a little over $13 million. This gain was offset by normal compensation accruals on that gain and merger-related and other unusual expenses approximately $4 million. Those expenses consisted of about $2 million in merger-related expenses for KBW and Miller Buckfire, $1.5 million provision for loan loss in our Bank, not quite sure I would call that unusual, we had a lot of new loan…

(Operator Instructions) And your first question comes from Devin Ryan with Sandler O'Neill. Your line is now open.

Good afternoon. So we're obviously starting to see some inflows into equity funds. So I just love to get your sense of whether you’re seeing that translate to any change in investor engagement or investor behavior like money flowing into equity products within wealth management?

Yeah, Devin, I think that we’ve definitely seen a rotation of where money is flowing to equity and equity-linked products versus fixed income. At some point, they had to change. Otherwise there will be no more money in the equity markets. But there is no question that will change. It will be interesting to see how the markets react to this kind of a sell-up and what kind of a pull back we could get here. It seems that the pattern over the last three years is a very good start to the year. Some thing happens in Europe and you’re kind of going into a malaise. I don’t think that that’s going to happen this year; I think the news out of Italy whilst surprising I do not think reverses the trend of overall improvement in the Euro zone. But certainly, when you got by the fiscal cliff, the markets became a sort of risk on trade. I think people forgot there is still risk in the markets. And we saw a little bit of that today.

Okay. And then just the loan growth in the bank. Could you just talk a little bit about that outsize growth and what drove that? Was it only a one particular category and just -- is this level sustainable. Just want some color just given that it was such a large jump quarter to quarter?

We’ve seen opportunities on a risk adjusted basis. I’ve been optimistic about our ability to put on quality assets in the bank. We’ve added capabilities and you’re beginning to see. Again we’re building infrastructure to do this. So I felt that we had some opportunities. We funded some opportunities that’s why we see those loan loss provisions. But I have said and we’ll continue to say that the bank will continue to be a contributor to our profit. We’re going to continue to see the bank grow albeit on a relatively conservative basis. As I’ve said, Devin, many time, could grow the bank over night, a wholesale, a lot of what we put on, what I considered natural flow product from our leveraging our relationships into the bank.

Okay. Got it -- I mean, so just from a category perspective, are we talking about commercial loans. I’m assuming given that provision?

Yeah. There was a slide -- there was exactly. I mean, it was commercial and SBA loans. But it was definitely a higher preponderance of our increase. We certainly put on more loans that we had and previous in those loans are C&I and primarily a greater proportion of C&I loans.

Okay. Great. And then just lastly, in terms of the $4 million, call it, unusual expense. Some of the deal-related expenses are not going to recur going forward or maybe not normal. But this advertising expense, this is an example of that, something that is now going to be running through just as you’re doing this branding initiative?

Well, I think first of all, we went -- that was for the cost that related to actually going to shoot some commercials and getting advertising agencies in the talent et cetera. But I think you’ll see some increase. Obviously, we are running ads now and I think it was the shooting of, the commercials where we felt were probably more of one time. But we’re going to be increasing our budget for advertising, for branding. There is no question, some thing we need to do.

Got it. Okay. Thanks, Ron.

Yeah.

And your next question comes from Hugh Miller with Sidoti. Your line is now open.

Hi. Good afternoon.

Hey Hugh.

Hi. I guess, one question on the recruiting environment. I believe, did you mention that so far this quarter, you guys have hired 30 advisors?

Yeah. Hired or signed up. I’m not exactly sure where they are in process of getting here. But yeah, I did say that.

Okay. And can you just talk about that environment. I realized that the fourth quarter tends to be kind of slow for bringing people over and then people will look to make a move in the first quarter. But are you noticing any difference in trend and the willingness for people to kind of make a move and seeing opportunities from particular brokers or anything like that?

I think the environment in the fourth quarter is always a slower quarter in terms of recruiting. I don’t know that the environment today is anymore robust, if you will, than we’ve seen for the last six months or so. I think what you’ve seen, what you’re seeing us do is we’re going to be a little more aggressive. We’ve been somewhat less aggressive and if you saw the advertising today that we’re doing is both with an eye toward branding but it’s also directly targeting recruiting. I don’t know if you saw those Hugh.

I did. I did.

Okay. Well, those are targeting our recruiting efforts.

Okay. One housekeeping question just in regards to the tax rate in the quarter. Just coming in a bit below expectations and much if there was anything, in particular, that was influencing it during the quarter or sometimes at year-end true up. Color on that will be certainly helpful?

Look, as I said, it was a combination of two things that offset each other. I didn’t give the components. But in one case, we had some tax benefits related to one of our acquisitions, which was offset but not completely offset by an increase in valuation allowance for some deferred items and some of our foreign companies. Since net-net, we had a slight benefit to earnings through our tax rate.

Got you. Okay. And then looking at follow-up on the growth at Stifel Bank, you gave us some good color there on the loan portfolio. And obviously, we saw an increase in the securities portfolio as well. Just I realize you guys have a tremendous amount of liquidity you can tap into. But can you just talk to us a bit about the strategic rationale for kind of growing the securities portfolio at this point and how we should be thinking about that going forward?

Well, the rationale is that if we can on a reasonable risk basis achieve, we look at each investment to achieve an ROE threshold against the capital. We have to put into hold those investments. But the short story is that even with interest rates as low as they are where the yield curve is, we can add to the investment portfolio, add an acceptable ROE hurdle. And keep credit risk and interest rate risk minimal. We do cash flow hedges and as you can see from our net interest margin, we are not exactly reaching for credit yield. So the answer is that this environment has been conducive to allowing us to add to that portfolio. We just simply don’t want to grow very fast in any cycle whether it’d be an interest rate cycle or credit cycle. So our growth has been balanced. I think the takeaway should be is that given our capital structure and so long as we can continue to add quality assets, which I believe we can there remains a fair amount of growth within our bank to absorb our overcapitalization that exists and you just look at our balance sheet. So, net-net, there is increased earnings potential. And I think acceptable risk levels that will emanate out of the bank.

Okay. Okay. And last question I had was just with regards to the comp ratio and the institutional group. And I realized that you had some unusual items that kind of flowed in this particular quarter with payouts on CKG investment and other things like that. It just kind of crapped up a bit more than what we were expecting. And I was wondering, are you seeing anything with regards to the recruiting environment that is kind of causing you guys to pay up a little bit more on the comp ratio as well or any color there’s certainly helpful?

I think -- I think you said it right, the first way, and that is that, we believe that we are investing and we’re building the capabilities of this firm to gain market share, in the market that otherwise could be flat if not even declining a little bit. What we see is a lot of restructuring in the largest firm as they rebuild their business models to achieve their own return on equity hurdle. Letting a lot of people go which I believe are very good people that we can add to those investments though do depress margin as you get -- as you make investments in either individual people or business verticals. So I -- what I here you on the comp ratio increasing. We’re cognizant of that. We are continuing to invest in this business because we believe that we’re going to be well positioned for improving fundamentals in the institutional business.

Great. Thank you very much.

And your next question comes from Chris Harris with Wells Fargo Securities. Your line is now open.

Thank you. First question from me is just on the margin. I want to follow up on that last point. So Ron I know we got a lot of moving variable as we think about 2013. You certainly got the KBW integration going on. We’ve got the new branding initiative that you alluded to. How should we think -- be thinking about margin as we looking in ’13. I know there is some things that will affect obviously revenue being a big component but where do you see the upside in the margin as you look at your business plan over the next four quarters?

So look I think the margin, as margin improvement comes from as our investment for we’ve been losing money begin to pay out as I’ve shown in our legacy slide. Our margins will improve because we won’t -- we won’t lose $15 million to $20 million on $40 million of revenue that that turns around. And you’ll get some margin improvement there. We’ve shown how that -- that I think 160 basis points. But we’ve also -- it’s a lot of the investment will begin to bear fruit. And that’s lot of it but all that said our stated goal is through market cycles, to have pretax margin of about 15% and that we would be above that. And I would consider okay markets in 2012. So as I look forward, if you we’re going to say that our margins should be in the low 60s, in the low 20s -- low 60s and comp of low 20s in OpEx and in the mid teens for margins, I would not give it yet.

Okay. Great. Then with respect to KBW, I know, you guys just close the deal. All of the , expense synergies at this point been kind of fully realized? Or how should we be thinking about that? And then do you have some sense as to what the actual dollar amount of the synergies will be as we kind of build out our model for ‘13 here?

Well, look, we approach the dividend. First of all I would -- we would be a hurricane effort to realize the cost savings. We’ve closed the deal a week ago effectively. So and it’s lot of the cost saves take time, which Chris is why we will layout the next quarter as it relate to our OpEx the duplicative expenses. We set those aside. I always viewed as purchase price. And we all will say what we think are going to be for the next -- for the reminder of this year because we actually -- you can’t the accountants don't let you charge them off all at once and you can’t cancel contracts immediately. So there is a transition period of duplicative expenses that always occur and we’ve done this a number times and we’ll do it again as we show what those are. What -- I think what we’ve said was somewhere in the high 50s to low 60s depending on what your revenue estimate is there are variable expenses that you add to our base, last year we had $360 million of OpEx, ex-KBW and we’re going to add the OpEx, which I've said was anywhere from $55 million to $65 million depending on your revenue estimates for KBW. And so, that’s where, I would look at it, it would be, what we going to show in core expenses and we will identify the duplicative expenses that make that not achievable on day one.

Okay. That makes sense. When do you expect to have kind of all those synergies worked out through the systems, you won't be kind of double counting, I mean is it the year or for?

Normally they become -- they become insignificant within the year. If you asked me today, I would say, that the longest we’ve ever reported non-core which is -- which again as I identified list of contracts, duplicative space, all the things that we are getting rid of, we put those in a segment and then show the burned-out of those if you will. But that will started in Q1 and wouldn’t go fast at the end of this year no later than Q1 of ’14, would be the latest, that we’ve ever done that. I will lay that out in a lot of detail on the next call.

Okay. Last question for me and I let some other guys get in here, question on the fixed income division. I know you guys have added a lot to the headcount here, I think you mentioned, Ron, 77 new employees over the last year, stop me, if I'm misquoting you. And then obviously you have some M&A? How are you feeling about the current size of your fixed income division, do you still think there is opportunity to incrementally add here and where exactly do you think there might be more opportunities?

I think the fixed income market is huge, highly fragmented and been under tremendous disarray, and we believe that the fixed income market, we can make more investments. There is a lot of market share for us to gain without burdening the balance sheet overly. And so we have seen a lot of opportunity within fixed income have invested, but if you are saying to I think we’re at the, toward the end of what we see is the opportunity curve or framework, I would say absolutely not.

Okay. Great. Thank you very much.

And your next question comes from David Trone of JMP Securities. Your line is now open.

Hi, Ron. Good evening.

Hi, David.

I had a quick question for here, I was actually pleasantly surprised of the KBW number that you put in there on slide 22, we really looking for about 58 and 70 is pretty nice number?

Yeah.

Are you able to give any kind of color is that really banking strength or what?

Yeah. Well, look, I think I didn’t really get into that, I just, but, I would as you would expect the flow business with the uncertainty and year end issues, the flow business would have been not as price didn’t get to your numbers, I don’t what you are numbers are and they had strong banking revenues relative to each other, okay, over prior quarters. Some of the good quarter demonstrated the strength of their franchise. Had they not had the disruption of our merger, I think it would’ve been a bit better, okay. In terms of the factors I talked about. So I’m pleased with that and believe that there is that that space can generate a lot of revenue and believe that when we get this integration better done, you're going to see good things out of our institutional group and especially our equity business, and especially our FIG business. We’ll see. The $71 million I was pleased with, when I saw it too.

Yeah. Great. Okay. Thank you very much, Ron.

Yeah.

And we have no further question at this time. I’ll turn the call back to Mr. Kruszewski for closing remarks.

Well, as always, I always appreciate everyone’s interest in Stifel. I remain optimistic as to our opportunities, our ability to gain market share, our ability to increase earnings and increase our earnings per share and book value. I think things feel pretty good. We have a lot of work to do on some of our integration, which we’ll report next quarter and I look forward to a great 2013, and I thank you for your support and we’ll talk next quarter. Thank you very much.

And this concludes today’s conference call. You may now disconnect.