Good morning, my name is Scott and I will be your conference operator today. At this time I would like to welcome everyone to the Fourth Quarter Earnings Call for 2016. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question-and-answer session. [Operator Instructions] Thank you. Jim Zemlyak, Chief Financial Officer, you may begin your conference.

Thank you and good morning, I’m Jim Zemlyak, CFO of Stifel. I would like to welcome everyone to our conference call today to discuss our fourth quarter and full year 2016 financial results. Please note that this conference call is being recorded. If you would like a copy of today’s presentation, you may download slides from our website at www.stifel.com. Before we begin today’s call, we’d 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 may include statements regarding, among other things, our ability to successfully integrate acquired companies, our branch offices and financial advisors, general economic, political, regulatory and market conditions, the investment banking and brokerage industries, our objectives and results, and they may include our beliefs regarding the effect of various regulatory matters, legal proceedings, management expectations, our liquidity and funding sources, counterparty credit risk or other similar matters. As such 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 may 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. To the extent we discuss non-GAAP measures, the reconciliation to GAAP is available on our website at www.stifel.com. And finally, for a discussion of risk 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 results in the Company’s quarterly reports on Form 10-Q. I will now turn the call over to the Chairman and CEO of Stifel, Ron Kruszewski.

Thanks Jim, and good morning to everyone. And thank you for taking the time to listen to our fourth quarter and full year 2016 results. This morning we issued a press release with our fourth quarter and full year results and posted a slide deck on our website. So with that, let me start with my opening comment. I’m very happy to announce we posted our 21st consecutive year of record net revenues, despite what was a challenging operating environment for the vast majority of the year. The business we’ve built over the past 20 years continues to benefit from the diversity of our revenue streams and is well positioned if the post-election market optimism continues. Our results underscore this diversity as the investments we made in 2015 helped drive substantial growth in net interest income, asset management and service fees, fixed income brokerage and trading, and advisory revenue. These more than offset weaker institutional commissions and underwriting revenue. The improved market environment is a solid backdrop for continued organic revenue growth in 2017 and we will continue look to deploy our excess capital in ways that generate the best returns. However, as we continue to grow our top line, we will put increased emphasis on improving operating leverage through expense efficiencies. In 2016, we illustrated our commitment to meeting our expense expectations as our comp and non-comp expenses consistently fell within our guidance. We have instituted a firm-wide cost reduction initiative that I expect will continue to generate positive results that will ultimately result in improved operating margins. Lastly, I’d note that the vast majority of our non-GAAP deal related charges are behind us and we have consistently stated over the past year, we expect the difference between GAAP and non-GAAP results in 2017 will be materially less than…

[Operator Instructions] Your first question comes from the line of Steven Chubak with Nomura Instinet. Your line is open.

Hi, good morning.

Good morning, Steven.

So, Ron, just wanted to kick off with a question on the NIM. You did guide to the December bank, NIM was 250 bps. I was hoping you can update us on where your current reinvest yields are today. And just based on the forward curve and bank growth targets you outlined, maybe what’s a reasonable expectation for where the bank NIM could actually shake out for the full year.

Well, that’s a hard question, Steve. I mean, I’m just going to go with what I said which was at the end of the year our NIM was for the net interest assets was 252 basis points. And that’s more indicative of what our balance sheet looks like going forward. It can go up as rates go up but that – there’s a lot of assumptions and yield curve, and reinvestment we have short duration assets that roll very fast. So to give you a projection on NIM is really a prediction in interest rates and the level of yield curve, which I’m not going to do simply because I don’t know. But taking a snapshot of our balance sheet at the end of the year its 252 basis points and assuming a parallel shift in rates going forward that shouldn’t prove from there. But a lot can go on with the shape of the yield curve as we have to reinvest as I said our average duration is 2.16 years in our investment portfolio. So I want to be cautious about trying to predict the shape of the yield curve.

Fair enough. And, Ron maybe just switching over to the expense side, certainly the guidance for the upcoming quarter is pretty encouraging and we have certainly seeing progress on the non-comps. As we see a better revenue growth environment I’m just wondering whether we should be focusing more on the ratio declining or should we actually expect to see dollar expense reduction in non-comps even if it’s a better operating environment and there is some revenue growth.

Well, look its math right so as revenue increases all things being equal to ratio it’s going to decline and what is really fixed more of a fixed cost base of non-comp. I want to caution you on our guide, I want to make sure that what I said in our range excludes loan loss provision in the bank, all right because its hard to predict how many loans as know when you put a loan in the books you have to book today, the loan loss reserve at the time you put the loan out, which impacts that provision as you’re growing the bank’s loan portfolio. So I am optimistic about what we’ve been doing in our ability to achieve operating leverage. But, I do want to know it’s not misunderstood that the range we gave excludes the loan loss provision as I think was $3 million in the third quarter of 2016 it was $6 million last quarter. But that all said, I think that you will see given the optimism that the market has and what we think it happen in top line I think you’ll see more operating efficiencies all is being equal.

Got it. And just one last one from me Ron just regarding your remarks on the capital markets back drop its sounds like you actually struck a more constructive tone on the M&A business specifically at least relative to the remarks that you have made in early December, which maybe focused more on sources of uncertainty first is positive equity valuations. Just want to get a sense as to what informs that change in view and specifically is your expectation that you should see revenue growth in the M&A side of business as well.

Look, I think what the only thing I’m trying to show is that the optimism in the market can [Audio Dip] M&A activity. There’s a lot of things that are going into this tax policy changes and just higher valuations, and just the whole prospect that’s driving sentiment today can drive M&A. As I said in my remarks, I want our business in M&A that for the full year was very positive record I think $257 million of M&A revenues. But we were down sequentially in the quarter. And so M&A turns to be lumpy and you need to look at it a little more smoothing if you will. As I look forward I think that 2017 the first quarter for us usually for firm where – where we on the market place is usually a weaker quarter. But we did see some transactions delayed and we think that that could offset otherwise weakness. Net Steve I think M&A across the board in this environment will – it has the prospects of improving.

All right. Thanks for taking my questions Ron.

Yes.

Your next question comes from the line of Devin Ryan with JMP Securities. Your line is open.

Good morning, Devin.

Thanks. Good morning, Ron. How are you?

Good.

Good. One on the bank here. So I appreciate the updated expectation for the end of 2017 bank growth. As we just think about kind of the capacity beyond that and really just how much funding is available? Can you help us think about that? I know there’s a lot of moving parts but just maybe how much capacity you do have to grow the bank beyond that $22 billion excuse me $21 billion.

Well, we have capacity, we have not swapped all of our deposits. And so I don’t – I would still say its several billion dollars of capacity. But what I do – what I am trying to say that we said last year, it wasn’t deposits that would constrain our growth. And I would say that that right now is true also. What will change in our growth assumptions going forward our capital ratios. And so we started with 30% Tier 1 risk and we’ve said, we get to 20% which we have. And going forward, as we maintain our target of 10% and 20%, we believe that will fund growth with retained earnings. So that I’ll do that – if you look in our statistical information you’ll see that we have client money market insured deposits of about over a little over $19 billion. And we’ve swapped approximately – I think the bank today has probably $12 billion in the bank, round numbers. So there is capacity to do that but that – those deposits grow as we grow our franchise. But the bank now is going to be more constrained by consolidated capital ratios, which we’re right now, we’re at our target and we’re going to now be looking at retained earnings, improved NIM as we move from investment securities into loan products. And then just general more favorable interest rate environment that comes from rising rates period for a financial firm like ours which is asset confident. So I would say again our constraint is more capital than deposit.

Got it. Great color. Just in wealth management, can you just talk a little bit about what you’re seeing with retail engagement maybe co-selection any things you can point to that maybe give you more optimism there. And then also just looking at financial advisor headcount, what do you guys doing to grow that organically, obviously you had some deals but it hasn’t been big organic growth. So just trying to think about what is going to boost that growth rate going forward.

Well, I think client engagement has been an interesting question that a lot of people try to address. And I think with all of the rules and all the changes client engagement is more driven just by frankly overall levels of asset values than it is on transactions what it used to be. The client engagement was always – your clients trading and are they doing more transactional business. And certainly client engagement is more reflective of asset levels. But I would say that with this optimism you can see rotation in the equities, which are just by – at least by market definition higher asset management type revenue streams from equity than you have for fixed income. So, what was the second part of your question? I forgot.

Just on financial advisor headcount growth and what you guys are doing internally trying to boost growth.

Yes. I think that our focus like we are in the company at this point we’ve achieved a lot of scale. There’s a lot of things going on the recruiting front that I’m optimistic about. There are number – a lot of commentary, a lot of things about some of the – what I would say elevated recruitment costs over the last few years maybe coming into hopefully, coming into what we would consider more reasonable numbers, which is where we are. And so if that happens we are more competitive by what we do because we’ve not been at certainly the big firm levels of recruitment packages if you will. With respect to advisors, we’re focusing on productivity and we’re focusing on the models and the work that we’ve done for the Department of Labor’s rule which I think is – what I said, I think its going to be delayed. But I do think it really has focused us on models and how we’re positioning our advisor business. And so we’ve been focusing as we on productivity and you’ve seen muted increases in our advisor count. But I would say like the firm we have scale and we want to start turning scale into margins going forward. Especially in this market environment we’re hoping what we’ve built is positioned for the current environment.

Got it. Okay, great. Last quick one here; appreciate the guidance on the comp ratio. How should we think about the comp ratio on the incremental net interest income growth, obviously assuming that’s coming on at high incremental margins, just what to kind of think about the two pieces?

Yes. I’ll just point to our guidance. Okay, I mean I think that we obviously want to be – well I’m optimistic I want to be somewhat cautious that as I’ve said many are slip from cup to lip on expectations in the market. But we gave new guidance and I would say that you can pick between those numbers.

Okay, great. Thanks, Ron.

Your next question comes from the line of Conor Fitzgerald with Goldman Sachs. Your line is open.

Hi, Conor.

Hey, good morning. Maybe just following up on that question on the – for the compensation ratio it’s seems like you’re implying you could see 30 to 280 basis points of operating leverage maybe leaving aside the provision for a minute. How should we think about operating leverage for non-comp expenses in 2017?

Well look, Conor, I’m trying my best to provide guidance I mean the margins if I’m saying acting out as I’ve said, loan loss provisions which are booked at the time you are growing your loan portfolio. We gave a range for the first quarter, we’ve been updating that range on a quarterly basis. And so the leverage in many ways – if you take the comp ratio and you take that range of operating expenses the leverage is based on the assumption for net revenue. And I’ve said that the market is certainly more optimistic in environment is more looking forward optimistic than we’ve seen in a few years. But I don’t – we don’t give revenue guidance. And so that’s sort of your job. We can’t give revenue guidance. And if you take the revenue guidance times that comp guidance minus non-comp OpEx, you’ll get to the number.

Okay, thanks. And then on the positive data – your sharing assumption with the clients to clarify your previous guidance had been 60% of the benefit went to clients.

Yes.

Okay. And then given that if the $5 million uplift you talked about because of lower client sharing seems a little bit conservative, is there any reason why the uplift from kind of no path to clients wouldn’t be higher than $5 million quarterly?

I want to see how that plays out, Conor. I think there’s a delay in that right now as people are trying to – people being the market is just trying to find were that level of cost deposits fall. That feels to me like the economy still a wash in liquidity and therefore the competitive environment haven’t kicked in. But my belief is that some point it will. So we’re – I’d rather be more cautious about that. I would actually think that it actually becomes more competitive that’s indicative of a better market that’s moving forward. And so that on one hand it might be negative that becomes more competitive. But on the other hand if it does I think market activity is really picking up. So I’m going to be muted and not try to overstate the benefits of that in the short run. The benefits meaning that we haven’t seen the market yet increase for the cost of deposits.

That’s helpful. And then just two clarify once if I could. Was there a difference in your December NIM the 252 basis points before and after the Fed rate hike? Or is that 252 kind of capture the full benefit of the December hike and average earning assets I think you said they have a averaged $15.6 million for the quarter. Can you give us where that exited the year?

Yes. I don’t know but as I said I don’t have – I think that the net interest bearing assets was pretty consistent because like I said, we swapped into the bank and it wasn’t cash. So the impact isn’t really going to be if somewhat in net interest being outstanding for the year. The real impact is going from 225 or what is to the 252. And that 252 really – the rate increased happened too late in the year to impact what that is. So I would say that most of what you’ll see is the increase in the NIM. And then the NIM increasing by the impact of the Fed rate in the first quarter, but average earning assets are probably pretty consistent at where they were for the quarter.

Thanks for taking my questions.

Sure.

[Operator Instructions] Your next question comes from the line of Hugh Miller with Macquarie. Your line is open.

Hi, thanks taking my questions.

Hi, Hugh.

So just a follow-up on kind of the competitive recruiting environment that you had mentioned for advisors, it seem like one of the potential reasons for a more moderate level of recruiting incentives with some of the efforts from the DOL regarding the use of backend targets to protect the firm from paying up more for those backend weighted incentives. If we get into an environment where the DOL is maybe taking more of a business friendly view, when you do see a softening with some of those proposed regulations. How do you think about the risk of just seeing increased competition if it’s a better environment for brokers and people are willing to pay up more for those brokers because the production could be higher? And how do you think about that?

Yes. It’s a good question. Did you say Department of Labor that’s more business friendly?

Yes, that’s a possibility, right.

Okay, you said it. Look I first of all think as I said a long time I don’t believe that the Department of Labor is much as I respect that agency of the government really should be in the markets where the investment market. And that’s the preview in my opinion of the SEC. And as such I believe that the new administration probably shares that view. That’s my speculation because I don’t know. And I think that the Department of Labor’s rule as I said is going to be delayed for comment that certainly my belief. And then hopefully that preview the market gets back to the SEC which is where I believe it belongs. Now to the recruiting question certainly, the proposed rule every advisor has retirement accounts and trying to structure recruiting around those deal well proposed regulations was a Rubik’s Cube but nothing else. And I would say muted – the recruiting just as people are trying to understand that. My sense is that many firms have taken the opportunity with all of this the large firms to become more rational in what I see as recruiting packages. So take a snapshot in time, it appears more rational but I’ve been in this business for a long time and it doesn’t take long for that rationality to turn back into irrationality in numbers. So it’s hard to predict. Okay, I think net – I believe that with what I – my sense is that the overall recruiting cost are coming down, led by the largest firms and I think that benefits us compatibility.

That’s very helpful. And that’s I certainly appreciate it. And you – I definitely appreciate the color you gave in terms of thinking about balance sheet growth at the bank. You alluded to the potential for considering changes in the interest earning asset mix maybe seeing a shift from securities to loans. Do you anticipate that that’s going to be a meaningfully greater focus in 2017 at Stifel bank?

Well, what I would say is that I believe that, as we look at it – our ability to grow our loan portfolio, which as long as we do it on risk adjusted returns for loan portfolios NIM net interest margin is higher than our investment securities portfolio because we have a very conservative short duration investment portfolio. So as if I’d say that our growth is going to be $2 billion. I would say that well it would be at $2 billion, the mix of loans to investments will skew towards loans. Because that’s where we have – we have a lot of demand and we’re going to look at deploying reinvestment because – we have a two year duration on your investment securities that’s providing a lot of cash as that investment portfolio matures for reinvestment and we think that that’s going to provide funds to fund our loan growth. So while we’re about 50/50 today I would see that ratio going more toward loans all else being equal on a risk adjusted basis.

Got it, got it. And one more for me just we’ve seen some others that have given a little bit of guidance in terms of thinking about the tax implications some of the changes in accounting for stock-based comp. Is there any insight that you could provide to us. How should we thinking about that impact potentially on the first quarter of 2017 do you anticipate seeing a lower than normal tax rate early next year or early this year?

Well, I think you’re talking about the fact that you try, your spoke to now the increase in your stock price or decrease relative to the grant date should be run through your income tax provision versus additional paid in capital that what you’re talking about?

Yes, yes.

Yes, I think that with – where our stock price is today our average, the price is higher than our average grants. But most of – what would have happen for us, we – the 2016 grants were expense for or not expense, were invested for book purposes at the end of the year. So that went to additional paid in capital versus our tax rate. I will say that – I think that rule is going to be a little bit like the change in debt valuations. You know a lot of people are going to be just go and buy that, because they’re forcing that Apex of taxes and it’s going to become very confusing and you’ll see it – you’re going to see a lot of people trying to talk like it’s going through Apex because it’s going to – it does not reflective of your tax rate going forward. It’s not reflective of any future economic value it’s just – it’s a one-time change to your balance sheet that you’re running through earnings. So I believe that all things being equal today at our stock price any best thing of our stock price would reduce our income tax provision on our books. But economically it’s nothing. I mean – that’s what I – that rule kind of bothers me because it’s going to – you’re going to have to explain it in a way.

Got it. I appreciate the insight. Thank you very much for taking my questions.

Sure.

Your next question comes from the line of Chris Harris with Wells Fargo. Your line is open.

Thanks. Good morning, Ron.

Hey, Chris.

Another follow-up on your cost reduction initiative, I know we’ve been trying to talk about some numbers here. But I was just wondering if you could share with us qualitatively what some of the things you guys are doing internally as you focus on expenses.

I think it’s really across the board. I would just go to my high level comment that our focus is always cost. I don’t want to suggest that we’re not – that we don’t look at cost, we do and I think historically we maintained, exile these acquisitions we’ve done, we’ve maintained margins even despite the difficult market conditions. We’ve accepted margin compression to keep in place what we built during down market. . : My message is that we will always look at good deals and we will always look at them. But, and right now our emphasis is on taking advantaging of the market conditions and improving and consolidating what we’ve done, we think we have scale here that’s first and acquisitions are – will always be there. But what would our focus will be first on getting what we’ve built to be – to generate the earnings which I think it can. And I’ll say that we will announce an acquisition tomorrow, we won’t but just saying that, anyhow. We still want to do good deals if that they come up. There is a lot of optimism right now in the marketplace also, which causes the valuations to be what I would say is higher than what our historical apatites for valuation. So it’s a good time to focus on consolidating what we built.

Gotcha, that’s helpful. Thank you.

There are no further questions at this time. I will turn the call back over to the presenters.

Well, thank you very much. We are pleased that you joined us on our call. We look forward to some interesting times and optimistic times in the future and look forward to reporting to you on our first quarter results after they occur. Have a good day and thank you.

This concludes today’s conference call. You may now disconnect.