Good morning. My name is Jessie and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter 2017 Earnings 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, you may begin your conference.

Thank you, Jessie. Good morning. I am Jim Zemlyak, CFO of Stifel. I would like to welcome everyone to our conference call to discuss our fourth quarter and full year 2017 financial results. Before we discuss our results, I would like to remind everyone that today’s call may include forward-looking statements. These statements represent the firm’s belief regarding future events that by their nature are uncertain and outside of the firm’s control. The firm’s actual results and financial condition may differ possibly materially from what is indicated in those forward-looking statements. For a discussion of some of the risks and factors that could affect the firms’ future results, please see the description of risk factors in our current Annual Report on Form 10-K for the year ended December 2016. I would direct you to read the forward-looking disclaimers in our quarterly earnings release, particularly as it relates to our ability to successively integrate acquired companies or the branch offices and financial advisors, changes in the interest rate environment, changes in legislation and regulation. You should also read the information on the calculation of non-GAAP financial measures that is posted on the Investor Relations portion of our website at stifel.com. This audiocast is copyrighted material of Stifel Financial Corp. and may not be duplicated, reproduced or rebroadcast without our consent. Our Chairman and Chief Executive Officer, Ron Kruszewski, will now review the firm’s results for the year. Ron?

Thanks, Jim and good morning to everyone and thank you for taking the time to listen to our fourth quarter and full year 2017 results. Earlier this morning, we issued a press release with our quarterly and annual results and we posted a slide deck which we will refer to in this call on our website. I am particularly pleased with our results as the market and general economic conditions in 2017 provided a strong tailwind to a number of businesses and illustrated the strength of the diversified business model that we have created over the past decade through opportunistic acquisitions and hiring as well as a focus on cost discipline. We generated a number of records for the full year, allow me to state a few. Our 22nd consecutive year of record revenues was revenue in excess of $2.9 billion, up 14% over the prior year. Annual and quarterly records for revenue and profits in both operating segments, record investment banking and over $21 billion in total assets. In terms of the fourth quarter, it was a messy quarter across the industry as financial services firms took significant charges for deferred tax asset revaluation, foreign earnings repatriation as well as deferred compensation acceleration ahead of the tax law changes which weighed on the GAAP results with many firms. We were no different as we incurred $125 million in charges in the quarter. However, when you cut through these one-time issues what is clear is the earnings power we have created at Stifel in a decent operating environment. We generated over $800 million in revenue in the quarter with record results in nearly all of our businesses, except institutional trading, which continues to face industry-wide headwinds. As a result of our higher revenue and cost control of our comp and…

[Operator Instructions] Your first question comes from the line of Chris Harris from Wells Fargo. Please go ahead.

Thanks. Hey, Ron.

Hi, Chris.

You mentioned some of the benefits of tax reform and I am wondering does that reform change your risk appetite at all with respect to the bank or your thought process about M&A?

Just in relative terms I mean it’s not going to certainly the change in the tax rate is not going to increase our risk appetite. I don’t know how those would be – would be relevant. In terms of M&A, we – all things been relative, it’s relative valuation. So many, many sellers also recognized tax reform and increased their expectation. So, I think most of those factors are just get immediately built into the market.

Okay. I had a question, a bigger picture type question for wealth management, private client business and the industry is going through lot of change, just wondering if you could kind of elaborate what Stifel’s value proposition is in private client and more specifically, what do advisors really like about Stifel’s platform versus perhaps some of your peers?

Well, first of all, I believe the value proposition is that – is that advised matters, that technology – as technology gets deployed and allows clients to better understand and organize there well, which is what we are seeing with many of the fintechs. What comes out of that is more questions, more need for advices, clients understand and then begin to ask what am I supposed to do with the state planning, asset allocation and a number of things that maybe in the path you never saw. So I believe the advent of technology enhances the advised model at Stifel and then elsewhere. And as it relates to Stifel, we have always had an entrepreneurial advisor first culture that respects the relationship between the advisor and their client. And that has served us well above in terms of retention and recruiting. And I also believe serves our clients well and that there the best service is delivered in a consultative manner between an advisor and their clients. So I think we are well positioned and I am optimistic about the advice business. And I also believe that with the advent of tax reform and a number of things that are going to occur that active management is going to begin to swing in terms of asset gathering over passive. And so the combination of all those things paints a good picture for the wealth management business at Stifel, I am really well positioned to compete.

Okay. Thank you.

The next question comes from the line of Steven Chubak from Nomura Instinet. Please go ahead.

Hi, good morning, Ron.

Good morning, Steve.

So wanted to start off on a question on the expense side, you highlighted the 59% to 61% comp guidance, I am just wondering what revenue environment is contemplated as part of that guidance maybe how much flex you have to manage that in the event of a revenue slowdown. And just as one follow-up, just on the non-comp side, it looks like your guidance range for 1Q if I were to annualize that essentially implies sort of flattish non-comps for the full year. And I am wondering if you could speak to what sort of non-comp inflation should we maybe be contemplating for this year relative to 2017?

Well, let me take your last question first. I am not sure I follow your math. I think I will stick with what our guidance was going forward. We will update it every quarter. We upped our guidance a little bit for the first quarter. Again, that the big fluctuations in that are litigation and loan loss provisions that we don’t put in that. I would note that our most significant litigation items at this point are behind us. Loan loss provision is obviously tied to loan origination. But I mean I think the guidance is what it is, Steve and I think it’s up not flat, I think it’s up a little bit, but maybe we can take that offline. With respect to the comp ratio, look 59% to 61% is a broad range, when you think about $3 billion in revenue. And so I think that within that range, if revenues would come in lower, we would be at the higher end of that range and if revenues continue to build in an improved economic environment, I think we would tend to the lower end of that range. That’s why we give a range, but we will manage within that range as we have in the past. We have taken our comp ratio over 10 years from 64 plus to now 59% to 61%.

Got it. Thanks for that, Ron. And it was immediately us annualizing the midpoint of 632, but happy to talk to Joel and Jim offline on that.

Fair enough.

On the capital side, you spoke of plans to just build capital towards that 10% leverage target or essentially replenish that shortfall all while achieving bank growth of 2% to 2.5% and even alluded to steady dividend increases. You already addressed the question on M&A, I am just wondering given where your stock is trading today whether you have any appetite actually reinitiate or increase share repurchase just given the discount where you are trading relative to the market?

Historically we are opportunistic on that and we look to me buying the stock and doing a dividend and doing an acquisition and increasing in the balance sheet are all relative decisions that we make based on market conditions. All of those levers are available to us and we are not committing to anyone other than the fact that we did raise our dividend 20%. But look we will, if you look we buyback stock. We bought back a lot of stock at an average of about $40 and we will continue to be opportunistic with an eye toward maintaining 10% and 20% leverage and risk-based as we return capital or invest capital under what we think is the best way to increase shareholder value. There is no way I can predict forward, which of those levers will provide the best value for our shareholders.

Fair enough. And one final one for me just at Stifel Bank we did see nice growth in the quarter. I was hoping you could update us on how much off balance sheet cash you still have available to sweep into the bank and what reinvestment yields are you currently earning on that cash today?

Well, I mean, as the interest rates have come up, the fees we get from our third-party bank have also increased. I am not sure that I have that number at my fingertips. In terms of additional cash balances, approximately I think it’s in the press release, but it’s approximately $4 billionish today that fluctuates too as we grow the business. So, looking forward to next year, certainly we have the funding.

Got it. That’s it from me. Thanks for taking my questions.

Your next question comes from the line of Conor Fitzgerald from Goldman Sachs. Please go ahead.

Good morning. Just wanted to ask on how the dialogue you are having with clients on the investment banking side of your business has changed post the passage of tax reform. Could you give a sense there is more confidence in people deals or the body language has changed from some of your counterparts?

You mean clients that we are talking to?

Yes, clients exactly.

Yes, for sure. I mean, for sure, the tax reform is like taking the U.S. economy and tossing in the air and adapted filters back down in accordance with where the tax reform points you. And so just that general description of money and motion is very positive for financial intermediaries both bank and investment banks and that’s what we are seeing. Some companies have too much debt, they can’t deduct all the debt, but you have to raise equity. Maybe what I am seeing more than anything in terms of confidence in discussions is a willingness and a thought process to make investment in the U.S. with now corporate tax rates that are competitive for instance with England both at 20% or 21%. That’s where I see. And I see as investment occurs in the U.S. that increases the potential for the GDP more investment. It’s just a circular thing that’s going to do it does occur. And so we see a lot of discussions surrounding financing investment, restructuring balance sheets and making investments also raise the competitive bar. A number of companies are looking at this and thinking they have to make investments to remain competitive. So, I am optimistic that the economic growth that will occur simply by making the U.S. tax code more competitive in the world is going to be I believe even greater than what I am reading many economists are talking about in the improvement in GDP I actually think it will be greater than that.

That’s helpful color. Thanks. And then just circling back to the non-comp guidance, it hasn’t always been the case, but usually seasonally 1Q is the lowest from a non-comp perspective or among the lowest quarters, is there seasonality in your non-comp expense base we should be thinking about?

I think I do believe it goes some of the non-comp follow-up revenue obviously and so it’s closely T&E and what happens as you wind up years. I mean, our fourth quarter is always seasonally high as the first quarter tends to be seasonally lowest. If I actually knew the exact reason that would be a lot smarter than I am, I don’t know other than pull forward of expenses into the fourth quarter as people have finalized their years and that tends to pull away from the first quarter, but in the scheme of it, all the numbers we are talking about that’s pretty minimal.

Alright, that’s helpful. And then just had a couple of cleanups, does your tax rate guidance incorporate any benefit of share vesting?

No, in terms of what you took it will be paid in capital, it does not.

Okay, that’s helpful. And then sorry just few more tie-up ones, I know you mentioned it was modest, but could you quantify how much of the pull forward for the comp expense into this quarter was? And then on top of that, how helpful is the accounting change you are seeing were contra revenues in the investment banking business are flowing into revenue and non-comp expenses now, how much of a downward pressure is that putting in your comp ratio as well?

Well, first of all, I don’t really – within our comp ratio, it is minimal and it’s within the 59% to 61%. So, it’s not – we will pay over $1.8 billion in comp and it’s not material to that number as it relates to what we did in non-comp. I am not really sure we are still looking at the accounting impact of the comp for revenue, some of that hopefully can be down the way we do our contracts. I find it little disconcerting that the account and things that we have a legal bill and a big underwriting that’s our run-rate non-comp OpEx, but we are looking at that. So, I can’t quantify that for you today, but when we come out with our first quarter, we will tell you what we thought that was to give you some run-rate basis and then the amount of that as it relates to volume, it will sort of be like loan loss provisions that those expenses will go up as we do business. It’s kind of a gross up of revenue versus expenses. I do want to comment a little bit on the share-based thing since you brought it up. And it is important and I have looked at it with some of the people sad in terms of our earnings, our adjusted earnings and whether or not the tax benefit that we achieved this year in share-based comp this quarter, whether that’s core or non-core. And the only thing I want to say is that our tax rate for the quarter approximates what’s going to be going forward and that’s why all things been equal if we had the same benefit our tax rate would be in the team not 25%. So going forward without any benefit of stock-based comp, our tax rate is in that 25% to 27% range and that’s meaningful. And I just don’t want that to be lost on the earnings power, because Stifel is one of the highest incremental taxpayers in the business and so we have a real benefit with tax reform here.

That’s helpful and understood. And I am sorry, I just didn’t want to put words in your mouth, but it sounds like the accounting change was not a major part of your thinking when you lowered your compensation ratio range?

It’s nothing to do with it.

Great. Thank you.

Minimal to do with it, okay, but nothing is always a strong word.

[Operator Instructions] Your next question comes from the line of Devin Ryan from JMP Securities. Please go ahead.

Hey, thanks. Good morning, Ron. How are you?

Good morning, Devin.

Maybe a follow-up here just on some of your commentary on wealth management recruiting. And you are trying to get a sense of whether maybe there is a specific opportunity right now to go after some of the larger firms that are still in the broker protocol and then just trying to think how this may play out and if you think that others might leave, how do you see that kind of impacting recruiting over time and then maybe your appetite for M&A to maybe expand the footprint that way? Just trying to think about how broker protocol might be impacting?

Well, we have always – we have always favored doing strategic acquisitions over recruiting has always been our favorite way of growing for a variety of reasons, not including just that the pure retentive aspects of acquisition. So, we will do this. As it relates to the recruiting environment, we obviously talked about and significantly slowed down our recruiting in anticipation of the DOL. We have revamped that backup I think that our recruiting pipeline is healthy. As it relates to broker protocol, I think that’s one of the big questions out there. I personally dismayed that the large firms have pulled out of protocol. It is strategic I understand what they are doing. But I think the industry is going to react, because we can’t get in a situation or limiting client choice if you give an advisor, you should be able to know where your advisor went. And while I think that there is going to be maybe a little bit of increased litigation over recruiting, I think in the end, the industry is going to deal with this. We are not going to tell clients that they don’t have a choice where they want to do business. That’s certainly my belief. So net net net, I think that protocol is a negative, where good markets tend to be negative to recruiting too. I will just tell you people are very busy in good markets and that tends to be a dampening effect on recruiting why leave when things are really good or even put that in the mix of your client discussions. But as I look forward, we are going to – wealth management is core to our business and we are going to invest and continue to invest as we have for the last 20 years that hasn’t changed.

Got it. Okay, that’s great color. Maybe just to follow-up on one point, I think you mentioned the DOL and there is obviously report to the SEC moving forward on its own, fiduciary standard, we have seen that the SEC’s approach to fiduciary standard from much more of a business friendly perspective than the DOL. And so I am just interested in whether you have any perspective or expectation around whether that itself could change behavior whether it’s around recruiting or the relationship between advisors and clients or maybe even own expenses?

Well, certainly on expenses, the fully implemented DOL rule through the BICE and all the recordkeeping was a tremendous amount of expense and would be if we – the industry had to comply with. That I – that would have been – that would have changed our viewpoint on forward OpEx guidance that we had to be rolling some of those record-keeping it was really a lot. I think that I think I wouldn’t call it as much business friendly approach that the SEC is taking as that I would, it’s preserving client choice. I think that – I think the SEC recognizes that pay as you go versus straight fee benefit clients in certain fixed situations and you shouldn’t favor one business model over another. Look at the fact that one of things people won’t talk about in the tax laws is frankly the non-deductibility of fees for certain clients and that certainly should factor into any what’s in the best interest of client’s viewpoint as to what’s going on. So I think net-net what comes out of the whole DOL discussion will be a better standard which preserves client’s choice and that actually takes away some of the confusion about advisors and full-service investment banks like ours and so I am optimistic where we are today versus say 1.5 year ago where I wasn’t sure where this thing was going to end up.

Yes, got it, okay. I appreciate that color. And then maybe switching gears just in the public finance business, clearly we saw the industry volumes in the fourth quarter, so kind of huge numbers and so makes sense there was kind of that pull forward ahead of tax reform and the uncertainty, early days in 2018 I am just curious to get some perspective around to how pronounced do you think that pull forward was or whether this is going to take a couple of quarters to get back to something more normal or just what your expectation is for that business just given how strong it was and some of the kind of the unusual circumstances that may be helped a bit in the fourth quarter?

Yes. Look, I think first of all, our public finance business historically is back half way, it always has been and just goes to one of our biggest practices is K-12 school districts and they just get their path to resolutions in January for deals that then occur in the second half. The first quarter is always typically slower over time. And I think that that’s the case with us and we did have some pull forward. But look that reflects the state of the union to that. I fully expect the next big initiative is going to be an infrastructure bill and an infrastructure bill that’s going to be relatively large. Congress can get it back together and get that passed, that’s going to be very positive for our public finance business.

Great, okay. Maybe just last one here, the interest margin commentary, obviously a lot of moving parts and I understand the comment on the near-term, but longer term I know the expectations you have interest rates and you also have you probably still some remixing, can you just remind us on where you think we are in kind of the bank, we are mixing more towards loans, now that loans are close to half of the overall balance sheet, how much more would you be comfortable going assuming there are opportunities to grow with a good risk adjusted return there?

Well, we will favor loans at the appropriate risk-adjusted spreads. Those spreads are going to be wider NIM by definition is just it’s just less a credit assumption. But we have said and I will continue to say that an improved economic environment so long as the market is providing adequate returns to the lenders which is us in this particular case, we will all will look at remixing loans to a greater share of our assets than 50-50 today. And we believe if we do our job that itself will improve our NIM.

Alright, understood. Thanks Ron and congrats on the nice end of the year.

Thank you.

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

Well, I would – it was a great year in 2017. I would just reiterate that as we have said we have built the firm to be more relevant and to be a firm that can take advantage of improving economic conditions, couple that with global growth what I think will be pendulum swim back more towards active at least stopping that pendulum to passive in an overall economic environment, I am optimistic about where we are positioned as a firm and look forward to a good year in 2018 and talking to all of you after the first quarter of 2018. Thank you for your time and have a great day.

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