Good afternoon. My name is Chris and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter Earnings Call 2018. 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. James Zemlyak, you may begin the conference.

Thank you, operator. Good afternoon. I am Jim Zemlyak, CFO of Stifel. I would like to welcome everyone to our conference call to discuss our first quarter 2018 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 conditions 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 2017. I would also direct you to read the forward-looking disclaimers in our quarterly earnings release, particularly, as it relates to our ability to successively integrate, acquire 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 web site at stifel.com. This audio cast is copyrighted material of Stifel Financial Corp. and may not be duplicated, reproduced or rebroadcast without our consent. Our chairman and CEO, Ron Kruszewski, will now review the firm's results. Ron?

Thanks Jim and good afternoon to everyone and thank you for taking the time to listen to our first quarter 2018 results. Earlier today, we issued a press release with our quarterly results and we have posted a slide deck on our web site. As you can see from the highlights in the table on slide 2, we are off to a good start in 2018, as our business continued to build on the momentum we generated over the past few years. Our total revenue came in just above $750 million, which was up more than 11% in the first quarter of 2017, and our expense ratios declined year-on-year. We generated non-GAAP pre-tax margins of 17.3%, which was 240 basis point improvement from the first quarter of 2017, and non-GAAP EPS of $1.50, which was up 55% year-on-year. Of note, that while our EPS growth benefitted from a lower tax rate, if you applied our current tax rate to our first quarter 2017 results, our EPS would still have increased by $0.25 or 28%. I am particularly pleased with this quarter's results, as we are coming off record results in the fourth quarter of 2017. We had expected a sequential pullback in the first quarter, due to seasonality and some pull forward of public finance activity. But I believe that our year-on-year growth underscores the diversity and strength of the business that we are building. Our recurring revenue lines represented 41% of total net revenues, as both asset management and net interest income generated record results. Additionally, we continue to generate strong growth in investment banking revenue, as our advisory revenues increased 85% year-on-year and equity underwriting revenue was up 47%. This more than offset the continued headwinds facing our institutional brokerage business, and the expected slowdown in debt underwriting…

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

Hey, good afternoon. This is actually Sharon Leung filling in for Steven. So I guess the first question is, could you just elaborate a bit on the FIG impact from what you noted, the higher activity in shorter duration bonds? Should we expect that to continue, is that kind of built into your guidance [indiscernible] in 2Q as rates move higher, or do you think that was something unique to 1Q?

It was more looking at what happened in 1Q. I am not sure I can predict what's going to happen in Q2. But, as rates increase, there has been a tendency to stay on the shorter end of the curve. I would expect that to continue. But overall, it's built into our view into the second quarter.

Okay. And then, just one on market sensitivity, one of the concerns that we have heard from some clients is, the historical relationship between IB and trading revenues suggests that, some of your businesses may be more impacted, if the market choppiness persists. Like what is your outlook, if that happens, and do you believe there are any offsets?

First of all, pipelines are strong. Any time you have volatility increases, I would say that volatility tends to impact the equity underwriting more than the advisory line item. But overall, we are not seeing -- we have had such historically low volatility, that the recent increase in volatility has not really impacted our business, and frankly, doesn't really impact my viewpoint as I sit here today.

Okay. And then, one last one if I can; really appreciate the new disclosure on the off-balance sheet cash. Should we expect that $3.7 billion to go to zero, as you continue to fund bank growth, and then also, what's the reasonable pace of organic cash build that we should expect in wealth management?

Again, I think, first of all, those are balances that are swept away, so you don't see all of our balances that we sweep internally. I wouldn't expect it to go to zero, but we are always looking at being the most effective, considering a number of factors, including insurance levels and various factors that impact cash levels. But as we sit here, I think our funding sources are solid, and we will continue to disclose the number. We will see where it goes.

Okay, perfect. Thanks for taking the time.

Sure. Thank you. Tell Steven we said hello.

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

Hey, great. Good afternoon Ron. How are you?

Devin, how are you? Good.

I am doing well. So question here, just on kind of the flow of client assets to fee base. It has been a really good story now, looks like a third of client assets are fee based. And so, could you try and get a sense of, kind of this migration and kind of where maybe we are for Stifel? Is there a level, as you are thinking about this, as it were -- could start to level out or the growth could slow or do you just still think we are kind of early days with Stifel migrating those kind of brokerage assets over to fee based?

Well again, you got to remember, look at it in terms of 61% of our wealth management revenues are recurring. And so, I think you remember, 40% of our revenues are institutional. So you have got to look at overall, what's going on in wealth management. I think there certainly was a impact by the DOL rule as to accelerate across the industry a migration of fee based accounts. We certainly saw, depending on how all this shakes out, I would think that the historical trend line, as to migration looks slow, because of a lot of reasons to do that. But overall, we will continue, I believe, to see more fee based accounts. From my perspective, it's a client choice, and we will continue to provide options for clients. We don't skew anything, including our compensation systems to encourage any kind of activity, including fee-based. So as I usually say, water will find its own level with that. But I would expect the trendline with the DOL will, now being reproposed by the SEC, there won't be as much of a need for fee-based accounts to comply, with what otherwise the DOL was prescribing.

Got it. Okay. Very helpful. And then, you mentioned proprietary kind of technology and technology being a theme of investment. I guess the one proprietary element sounds interesting. I mean, how are you thinking about building some of these technology capabilities, that may be differentiated, versus partnering or kind of using outside vendors? And how does that affect kind of the thought of cost, I guess, as you are obviously -- it's a little bit of an inflationary element within expenses?

Well first of all, I think that we are in a great position, as I look forward in that technology combined with human goal based advices is going to be a winning model. And that certainly has been our thought, and we are investing in that. With respect to what we are doing, in many ways, we are taking a variety of outside vendors. We are not a software company, and don't pretend to be a software company. But I think we are pretty good at melding various technologies that are available, into something that will be proprietary, without a developing proprietary. So we have -- our current endeavor, I think, in a broader sense is melding together six vendors, which are best in class of what we do, and we believe we will have a best in class end product.

Okay, terrific. Thanks Ron. And then just last quick one here, just around the recruiting outlook. So it sounds like the hope here is, the next few quarters, things pick up a bit. And I am just curious and the question is around broker protocols, it has been a little bit quiet recently. Does that not seem to be having much affect on broker mentality there, within firms that have exited or firms that are still in it, and as you are just looking at the people that you are seeing, maybe the most flow from, in terms of the home-office visits and having conversations. Is it firms that -- or individuals with protocol firms or non-protocol firms, or just like where are they coming from?

Look, any time you have a change in anything, you are going to impact activity. In the initial coming out of the gate, certainly, there was a chilling on the recruiting aspects in the firms that have elected to remove themselves from protocol. But that sort of hits bottom and then it improves, because people are not indentured, they are going to work, they want to work, and the industry will adjust. As I said before, I find that leaving protocol is not a good thing for clients, and I have made that argument. It has put a damper on recruiting, but the trendlines will improve from here. You are not -- people are going to be where they want to be, and clients have a right to choose where they want to do business. Hence, there shouldn't be any -- at least, I don't believe that you should be using the courts to prevent client choice.

Got it. Okay. Thanks Ron. [indiscernible].

Thank you.

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

Thanks. Hey Ron.

Hey Chris.

So I think you mentioned that, most of your $7 billion loan portfolio is tied to LIBOR. So curious to get your thoughts about the pace of increases we are seeing with respect to LIBOR. And at what level might that be bit of a problem for your borrowers in terms of higher cost of borrowing?

Well, you did have a little bit of like almost basis spreads between LIBOR and Fed funds. I don't think that that will continue unabated. You know, LIBOR is going to get replaced here, and I think that -- if the general question is, if you are talking about LIBOR relative to Fed funds and that spread, you are just talking about, in general, increasing rates and that's your --

Yeah, just increasing rates and the impact on your borrowers.

Our borrowers, I believe, we are -- our loans are very conservative, well capitalized, where a lot of them -- or no one likes to pay more on interest rates. But I believe, our underwriting standards are very strong, in that regard. As you move down the credit cycle, in terms of what I would call, leveraged loans and some of that, that remains to be seen, as to the rolling of some of the debt. That's not a big impact for us, all right. But for the market, there is -- you can read a lot about the impact on the leverage loan market, if LIBOR would be up 200 or 300 basis points, which I don't see any time soon.

All right. And capital markets, I appreciate your commentary, as it relates to the fixed income business. I am just wondering, what kind of environment do you think this business needs to really start to improve? Is it all about the yield curve or there are other factors at play that need to kind of fall on the line?

Within our fixed income?

Yes.

There is factors, both secular and cyclical impacting fixed income. Certainly, the flattening of the yield curve is cyclical, yet the trend towards more electronic trading is secular. I personally believe, that we are bouncing around at the low ends of activity in fixed income, and I believe that, there is a lot of activity that needs to be done, once yield curve sort of stabilizes and people get off to stop [ph] process of exactly what the fed is going to do, what the tenure is going to do. I think there'd be a lot of restructuring of portfolios from short end to move out on the yield curve, and I think, in the end, our fixed income business will improve. But that's just my opinion. Looking forward, I am not sure that the activity levels -- I mean, it has been a tough environment. Can it get worse? Of course again. But I believe, it will get better.

Great. Thank you.

[Operator Instructions]. Your next question comes from Conor Fitzgerald with Goldman Sachs. Your line is open.

Hey, good afternoon.

Hey Conor.

Hey. How are you doing?

Good.

Just a couple of questions on the NIM. Wanted you to just give us a little color on where your new money yield is on your securities book, just trying to think about how we should think about that yield tracking? And then second, kind of a follow-up to Chris's question, but if I look at your NIM outlook for a plus 5 to 10 basis points quarter-over-quarter, if you could just elaborate on what you are assuming for LIBOR to do in that scenario? Just want to assume, if you are assuming spreads to be [ph] wide or if LIBOR tightens versus Fed funds, when you are thinking about that 5 to 10 basis point number?

Look, there are a lot of moving parts in that question, Conor. I mean, I think we are taking a -- our environment today into protecting it forward. I mean, if LIBOR would significantly tighten compared to Fed funds, that would impact our NIM negatively, and vice versa. But I would say that, I am confident with what we have said for the first quarter, and I mean -- for NIM in the second quarter, but obviously, that's based on today's environment, and it would be hard for me to try to project what could happen. There is a lot of things that obviously could change that. But I am fairly confident. You will see an expansion in our NIM in the second quarter.

Thanks. And just the new money yield on your securities portfolio?

I mean, what yield are we buying securities at today?

Yes.

You got me on that one. 3.4%, 3.5% something like that. But I will tell you what, I will have someone get back to you on that one. Is that all right?

Yeah, no rush. And then just did want to ask on your client money market and injury [ph] product, just declining a little bit, it's a trend we have seen across the industry. Just want to get your view on how much of that is your clients rotating into equities or other markets, just given some of the longer term, any way a trend we have seen in upward markets or how much of that is your clients or maybe a little yield sensitive seeking alternative cash like products, like purchased money market funds? Would just love to get a little color there? Thanks.

Look, I think, it's a little above us. I think that we certainly see clients that are investing, rotating on cash and other products. And I believe, that the industry across all financial institutions will be dealing with these deposit betas and what the rates need to be personally. I haven't got any discussions, while we will be competitive going forward on rates, I think we are near the end of or I should say, deposit betas are going to get close to one. If you look at our capture rates in our press release, I think that's at an historical pre-easy money policies. So I think the industry across the board is going to be looking at -- I will be looking at today, people becoming more sensitive to rate, as they should, and we are cognizant of that. So we will see how it goes. I think the trends that we -- if we are not passing more of the sign, I think you will see more migration away. So my personal belief, is that deposit betas are getting pretty close to one, going forward.

That's helpful. Thanks. And then just, on the outlook for M&A, maybe specifically in financials. When you are talking to your clients, do you think that they have enough certainty on the regulatory outlook to maybe see a resurgence in deal activity, or do you think we are still in somewhat of a wait and see mode for some of these deals, until we get certainty whether it's around stress testing or the $50 billion threshold or a host of other regulatory issues?

Well, look, I think the regulatory environment certainly is more conducive to bank mergers, almost any way you want to look at it. But the bill, Crapo's bill, and the $50 billion is huge in terms of -- and my, in terms of perception, what it means to the stress test, I think that's big. So there are a lot of factors, but I think that's a big one.

Thanks for taking my questions.

This concludes the Q&A session for the conference. I'd now like to turn it back to Ron Kruszewski for closing remarks.

Well, I would like to say that I am pleased with our quarter. It was a very strong start to 2018. I am optimistic about our future and look forward to reporting to you on our second quarter results. Have a great day. Thank you.

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