Good afternoon. My name is Emany, and I will be your conference operator today. I would like to welcome everyone to Stifel Financial’s Second Quarter 2018 Financial Results Conference Call. At this time, 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 the 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 Stifel’s quarterly earnings release, particularly, as it relates to the firm’s 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 firm’s website at www.stifel.com. This audio cast is copyrighted material of Stifel Financial Corporation and may not be duplicated, reproduced or rebroadcast without the consent of Stifel Financial Corporation. I would now turn the call over to Stifel’s Chairman and Chief Executive Officer, Ron Kruszewski. The floor is yours.

Thank you, operator, and for everyone, Jim Zemlyak, who usually joins me on these calls is traveling today. So I just make sure everyone doesn’t wonder where Jim is. But I’d like to say good afternoon and thank you for taking the time to listen to our second quarter 2018 results. Earlier today, we issued a press release with our quarterly results and posted a slide deck on our website. Before I get into the details of our quarterly results, let me start by saying, I’m very pleased with our performance this quarter and year-to-date. Our corporate strategy has been to build to diversify wealth management and investment bank that will deliver strong results on a consistent basis. And our results over the past few years illustrate the success we’ve achieved. The growth in our recurring revenue such a net interest income and asset management fees resulted in our revenue being less susceptible to the volatility and timing-related issues that impact our transaction-driven businesses. Our results in the second quarter underscored the impact of this strategy. Additionally, the growth in higher margin businesses such as our bank has helped us to consistently drive our compensation ratio lower to the point where second quarter of 2018 was our lowest comp ratio in more than seven years. As we look to the second-half of the year borrowing a significant change in market condition, the firm is well-positioned for continued growth as we expect investment banking activity to pick up and we continue to grow our balance sheet and our recruiting strengthen. Turning to our results. We generated a very solid second quarter, as total net revenue came in at $743 million, up 2% from the second quarter of 2017, and when combined with our 59% comp ratio for the quarter resulted in…

Thank you. [Operator Instructions] And we have our first question from Mr. Devin Ryan with JMP Securities.

Devin, good morning.

Hey, Ron, good afternoon.

Hey.

I guess, first one here – hey, so on the capital ratios and the comments that you just made at the end of the call. Just trying to think about, if you can help us. So you had a modest step back in the capital ratios, I think, previously, we spoken about getting back to those targets by about year-end. But I heard you’re kind of a lot unclear that if there’s opportunities for the balance sheet, growth, and given where the stock is that you want to put some of the capital to those uses immediately. So I know they’re not hard targets. And so I’m just wondering how we should think about where you would be comfortable letting those levels go in the near-term, especially if you can continue to buy the stock back at these kind of well below historical levels? And I’m just trying to think about where it might go to the extent you can be opportunistic?

Well, look, I think, Devin, we’re generating a lot of cash, all right? And if you look at our cash flow and just our growth in earnings and some of our stock-based compensation, which goes toward equity, we have a lot of flexibility to grow our bank even more than our targets or to buy back more stock. I’m just trying to point out that given what I believe is the opportunity that the market giving us in terms of where I see around the valuation, that that’s where our focus is going to be. It would be a lot just to be taking all of our earnings and buying back our stock, there will be a lot of stock repurchase activity. But that may get a little more focus than incremental bank growth.

Got it. Okay, that’s helpful. Thanks. And then some of the commentary on FA headcount on the moving parts there. So you’re up modestly in the first-half. You mentioned kind of retiring advisors or offsetting new additions and we don’t get the gross number. But there has been a lot of headlines in the press around Stifel adding advisors throughout the year and then they have some websites that aggregate and you guys are ranked very high in those in terms of the amount of assets and advisors coming in? So I’m just trying to get some of the moving parts here. And just if you can, since it sounds like the retirements have been a pretty big level like do you have a sense of that slowing? So we’re kind of running our course there and we’re to see some of the benefit of some of the gross hires that you’ve brought in. And it sounds like that could continue into the back-half, so just also any more color on that backlog and the tone and just that would be helpful?

Well, look, I think, one of the things, Devin, you’re – and you’ve seen and I won’t cite them here. But there are services in aggregate net new assets versus departures and people leave and we ranked very high. I’m very pleased with our recruiting efforts. I believe that we have to had some retirements that got accelerated because of DOL. But net-net, I think, what you’ll see is increase in client assets, increase in revenues, increases in productivity, all other things that you’ll see based on what’s going on. We don’t disclose gross and net numbers, but I would expect our net advisor headcount to increase somewhat and relatively flat levels. And again, it’s more from some of the retirements. And I would note that those assets are reassigned within the firm. And so I’m pleased with our recruiting efforts, and I think, you’ll see those results flowing through our wealth management segment.

Got it. Okay, very helpful. And maybe one just on the customer cash balances and the decline that we saw this quarter, which obviously we saw across the industry. And I get it that some of it’s probably seasonal some of it’s money going to the equity markets and some of it’s yield seeking into cash alternatives. And so it sounds like you’ve guys are going to be diversifying your deposit base a bit more with more CDs. So we’ll kind of watch that trend. But I’m curious if you have any sense of – or historical perspective of some of yield seeking behavior that we’ve been seeing, because obviously, cash balance as a percentage of overall client assets are at pretty low levels. And just trying to think about whether this time is different for that. And if you have any sense of if we continue to have more rate hikes from here is the expectation that, that yield seeking behavior will just continue?

Well, it’s good they were having yield seeking behavior, okay. When we were up to 10 years where – of almost zero bond rates. I would say that in my experience that we’re getting back to more normal times in terms of cash balance. Remember, markets are at high levels. Usually, when equity markets are at these levels, your cash balances are the lowest. They – if you have a market correction, your cash balances will go up, that’s all historic. I think, if anything in the zero times cash balances got higher than historical, because of low rates. And today, these are normal times, I expect that with the industry needs to focus on a little bit, it’s a competitive aspect for deposits will come back in. I’ve been saying that. I believe deposit betas are going up industry-wide, not just at Stifel. And I think that we’ll get back to what I remember when Fed comps were up 2.5 to 3…

Yes.

…which is where – so this feels normal to me. But I feel there was a lot of cash around the entire financial system and a lot of deposits, where people are turning away deposits when we had a lot of liquidity. But there’s a number of things the Fed decreasing about. There’s a lot of things that are changing the liquidity in the financial system and you’re going to see an increase in – or an increase in the competition for deposits.

Yes. Got it. Okay, great. And one on investment banking here, I appreciate the commentary on the back-half expectations. If you kind of drill into that a little bit more, if you look at M&A advisory, ECM, DCM, all three businesses kind of poised for kind of that better potentially back-half assuming market conditions remain reasonable here. And what sectors are kind of driving the better activity? And I guess just on – within this new fixed income capital raising more broadly, just given that we had kind of the pull-forward into the end of last year than the kind of softer start to this year. Is the expectation that we kind of get back to something more normal in the back-half like we should kind of be there by then? Thank you.

Yes, look Devin, I think that, I’m optimistic about all of those businesses, I think, M&A, capital raising, public finance underwriting, all of those businesses are poised to have a good second-half, which is traditionally what happens in our business. So public finance is traditionally a second – back-half weighted business it has been for years. But considering what happened the pull-forward that you talked about, I would think that it would as a percentage over the first-half could even be greater than what has been in the past. So I feel good about the business and there’s normal caveat is, of course, market conditions and any geopolitical things that could happen can change things quickly. But as I look forward today, I think, things are well-positioned as a company or an improvement of what – and otherwise has been a very good first-half of the year as well.

Got it. Okay, great. I believe I’m the only one in the queue here. So I’ll ask one more. Just on the retail commission to principal transactions line, yes, that’s being impacted by the migration to few relationships, where you guys were having a lot of success, so I think we have to look at it more holistically. But it also does seem like the transactional activity has been lighter and I know that can kind of bounce around and investors can kind of move through engagement cycle. So is that the right read that just the level of transactional engagement is less, if I can strip out that migration to fee-based? And is it just a function of the markets are more complacent right now, or I guess, what else could drive an improvement just in the level of kind of the transactional activity there?

Well, first of all, fixed income was lower, and that’s all close to that line item for the most part, okay. This was lower and in muni finance in that area in terms of just muni secondary. And so that’s lower and you’re going to see that. But in general – and here at Stifel, I think, what we’re seeing is, in general, even the transactional aspect of stock picking is being done in fee-based accounts. Even where advisors are talking with our clients and doing individual stock selection. It’s being done more and more on a fee basis versus a – on a transaction basis. And I would – and that not all those always have to be that you can be talking to your client in terms of discretionary versus nondiscretionary. So what I’m trying to say, because I think, it’s hard to look at that one line item commissions in well management to get a sense of retail engagement. I’ll caution you not to do that. I would say that you should look at fees and commissions together, and that will give you a better sense of retail engagement.

Yes. Got it. Okay. And then just one, just to clarify for the model on the comp ratio guidance that you provided. Is that just a new full-year guidance for this year, or are we just talking about the back-half of the year for the comments?

No, no. We’re saying that, we’re 58% to 59% full-year, so…

Okay, great.

…you can do the math.

Yep. All right, good. All right. Thanks, Ron. I appreciate the time.

I appreciate it. You’ve got a lot of time, because I think you’re the only one asked the questions today. So very good. Are there any other questions?

There are no further questions at this time. Mr. Kruszewski, back to you for closing comments.

Well, thank you. I have no closing comments other than to wish everyone a enjoyable end of the summer. Again, I think that our company is in a good spot and I look forward to a good second-half of the year. Thank you very much and goodbye.

This does conclude today’s conference call. Thank you for your participation. You may now disconnect.