Good morning. My name is Phyllis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Stifel Second Quarter 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. Thank you. I would now like to turn the call over to Jim Zemlyak. Please go ahead.

Thank you, Phyllis. Good afternoon. I'm Jim Zemlyak, CFO of Stifel. I would like to welcome everyone to our conference call to discuss our second quarter 2017 financial results. Please note that this call is being recorded. If you would like a copy of today's presentation, you may download slides from 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 facts or guarantees of performance. They may include statements regarding amongst other things, our ability to successfully integrate acquired companies or 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 effects of various regulatory matters, legal proceedings, management expectations, our liquidity and funding sources, counterparty credit risks, 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 stifel.com. And finally, for discussions 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 the results in the quarterly report 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 second quarter 2017 results. As Jim said, this morning, we issued a press release with our second quarter results, and we posted a slide deck on our website. I'll start with a high-level review of our results and then go through our business line and segment results in greater detail. Given the detail contained in both our press release and slide deck, I'll focus my comments on supporting details as opposed to just repeating our published numbers. So with that said, I'm very pleased with the strength of our quarter. We generated record net revenue of $726 million and after adjusting for roughly $35 million in non-recurring or deal-related charges, we generated on a non-GAAP basis record pre-tax income of $118 million, record net income of $74 million and record earnings per share of $0.90 as all our business segments showed sequential improvement. Also on a non-GAAP basis, annualized returns of common equity and tangible common equity were 11% and 19%, respectfully. GAAP diluted EPS came in at $0.63. This quarter's results illustrate the benefits of the investments we've been making into our business over the past few years as we're able to post record results despite significant headwinds to some of our businesses, strength in Global Wealth Management, particularly the growth in net interest income and record investment banking in our Institutional Group offset declines in both institutional equity and fixed income sales and trading training. The improvement in our revenue and our continued focus on expenses resulted in a non-GAAP comp ratio of 61.4% and an operating ratio of 22.3%, both down nicely from the prior quarter. As a result, non-GAAP pre-tax margins improved to 16.3%, the highest level since…

Your first question comes from the line of Steven Chubak with Nomura Instinet.

Hey, Ron. Good morning.

Good morning, Steven.

So, I appreciated all the detail you had provided on the investment banking performance. It sounded like as it relates to some of the guidance for second half versus first half that that was applicable to the advisory business only. I'm just wondering if you could speak to your outlook for the IB segment overall, just given the very strong underwriting results we saw in the quarter, whether any of that strength could be sustained into the second half of as well?

You know, Steve, that's market dependent. I think it can be. I think you're seeing the results of our investments. And I've said all along that we're well positioned, once the economy starts picking up and market conditions improve, for capital raising. I, for one, am optimistic not only by some of what I'm hearing out of Washington with respect to regulations and the importance that the current administration and, frankly, the SEC is putting on capital raising. So it's market-dependent, as always. But if conditions remained favorable, or even improved, then I think we're well positioned.

Got it. And just one more for me on the comp ratio. So, you reaffirmed the guidance for the full year of 60.5% to 62.5%. As we look to the second half, it looks like, as you noted, there's a lot of at least constructive trends there you're seeing on the investment banking side. And even though you gave some more measured NIM guidance, certainly you're seeing continued growth in NII from higher-earning assets as well as fee-based AUM. I'm just wondering given some of those revenue tailwinds, should we expect for the back half that the comp ratio should run at least towards the lower end of that target range?

If all the things you just said, all those positives occur, then I would say, yes, that you should expect that comp ratio to get to the lower end of the range.

Okay. I'm going to leave it at that. Thanks for taking my questions.

Sure.

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

Good morning, Devin.

Question here on financial advisor recruiting, got your commentary that things have slowed a little bit with the DOL uncertainty still, and then I'm just curious. I mean, I know you've recently spoken about the backlog being reasonable there. And so, just trying to think about what drives the change in maybe kind of being proactive there and just expectations for recruiting over the next 12 months if the backlog is good and kind of what the strategy is to kind of get that financial advisor head count number up?

Well, the strategy is always to we want to build businesses on a profitable basis and we want to be able to add people to our firm efficiently. As I said, a number of things about the DOL fiduciary rule raised a lot of questions from the way you structure deals to what have to happen when accounts join your firms, especially if advisors would come in with a higher percentage of brokerage IRAs than, say, advisory IRAs. So, all of those questions caused us just to take this opportunity, as I've said, was that this was going to be a period of consolidation of all the things that we've done, focus on our return on equity, focus on our margins and focus on our business and allow certain of these uncertainties to become more clear. And so, look, we've grown from 200 advisors to nearly 2,300 advisors, and we've grown significantly in periods of time, when we believe that the environment is correct. And I see that coming again and we'll be prepared for that. So, it's not as if we haven't grown in the past, it's just that at this time, until last almost a year now, we have been cautious in our recruiting approach.

Okay. Okay. Thank you. And then with respect to the balance sheet in the bank, appreciate the near-term comments around the competitive dynamics there. But when you think about just the mix longer term and the opportunity to, I guess, maybe optimize the balance sheet to maybe bring that NIM closer toward where some peers are and kind of regional banks are more broadly, how are you thinking about that still as an opportunity? And just kind of going about that, what buckets would you look to grow to do that longer term?

Well, look, as we've said all along, we would, depending upon – I, first of all, am not sure I agree with the competitive comment. I would say it's the market conditions that are causing us to look at things, as both a flattening yield curve and credit spreads, which are very tight, have us thinking these market conditions aren't necessarily conducive to taking on credit or extending duration. But if you would look at things overall, what you're going to see, and we've said, is you'll see the percentage of our balance sheet that are loans versus investments will continue to increase. The pace of that increase is going to be dependent on market conditions and not something that we're just going to lay a number out and just go do it regardless of market conditions. So, I believe that our bank is very conservative, look at our NIM, look at our average duration, look at our asset quality metrics, and you'll see a very strong, albeit conservative, bank. And when market conditions improve, where we believe we're getting the appropriate level of a return for taking credit risk, then you'll see that increase.

Okay. Got it. Okay. Just last one here on expenses. I'm just curious how the expense initiatives are going. I understand that the expense ranges kind of remain at the same level, but there's a lot of kind of puts and takes in expenses. So, I'm just curious have you found anything as you kind of gone through your process and anything else to update us on there?

Look, we're coming in within our guidance range. We're driving our – our margins now are north of 16%. We're looking at and optimizing several of our recent acquisitions. I'm pleased with where we are. I'm never sure that process is ever done. But where we are today is – I think has been a good job by the members of the team that have been driving that result.

Got it. Okay. Thanks very much.

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

Thank you. Ron, can you remind us what the legal matter is related to and why you had to increase the reserve there this quarter?

Well, as I said, it's – first of all, we, as a policy, don't talk about open litigation matters. Okay? But there have been developments and, as I said, it was on the item that's disclosed in our Q. And we'd previously had three items, we're down to this item that's in the Q. And it was developments in that matter, which – I really can't talk about open items, Chris. So, I'll point you to that item and that's what it's regarding.

Okay. Understandable. We'll check out the Q. As it relates to growth in advisory, can you talk a little bit about the breadth you were seeing there? Is this just a handful of deals that are driving the growth or are you seeing something more broad than that? And maybe talk a little bit about the competition in M&A today.

Well, first of all, I'm pleased with the breadth. I mean, it's not as if there was some one, two or three huge deals that drove that. So, I am pleased with the breadth of that business. So, let's leave it at that. In terms of competition, I mean, there's always plenty of competition. And we think that, as I said, in the FIG space, we advised on 8 of the 10 largest deals and I believe that we are competing every day in all of our sectors and have won, and hopefully we'll continue to win, our fair share of mandates.

Okay. Thank you.

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

Good morning, Conor. Conor Fitzgerald - Goldman Sachs & Co. LLC: Good morning. Thanks for the updated thoughts on MiFID II. Just wanted to get, I guess – kind of two questions on that. One, how quickly do you think that's going to start to impact your business? I think this is kind of January of next year. And then, two – and I know it's difficult for you to kind of quantify given where we are now, but just how are you thinking about kind of rightsizing the business given the revenue uncertainty?

Well, I think you've got some unanswered questions within your questions, Conor. I would like a little more clarity myself, and we're talking to a number of clients. On one hand, I think there is going to be some clarity on hard payments coming up, but the real question is the ongoing trading. It's not as if you're not going to be continuing to trade with clients. And I think some of the uncertainty is there. So, I believe we have the sufficient amount of connectivity and trading volume and how we trade with the Street that we'll be able to adapt. On one side, MiFID is uncertain. But what I think will come out of this is the ability to measure value and where your value is, at least as perceived by the buy side and we'll adjust our model accordingly. So I'd like to give you more, as I said, and I'd like to be able to say, here's how all of this is coming down. But there really is – even for something that's going to take effect in less than six months, there still is not a lot of clarity and it doesn't impact all accounts. It impacts global accounts. There is number of accounts that aren't even be looking at this and a number of our clients. And when I get more, I'll tell you more. If you get more, give me a call. Will you? Conor Fitzgerald - Goldman Sachs & Co. LLC: I'll be sure to pick up the phone if I get more. And then just on the balance sheet, is it as simple as if the yield curve steepens and credit spreads widen, some of those stuffs you were talking about in your prepaid remarks, if that happens, should we think about you pretty quickly deploying the 30 basis points of excess capital you've built here?

I don't know that we're trying to time markets like that. I would say that market conditions would improve if the yield curve for us and the way we're situated, we would like to see a steepening of the yield curve. So, lot of reasons. The economic activity, I believe, would drive a lot of our Institutional business and capital and that might be portending higher GDP growth as those would all be financial conditions that would make loans and credit loans more attractive, because again you're lending into improving credit or improving economic conditions. So, I just feel that with how tight credit spreads are and with where the yield curve is, we want to be cautious before we extend on credit duration, and I'll leave it that. And if market conditions improve, then yes, you can see some growth in our loan portfolio or a shifting as our securities, which are very short duration, as they mature, we may put some of those maturities into loans. So, that's an ongoing daily evaluation of opportunities and we're going to continue to do it. But we are not trying to drive earnings through credit and duration risk. Conor Fitzgerald - Goldman Sachs & Co. LLC: Got it. That's helpful. And I'm sorry, just one last quick clean-up for me. Did the legal matter you talked about have any dampening impact on your compensation expense this quarter?

I mean it wasn't that big of an item. I would say not really. Conor Fitzgerald - Goldman Sachs & Co. LLC: Thanks for taking my questions.

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

Hey, Ron. Just a follow-up here on the fixed income underwriting strength. You mentioned the market share gains and just how things came together this quarter. I'm just curious, I mean, obviously, just the orders of magnitude to how strong it was. I mean, is there anything else that occurred here? This seems kind of like a perfect storm quarter. So, I'm not sure if there is anything else in the environment or just where you guys focused in that business that led to such a strong result, because this is so outsized?

Well, I don't know – I wouldn't call it a perfect storm. I think it always looks that way until you back up and realize that we've invested in this business. We did Stone & Youngberg, we did De La Rosa and we did Merchant. Just recently, we did City Securities, where we're the number-one underwriter now in the state of Indiana, when we weren't the number-one underwriter. So the market – par issuance in the market's down 20% and our par issuance is up 12%. So, I'd characterize that as market share gains in an otherwise more tepid – well, not in not a tepid, a declining market for muni finance across the country. We've made investments in those businesses that are paying off.

Got it. Okay. Good. Just want to dig in there. And then within fixed income brokerage, just thinking about kind of that business been a little bit softer over the past several quarters and, clearly, the business has gone through some hot and cold patches over time, so this isn't unusual. But how are you thinking about just maintaining the platform? Do you kind of make selective reductions here in this kind of softer backdrop, or do you just kind of keep the platform where it is with the expectation that we're just in a little bit of a cold patch and that things will get back to, hopefully, more normal soon?

Look, I'm very pleased with our fixed income team and I believe that as, again, economic conditions improve, the same thing, a little – get some credit spread widening and changes in the yield curve, I believe that our fixed income team is well positioned to gain market share and do better. It's been a difficult environment, as you know, all over the Street and we're not going to do anything drastic here at all. These markets, I believe, will improve and we're going to maintain what we've built.

Got it. Okay. Thanks for the follow-ups.

At this time, there are no further questions.

Well, I would thank everyone for the early morning call. We look forward to continuing to build our franchise and look forward to communicating with you next quarter. Have a great day.