Good afternoon. My name is Christine and I will be your conference operator today. At this time, I would like to welcome everyone to the third quarter earnings conference call 2017. 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. Jim Zemlyak, CFO, you may begin your 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 third quarter 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 those 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 also 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 legislative and regulation. You should also read the information on the calculations of non-GAAP financial measures that is posted on the Investor Relations portion of our website at stifel.com. This audio cast is copyrighted material of Stifel Financial Corp. and it may not be duplicated, reproduced or rebroadcast of consent. Our chairman and CEO, Ron Kruszewski, will now review the results, Ron?

Thanks Jim. Good afternoon to everyone and thank you for taking the time to listen to our third quarter 2017 results. This afternoon we issued a press release with our third quarter results and we posted a slide deck on our website. I am very pleased with the strength of our quarter. We generated net revenue of $721 million, the second best quarter in our history and down less than $5 million from our record results in the second quarter of this year. After adjusting for roughly $13 million of nonrecurring or deal related charges, we generated non-GAAP pretax income of $121 million, net income of $74 million and EPS of $0.89 as increased global wealth management revenue was offset by a modest sequential decline in our institutional businesses. Also on a non-GAAP basis, annualized returns on common equity and tangible common equity were nearly 11% and 18%, respectfully. GAAP diluted EPS came in at $0.79. In addition to the strength of our revenue in the quarter, our non-GAAP comp ratio and operating ratio declined sequentially to 61.1% for comp and 22.1% for non-comp operating expenses, respectfully and helped drive our non-GAAP pretax margins to nearly a seven-year high of 16.8%. On the capital front, we issued $225 million of 30 years senior notes to take advantage of attractive yields and to round out our capital structure and we announced and paid a regular quarterly dividend during the quarter, giving us another way to return capital to our shareholders. This morning, we announced acquisition of Ziegler Wealth Management. This was relatively small transaction, so we didn't disclose the transaction purchase price. However, this is an important transaction as it adds nearly 60 financial advisors and approximately $5 billion of client assets under management to our platform. Said another way, this…

[Operator Instructions]. Your first question comes from the line of Devin Ryan from JMP. Your line is open.

Hi Ron. Good afternoon. How are you?

Good, Devin.

Good. Maybe starting with a two-part question. Earlier today, Morgan Stanley announced that it is going to exit the protocol for broker recruiting which I guess was set up to limit litigation amongst the other member firms there. And so there is already speculation that other larger peers will follow on that front. So I am not sure if you have had a chance to look at this at all or if you have a view, but if you do, I was just curious if it makes it more challenging to recruit away from certain firms if you take away or I guess if you a allow more litigation there? And then the second part of the question, just more broadly, it does seem that some of the largest wire-houses are taking a less aggressive stance on recruiting, which I guess maybe suggest moderating competition. So I am just curious if you look at your advisor backlog today, is it more from the larger firms? Because they may be more of less aggressive on the packages or if it's smaller firms?

I am not sure it was a two-part of three-part, but I will try to answer, okay. Look, first of all, I am not sure I think that the largest firms came up with protocol frankly and came up protocol for, in my view, the self interest of the large firms and reducing litigation, but helping their recruiting. And so as they decide they don't want to recruit any more, it doesn't surprise me that you would see an exit from protocol. What I would say is there was a lot of recruiting prior to protocol. There is right ways to do it. If everyone would exit, it would increase litigation. Although I am shocked by the fact that, seems hard to me in and this is just my own personal view that if you recruit a bunch of people on protocol and then you want to say, but you can't leave because we are changing the rules, I find that maybe not legally interesting, but certainly business-wise interesting. So there is a lot to play out here, but at the end of the day, the advisors have always had the relationship with the client. We have known that in the industry and I don't expect that to change. But we will see how it plays out. With respect to overall recruiting, again, it's more interesting to see who will now exit the protocol. My personal prediction is that protocol probably will unravel here. When the large the largest firms brought it in, the largest firms will take it out.

So I guess, is that a good thing for Stifel? It seems like you have been talking about and may be more recently the dynamics changed, but just as the recruiting environment which is not economic. And so to the extent, the largest firms are kind of moderating on the recruiting for different reasons, is that a good thing or is that the reflection of just the backdrop being challenging? I am just kind of curious on your thought on that.

Well, again on one hand there is significant pullback and some of the recruiting deals improve the environment. But if you are going to just spend that on increased litigation, it's hard to judge that today, as I sit here. Overall, I still believe that we have always been a firm that has the platform where you want to work, a platform where you choose to come here and you chose to stay. And we think that that will win in the long run regardless of some of these hurdles of that are either being put in place or dismantled.

Got it. Okay. I really appreciate the thoughts there. And then with respect to the Ziegler deal announced this morning, it sounds like there was kind of an existing relationship, the firms knew each other. But I am just curious, would you frame this as the idiosyncratic circumstance amongst the firms? Or maybe does it suggest that there is just more interest from other firms today that think about selling for different reasons? Or maybe it's the Stifel dynamic of just having more of an appetite?

Well, we knew the firm. But I don't want to suggest to you or say in any way that it was some deal just between us. I think there were other firms interested. I think that we, for a combination of factors, are the party that they are with. And overall I believe that that transaction underscores the need for a little bit of scale in this business. I hate using that word, but it's hard to have all the products with 60 advisors and I think a lot of firms are facing that reality. But look, I am excited. I have known the firm for long time. I used to live in Wisconsin. It's primarily a Wisconsin-based firm. Cultures are very similar. As I said, 100% of their advisors in a matter of days have signed agreements to support this transaction. So I am thrilled by it and I think it's a typical Stifel type deal.

Yes. Got it. Okay. Yes, it was interesting. It was good to see. And then just pulled maybe one more and I will get back in the queue. Just recently, I know Ron you have spoken a lot about making investments in technology and that's where some of the spend has been going and it's definitely been a theme, I think, over the past several quarters just in the industry of ramping technology and digital spend. And so I guess the question is around how you feel about your pace of investments in the technology right now? And then just bigger picture, some of the things that Stifel is doing on the technology front where either you feel like these are interesting initiatives or even things that you feel like maybe helps differentiate Stifel?

Well, look, I think that the industry is at almost an inflection point between the intersection of advice and technology. And I believe that we have to embrace technology. And we at Stifel are doing that. So we have a number of initiatives, I believe, that will put us at the forefront, but using technology to supplement it by, it's not using technology to replace human advice. And we believe that that will be a strategic advantage for us, both in our organic growth or recruitment growth but also with clients, because I firmly believe, Devin I have said this, it sounds like an advertisement, but I firmly believe that technology properly deployed with clients raises more questions for an advisor to answer than it answers questions for the client. And if we embrace technology, which we doing, we are putting significant investments in our technologies including mobile, including our bank, we believe we will be at a strategic advantage.

And in terms of how you are going about it? Is it you creating through Stifel? Or is it finding the right third-party vendors and FinTech companies to partner so that you are introducing the right platforms for your advisors?

Geez, Devin, I feel like I am giving you competitive secrets here. Look, we have always been a firm that deploys technology in the most efficient manner. We won't build it if we can buy it. But we also have our own views. So it's a combination of both. But I am excited about some of the things that we are going to be doing to address this need. And again I will say that technology, either through our artificial intelligence, the ability to aggregate, ability to communicate through mobile is moving very fast. And when we as a firm feel that it's very important we invest and understand the technology.

Okay. That's good enough for me. Thanks Ron. I appreciate it. I will hop back in the queue.

Thanks Devin.

Your next question comes from the line of Steven Chubak from Nomura Instinet. Your line is open.

Hi Ron. Good afternoon.

Steven, how are you?

Yes, doing good. Thanks. So I wanted to start off with a question on MiFID. I appreciate a lot of the detail that you have provided about the SEC guidance. But one of the things that's quite interesting is that one of your research competitors actually acquired a large-scale equities player in an effort to help bolster their execution offering and while you really have considerable scale in the research side, I was just wondering if you can help us get a better sense of just how you are higher thinking about the execution platform? How you want to position that to be competitive in the MiFID world? And whether you have any plans to re-orient the business, not just on the execution side but on the research side as well?

Steven, that's a deep, deep question, okay, especially as it relates to execution. Market structure across the board has a number of initiatives that are going on. What I want to take a step back on is that the implementation of MiFID, including how you have to execute, there was a lot of questions about how the exchanges would deal with this, I believe that the SEC's no-action letter, in many ways, punks us for a while, okay. And I don't want to really get into the execution side, it's technical to this call. I believe though that we will be able to execute very similar, we will be able to do it. The bigger thing is really on right now research payments and my view of it is that the SEC ring-fences in saying, you can not under the 40 Act, accept hard payments from U.S. domestic-only firms without registering as an investment advisor. And the no-action release does not provide relief for that. So in many ways, it's business as usual for U.S. asset management that don't have European clients. And the way I read the SEC no-action is that it does provide the ability to get payments so long as it relates to MiFID related accounts. And it's actually technical in the way it says that. So my view is that sort of ring-fences this and I believe that the SEC does not want to upend U.S. market structure by importing a European rule. It's still complicated but the interpretive guidance on the no-action, I thought was very positive as it least relates to the January implementation.

Got it. Very helpful color Ron. And maybe just switching over to the capital management side. In relation to $2 billion annual bank growth target, as I start to look at the pace of capital build in relation to that, it still leaves you with a fair amount of excess capacity to support deployment elsewhere. And just thinking about other capital management priorities whether it's additional acquisitions, divis or buybacks, how should we expect that to be deployed?

You know, I never really answer that question other than to say the most cap and the best risk-adjusted returns. And right now we are trying to give guidance up to $2 billion. We could grow more than $2 billion. Frankly, we are just trying to not have people factor in the significant growth we have had in the last three years. But overall, we are generating a lot of capital. That's why we instituted a dividend. We have authorization for share repurchases. We have and we can grow the bank or we can invest in other businesses or in acquisitions, all of which have to meet our return hurdles. So I would agree with you that at this point, we are generating a lot of capital and it's a high-class problem. But we are focused on it and shareholders should understand it. We are large shareholders. I am a large shareholder, a much large shareholder and I focus on deployment of capital.

Understood. And one last one for me is just on fee-based profitability. It's something you touched on in your prepared remarks, Ron. It appears that fee-based conversions are poised to continue for a pretty extended period of time. There seems to be a good amount of runway there. I know that there is higher revenue yields associated with fee-based versus brokerage. I was hoping you can give us a better sense as to whether the profitability or earnings profile associated with those conversions is in fact better as well?

Look, I for a long time have said that you need an integrated investment bank like Stifel needs, brokerage and fee-based accounts. We do IPOs, we sell IPOs, we do public finance, we sweep deposits to our bank. And clients need the choice between fee-based and brokerage. So I don't believe that fee-based is inherently more profitable. I believe I am sort of indifferent to it as a profitability perspective. And that echoes comments I have made for 20 years. When you consider all the factors, you look at [indiscernible] and the fact that we make SPA loans generally or margin loans that's generally in brokerage accounts. So I think that what you have seen, Steven, is the tail-end of the acceleration that was driven by firms preparing for DOL. DOL clearly preferred fee-based accounts over brokerage accounts and many of us in the industry, including Stifel, had to adapt and put into place and encourage fee-based accounts, I actually think that that trend will slow a little bit now that there is a delay.

Okay. Very helpful insights, Ron. I appreciate you taking my questions.

Yes.

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

Thanks. Hi Ron.

Hi Chris.

So looking at your slide here that shows the improvement since 2015, obviously a lot of things trending in a good direction here. Just the obvious questions to ask then is, it what else is really left to do internally as you guys look at the platform at obviously trying to run as it is efficiently as you can? And I know you guys could benefit clearly from a better overall environment, but that's obviously outside your control.

Well, I believe that we can drive margins higher. I believe that we can, even in this environment, have higher margin. We can continue to grow. We can continue to do acquisitions like Ziegler or similar ones. We can continue to do this. So Chris, it's always hard to predict the future and I am not going to try today. I just feel that, over the years I have been asked this question a lot and it's how you are going to grow and what's next. And the fact is that we think we are a firm that is filling a significant void in the markets and for middle market companies. And when you look at things that can occur like rolling back a regulation, encouragement of capital formation, tax reform, our utilization of technology, I believe that we can continue to grow and drive meaningful returns. I certainly don't sit here, I think I gave common view of the next five years as very attractive if we get some of the policy decisions done that we talked about. So I don't, in anyway, feel like, okay, we are done.

Got you. Okay. And then, I wanted to ask you about the fixed income brokerage revenues. You highlighted that the decline is very similar to what's going on in the industry and that's true. But some of the reasons that we have heard, low rates, flat yield curve, it just seems like these declines in revenues suggest that perhaps is something more structural in nature versus those cyclical factors. Would you disagree with that statement? Do you think this all just like a cyclical issue right now affecting the fixed income business? It sounds like you are a little bit optimistic that things might recover a bit as we had into next year?

Look, what's happened to credit spreads and what's happened to volatility and what's happened to the yield curve, what's happened in many ways in the treasury market have been a perfect storm the other way of reduced volumes and so it's absolutely something that, I believe, will improve. On the other hand, you have had some changes in electronic trading that might be secular in nature in terms of margins. But they are talking about things that for instance, trades, I believe the trade should be suspended for block sizes that I think will allow risk-taking and can encouraged flows again. So there is a number of things that can change. Margins have been declining in this business for since I have been in the business for 30 years. But they are made up with volume. I think the fixed income business will improve. I don't believe we are going to be in this environment. All things being equal, would it get back to the level it was before? Probably not because there are some secular changes in here. But overall I believe fixed income will improve from these levels.

Got you. Thank you.

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

Hi. Good afternoon. I just wanted to ask two on M&A and one just to make sure I heard your near-term comments right on 4Q looking a little bit more like the first half? And then, from a bigger picture perspective, just wanted to your outlook on small cap bank M&A and if you are seeing any pickup in dialogue here? It feels like activities are increasing?

Yes. Well, first of all, I think what I said was that I just repeated that we thought the second half of 2017 would be higher than the first half of 2017. I don't think I said how much or anything like that. I just felt it would be better. But that said, I feel that the pipeline is good, okay. And so let's just be clear on that. I wasn't really trying to say anything other than that. With respect to what's going on in the bank space, there is a just a change of thought in the regulatory front in Washington. You see it in a lot of ways. You see deals being approved a lot faster than they ever did. We have a new Vice Chair of Regulation. You have a number of things that are pointing to increased activity in the bank space. I actually am optimistic about that. If I al less optimistic in the space, it's just the number of new banks, which there are none being formed, right. That concerns me on a different front. So I think an industry that's innovative and growing needs new entrants into the marketplace. But as things are shaping up today, I believe that the activity that we have seen in the financial institution space can continue, if not even improve going into 2018.

Got it. That's helpful. Thanks. And then just on the acquisition front in private wealth. What are your thought processes around larger deals? I know you been a little bit hesitant just given what was happening with the DOL. Given that rule has been delayed, does that change your thought process for looking at deals or it would be larger than the one you have announced today?

Well, there really haven't been many, first of all, right. It's not like they are going on left and right and we are not doing them. I mean we did, there's really been three large ones relatively large and we did one of them. We did Barclays and then you had Credit Suisse and Deutsche. So we are and we will continue to be a participant in the process. But right now. I don't see a huge rush to the sellers rushing to sell. I think there are plenty of buyers. I think we are one of them. Historically, we have proven that. But I think the environment is not one that necessarily has firms rushing to sell.

That's helpful. Thanks. And then just last one for me. I know it's come up a couple times and you don't have a crystal ball on how the revenue outlook is looking in the institutional equity trading business. But how should investors think about the incremental margin here, if revenue does come under pressure?

Well, in any business, with fixed costs margins come under pressure, revenues decline. This is math. We have seen some pretty significant declines in the volatility in the past, all the things we have talked about. Will it continue? Yes. And I think those margins are under pressures. So as revenues decline, margins are going to be under pressure. Firms will be reacting faced with always the question of whether you are cutting muscle or something else. So it's an ongoing thing. I am believing that what I am hearing and what I hear out of the SEC and what I see about capital formation and regulation, I believe that this business will improve from these levels.

That's helpful. Thanks for taking my questions.

Sure.

There are no further questions at this time. Mr. Ron Kruszewski, I will turn the call back over to you.

That was pretty good for announcing my name, operator. I will thank everyone for being on the call. I look forward to getting tax reform done. I think that will be good for money and motions, as I like to say and good for GDP growth and look forward to reporting on our fourth quarter in early February. So thank you for your time and interest in Stifel. Bye.

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