Ladies and gentlemen, thank you for standing by and welcome to the Stifel Financial Year-To-Date and Quarterly Financial Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions]. Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Joel Jeffrey, Head of Investor Relations at Stifel Financial. Thank you. Please go ahead sir.

Thank you, operator. I'd like to welcome everyone to Stifel Financials, Fourth Quarter and Full Year 2021 Financial Results Conference Call. I'm joined on the call today by our Chairman and CEO, Ron Kruszewski; our Co-Presidents, Victor Nesi and Jim Zemlek; and our CFO, Jim Marischen. Earlier this morning we issued an earnings release and posted a slide deck and financial supplement to our website, which can be found on our Investor Relations page at www.stifel.com. I would note that some of the numbers that we state throughout our presentation are presented on a non-GAAP basis, and I would refer to our reconciliation of GAAP to non-GAAP as disclosed in our press release. I would also remind listeners to refer to our earnings release, financial supplement and slide presentation for information on forward-looking statements and non-GAAP measures. This audio cast is copyrighted material by Stifel Financial and may not be duplicated, reproduced or rebroadcast without the consent of Stifel Financial Corp. I will now turn the call over to our Chairman and CEO, Ron Kruszewski.

Thanks, Joel. To our guests, good morning and thank you for taking the time to listen to our fourth quarter and full year 2021 results. As always, I’ll start the call by highlighting our full year and quarterly results. Then Jim Marischen will review our balance sheet and expenses and I’ll wrap up with our outlook for 2022 and some concluding thoughts. With that, let me turn to our results. For the full year, Stifel’s performance was stellar. 2021 marked our 26th consecutive year of record revenue and our fifth consecutive year of record earnings per share. Furthermore, we posted record results basically across the board. Simply 2021 is the result of the historical investments we’ve made in people, products and technology accompanied both with organic growth and strategic acquisitions. The market environment certainly was a wind at our backs, but we would not or could not have produced these results without these strategic investments. Looking forward, our optimism for our business is a direct result of our focus on constantly reinvesting in our business and improving our relevance to our clients. For the year, revenue totaled $4.74 billion up nearly $1 billion over 2020 while earnings per share of $7.08 increased 55% and drove a return on tangible common equity of 34%. In terms of capital deployment, I’ve stated that Stifel will attempt to maximize returns and invested capital primarily through growth investments including acquisitions. We also utilized capital by increasing – by increasing the size of our bag and finally we returned capital to shareholders through dividends and stock buybacks. In 2021, Stifel increased capital by approximately $1 billion. In pursuing the objective of maximizing returns on capital, in 2021 we grew our loan portfolio by nearly 50%, made a strategic acquisition of Vining Sparks, pay common and…

Thanks, Ron. And good morning, everyone. So starting with net interest income, we generated $138 million of NII in the fourth quarter, which was up 5% sequentially. The growth in our NII was driven by an 8% increase in our interest earning assets as we're able to produce a sizable increase in our loan portfolio. Our firm wide net margin decreased to 204 basis points, primarily due to the bank NIM of 236 basis points. This was driven by increased loan origination activity and a highly competitive lending environment. For the full year, net interest income came in above our guidance at $503 million. This was driven by the more than $5 billion increase in our loan portfolio during the year, as we're able to leverage the investments we've made, as can be seen in our fund banking practice. So we took advantage of strong market dynamics in that lending channel. Given the loan growth, and the 0% interest rate environment, our bank NIM in 2021 was essentially the midpoint of our guidance, and relatively flat year-on-year. In terms of our first quarter expectations, we see net interest income in the range of $140 million to $150 million, and with a bank NIM of 235 basis points to 245 basis points. I'd also note that we've updated our asset sensitivity based on the increased size of our balance sheet. Given the further growth and based on asset levels at the end of 2021 we now estimate that we will generate an incremental $200 million to $225 million pre-tax net income as a result of 100 basis point increase in rates. This again assumes a 25% deposit beta and the parallel shift in the yield curve. And I like that this analysis is based on the entire last rate cycle, no…

Thanks, Jim. I'd like to take a minute or two to discuss our strategy for our segment, and how this positions us for continued growth in our major business lines. In Global Wealth Management we have focused on enhancing our advice model through aggressive recruiting of entrepreneurial advisors, combined with a robust product offering and technology platform. The result of this approach has been solid growth in both the number of financial advisors on our platform, as well as the amount of client assets. As I look forward, our recruiting pipeline is robust and the traction we are gaining with Stifel independent advisors will further enhance our growth prospects as we look to leverage cutting edge technology with our advice driven model. In the institutional group, our approach is relatively simple; continually build out our capabilities to become more relevant to our clients. Our client relationships are built on a history of successfully executing mandates and it has been our experience that the combination of trust and increased capabilities is the best approach to growing the business. We will continue to selectively hire and make acquisitions into verticals and products that we believe can leverage our existing infrastructure and make us further relevant to our clients. Our bank is an increasingly important component of our business, and its increased size and scale will help enhance both our wealth management business and our institutional group, as it leverages our wealth management and corporate clients, cash balances and offers lending products to our clients. We see continued opportunity for growth at the bank, as we are undersized, that Stifel Bank is under size relative to our 4000 plus client facing professional. We built out a substantial platform through a conservative approach to lending and channels such as securities based loans, mortgages, fund…

Thanks, Ron. On the expense side, we believe that our disciplined approach, coupled with highly variable nature of our compensation expense, and the increased revenue contribution from net interest income will enable us to lower ratios even with headwinds being faced from inflation. Our approach to compensation is very much performance based. And if you look back to 2021, approximately two thirds of our total compensation expense was variable in nature. Given the structural dynamic, and the mix of revenue drivers, we are forecasting compensation expense to be in a range of 57% to 59% of net revenues. Our projected non-comp operating ratio of 16% to 17%, should benefit from our expected growth in revenue, and offset the expected increases in travel, entertainment, and conference related expenses. Given advancements in and adoption of technology, it's difficult to predict how travel, entertainment and conference expenses will normalize going forward. While we don't anticipate these expenses to fully normalize to historical levels, I would highlight the total of these expenses in 2019, was approximately $37 million more than the total of these expenses in 2021. If we added the full amount of this difference back into our non-compensation expenses in our 2022 forecast, we are still projecting our non-comp operating ratio to fall within our expected guidance. I would also know that given the expected growth in our loan portfolio, we did anticipate an increase in a provision expense. Recall that last year; we had a negative provision expense as we continue to benefit from the run-off the reserves we accrued in 2020 to the expectations for a weak economic outlook. We've essentially worked through those reserves, and barring a substantial change in the economic outlook, we would anticipate our provision expense to be driven by loan growth and credit quality. And with that, I'll turn it back to Ron for his closing comments.

Before I turn the call over for questions, let me just reiterate something you've heard me say before. Stifel has been and continues to be a growth company. Our history of growth over the past 26 years, and more specifically, over the past decade, has been a function of our continued focus on reinvesting in our business. This has not only led to an impressive streak of annual revenue growth, but also substantial improvement in our profitability. This platform has put our company in a position to continue to grow into the future despite an ever changing market environment. Our recruiting and balance sheet growth has substantially increased the percentage of our revenue that comes from recurring sources, which increases the stability of our results. Additionally, our strategic hiring and acquisitions has made our institutional business more relevant to our clients, and resulted in our improved standings in the industry league table. We will continue to deploy capital on the strategies that generate the best risk adjusted returns and further the growth of our business. Finally, I'd like to thank all my partners at Stifel for their continued commitment to making our firm a premier wealth management and investment banking firm. Without their effort, our history of record performance would not be possible. To them and to our shareholders, I would like to reiterate what I said last year that the outlook for Stifel is as strong as I have seen in my 25-year tenure as CEO. And as I sit here today, I can say that my sentiment has not changed. With that operator, please open the line for questions.

[Operator Instructions] Your first question comes from the line of Steven Chubak from Wolfe Research.

Good morning, Ron. Good morning, Jim.

Good morning, Steve.

So wanted to just start off question on Capital Management. You're running with significant access today, it's about 10% of your market cap. It looks like based on the guidance ranges you provided for 2022, even with the dividend increase, you're going to generate substantially more access capital. I was hoping you to speak to your capital management priorities, Ron, where they stand today and with shares trading at such a steep discount appears in your historical multiple, has your appetite for buybacks changed at all? Why not get a little bit more aggressive here?

Oh, you know, I feel Steven; you asked this question every year, not every quarter. That's a good question. And the answer is always the same. And that we will, will deploy capital what we think, will drive the highest returns, our, our return on tangible equity is north of 30% annually and quarterly. And so, I if that's a metric we talk about all the time. And we will look at stock buybacks, when appropriate, we look at acquisitions, we are certainly going to use capital to grow $4 billion $6 billion in our bank, and we did even though we've doubled the dividend in terms of capital utilization, it's relatively modest, the payout ratio of south of 20%. So I hear you, and we will, not going to today lay out exactly what we're going to do on capital deployment. But we will continue to use all four levers as appropriate to manage our capital and certainly manage our return on invested capital.

Thanks for that color, Ron. And just for follow up, I wanted to just dig in a little bit to some of the assumptions underpinning the 2022 outlook guidance. Specifically, I was hoping you could just speak to what you're assuming for equity market appreciation, recognizing we've had a challenging start to the year on that front and just on expenses, given the favorable expense guidance, especially relative to your bulge bracket peers, I was just hoping you can provide some context as to how you're managing to absorb some of the inflationary pressures of it better than some of your competitors and any nuanced perspective, you could share just on inflationary trends within institutional versus wealth management.

Well, let me take your first question, as I said on the call. And as I think we're out there, as a firm, our base case assumptions were three fed increases beginning in March. First on the interest rate side, as it relates to equity capital markets, we expect a first quarter correction, which we've been which we've been saying, but the S&P 500 will be up mid-to-high single digits as an assumption for the S&P for the year. So those are the base assumptions, which I would which I characterize as a normal yet favorable operating environment. I always caveat sets of things can change. As relates to [Indiscernible] gets expensive, I will say, on the inflation question. And I'll point to compensation on that, we manage this firm. First of all, as a firm, we have always been a highly variable compensation shots, and that we pay for performance across the board. So you'll see pay go up on revenues goes up, and you'll see pay go down as revenues go down. Because of that model, the reality of that model is that inflation in certain aspects of our firm, that could be either on juniors or maybe in various aspects, inflation in some places, is absorbed in other places, because our shareholders can expect our comp to revenue ratio to be within our guidance, and we deal with inflation, sort of within the ranks the compensation, if you understand the reason we can do that, is because so much of our compensation is variable.

And maybe just to add on that just a bit in terms of in regards to compensation. When you look at say, just take the midpoint of our NII guide, so you're called $200 million net interest income. It was apply at 50% kind of comp flexibility number on that. You're talking about $100 million on, just say take $5 billion of revenue. It's about two points. We're bringing our comp ratio down one point in our estimate and the difference between those things is essentially accounting for some wage inflation, as well as continued investment in the business. And I think just given our relative size, and our ability to grow the balance sheet and the comp flexibility that that presents with additional net interest income is really what's helping us absorb wage inflation.

Yes. I mean, we see it, we're not saying that we'll see wage inflation but, but the way we run the company as a, as a percentage of revenue, we see comp coming down. Okay, that doesn't mean we don't we're not dealing with the same thing everyone else does. We structurally have a model that's highly variable that allows me to say that.

And you're coming into this year looking at last year, we're comp, absolute comp dollars, were up $550 million to start.

All good points. And just to affirm my final question just on bank growth, you recorded a significant uptake and client cash balances to close out the year in addition to a slight uptick in off balance sheet cash, which now sits at about $7 billion. In the context of the 4 billion to 6 billion of bank growth that you're guiding to for this year, now how much of that 7 billion are you assuming is swept into Stifel Bank? And what's your appetite to accelerate some of those sweeps if we do see a more constructive rate backdrop?

Well, we're going to I mean, look, well, we will sweep as needed. Okay. I mean that's, that's what I will say. And we've had this question for a number of years; too, as to back when, when our total consolidated footings were under 20 billion, we’re 34 billion now. So we have unutilized clients and corporate cash balances that will utilize for the bank. What I would say is that those balances go up as we continue to grow the firm and recruit. So I think your question is, is that, will, can we or is that going to be a limiting factor if I can presume your question? Is our client cash asset found out, as we sit here today, going to be a governing factor on our $4 billion to $6 billion, or maybe even a little bit more long growth? Obviously, the answer is no.

And add a little bit of color there. I would also remind everyone that there's about $5 billion to $6 billion of additional cash balances in the money funds that can be pushed back over into the suite program for additional liquidity. And then in regards to appetite for balance sheet growth, if you think back to what we've done this year, we grew the consumer portfolio, call it $2.5 billion between mortgages and securities based loan. If you look at that pace in the fourth quarter, that's probably over $3 billion. And so we're talking about $4 billion to $6 billion and our base case, and then you saw a $2 billion increase in fund banking during the fourth quarter. Now obviously there was some out outsize growth in the fourth quarter related fund banking. But we continue to see tremendous demand there. The amount of money flowing into private markets is not slow. And so we view that, is there potential to go beyond the $6 billion? Sure, if those types of low, risk, attractive risk adjusted returns present themselves, we would definitely want to leave ourselves some flexibility there to grow more than that. And we have the capital and liquidity to do it.

That’s great color. Thanks so much for taking my questions.

Thank you.

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

Morning, Devin.

Great deck. Good morning, Ron. Good morning, Jim. How are you guys?

All right, good.

Good. So just want to follow up on the guidance and slightly different questions here. Just, clearly good guidance, and appreciate kind of the base case, you're running through the model. If we were to assume that some of those market volatility persist longer, I know, maybe there's some caveat. But how -- is there a downside risk in your opinion to investment banking outlook, or with the kind of the diversification but this has kind of kicked in as it has in the past. So maybe, the outlook still works in a lot of scenarios. And then the last piece of it, I was a little surprised on the transaction revenues being flattish given the addition of Vining Sparks so curious where the other offsets are?

Okay, thanks. So I mean, in summary we, we'd like to be conservative. I think we were last year when our guidance and we're, we're trying to do that and so in short summary of our guidance, we're basically saying, look we had a great year, it was hard to predict up up from there and transactional and investment banking you know just it just it is as it's based on market conditions. So we didn't, because the increase in our guidance to 4.9 to 5.2 is fully supported by frankly, asset management starting the year with balances of 26% and our NII guidance. So you're, you make a good point that Vining Sparks will help. But there are scenarios where all of this increased loan across the industry could tap down, transactional revenue in the rates business. However, if it goes the other way, well, then the rates business will pick up. And that's the natural sort of heads that we have in the business. I think probably one of the big variables, and one of the hardest numbers for us to get our arms around and I think for the industry, we're not alone is is on the capital markets, the origination side. So, equity origination, it's highly dependent on market conditions, and, frankly, market conditions at the time. And so that's hard to predict. And, but that's down, we see other aspects of our business that would be up. And, in there in life, I think, the beauty of the diversified model that we have built. So, in short, I hear you and having these revenue items flat, I can understand your question, but that's our nature. When I look at our pipelines, I'll go the other side. If you take our pipelines and a favorable equity calendar for the year, yes, I see good things.

Okay, terrific. Well, we appreciate the guidance. I know, there's a lot of moving parts within it, as always, but it's good to have it out there. So thank you for that. And then just a follow up changing gears, talking about just financial advisor recruiting, and I know, pipelines there are at record levels. And so maybe if you need to give a little more flavor around the backdrop for recruiting by channel, you're seeing some increasing momentum on the independent side as well, which is good to see, and then the dynamic of interest rates moving higher. Is that creating any new competitive pressures on recruiting packages? Or do you expect that will happen? Have you seen that in the past, as rates go up obviously, the economics of the business can improve? So I'm just curious how you guys are either planning for that, or seeing that, more broadly, in the recruiting backdrop?

Well, first of all, recruiting, recruiting is always like its’ like hand-to-hand combat, right? It's not, it's not something that comes in, they don't come in packages with 20, advisors, come team, team by team, if you're not doing an acquisition. But what I can say and I have said, is that our backlog, the people we’re talking to the quality teams, is very robust. And we’ll continue to hire there. What impacts recruiting really can be market events. Deal flow is something that happens, which will keep people will make them postpone their plans. But overall, recruiting has been a driver, I see it. On the independent side, we're just getting started. Okay, that's, let's just leave it at that we're getting started. We were going to be new entrant into that space for the advisors that we've identified, that will fit our strategic goals for, for people, independent advisors. And the, for me, though, it's always nice to be able to be showing growth numbers and percentages when you're starting from a flat start, which is where we were. So I view that as positive. And as it relates to relates to deals, I think that that's always dependent on market conditions. But frankly, what I see is I see a lot of these deals that were driven, really by low interest rates and by people who discount cash flows back at lower rates was kind of like how you value growth stocks and as rates go up. While in many ways, you can argue that the economics go higher. I see, the net present value of some of these deals, making these deals, maybe at least get a cap on that. That’s a function of rate. So all-in-all it's going to be very competitive. All-in-all, we are in a good position to increase our advisors. And on the independent side, the independent advisors bring loans and balances as well. So I'm excited about our entry into that channel and put together. I think that will, you'll see, very nice results and comparative results for Stif3el.

Okay, great. I'll leave it there. But thanks for the update.

Yes, thank you.

Your next question comes from the line of Chris Allen with Compass Point [ph].

Hello, good morning guys.

Good morning.

Thanks for taking the question. I guess if we could just maybe revisit the capital deployment side, you've been pretty clear on the loan growth outlook out of deploying capital there and on dividends and repurchases. Maybe give us some color on in terms of how you're thinking about the potential deal environment here, whether a market correction may present some opportunities moving forward.

Well, yes, I mean, I pass the prologue for that to me, Chris. I think we, we are most active in on the acquisition front in difficult markets. That, a lot of things, a lot of things happen, that, if you're well capitalized, and well positioned, and have a history of being able to successfully close and integrate deals, we -- we're in a good position to take advantage of any opportunities that may present themselves in a market correction. We don't see that today. I mean, we don't see, we can have a correction here. But we don't see something where, a major downturn, like after the tech crash, today, at least, or after the financial crisis, but rest assured that, that if a market correction comes along, that we as a company are very well positioned, both culturally capital, capability and ability to get things done, as we always have, and we'll do that. Today, I get asked a lot about, would we look at acquisitions. Will we look at acquisitions in the bank space? You know as a question I get, and, and my answer to that right now is, look, we're, we grew loans $3 billion last quarter. And we see tremendous loan demand. So, when we look at the returns of just doing it ourselves, versus going by someone else's loan production at a premium, we're going to do it ourselves. That's just where we are. We see the highest risk adjusted returns from doing that today. And so, I feel we are well positioned.

Got it. And then a second question, just any color, just in terms of the contribution from Vining Sparks this quarter? I think you guys had talked about $150 million in annual revenues over the last it was it was 10 years, was it inline with that, greater than that, and just [Indiscernible] Vining Sparks out to the underlying the legacy people business perform this quarter. And how do you separate the outlooks for the both moving forward?

And how we separate, I didn’t get the last part of your question. I'm sorry.

I mean, how do you think about the outlook for both components of the business moving forward?

Vining Sparks and Stifel?

Yes.

Well, well, first of all, they would be the ones. The first thing is that the Vining Sparks and the Stifel rate platform, as I said, was a tremendous fit. It was, we had a segment of clients, they had a segment of clients with very little overlap. And we put those together and in the capabilities and everything we're doing is really good. I will also say that Vining Sparks brought a lot lot to the table in the way they dealt with depositories to the client portal. They have reporting systems. They have an attitude, not that we didn't have but we were able to combine these and have a premier rates platform, especially for depositories. And I'm excited about it. They performed on expectation for us. I would say that the rates business across the industry, you’ve seen a lot of people report. I would say the rates business was below average production. You see our businesses up that’s because of Vining Sparks. But it's performed as we thought it would but more importantly, just to say that the capabilities that they brought to the table is going to be accretive to the overall platform. And that's what I'm excited about. So it's really going to be a deal that's going to really pay dividends on the revenue side, not enough trying to go in and cut expenses. And those were kind of deals we like, so I'm excited about it performed two months, it was always, at it, we've got to complete the back office integration. And I'm excited about, about the prospects.

There's definitely a lot of upside for both us and Vining Sparks. And I would say the integration is near complete. We're month or two away from a full integration from back office perspective, and it will be one business going forward. And that's how we kind of think about it in great opportunities for both.

Great that's it for me, guys. Thank you.

And your final question comes from the line of Alex Blostein with Goldman Sachs.

Hello Alex…

Hey, Ron, hey Jim how are you guys? Good morning. So want to ask you a couple questions Jim, first on Global Wealth business. I think I heard you say 7% that net new asset growth over the course of 2021. I guess a couple points. One, is that sustainable from your perspective, given the pipeline comments you made? And does that growth rate so again, I'm assuming it's kind of mid-to-high single digits, translate into a similar organic revenue growth in that business? Or is there a mix shift occurring underneath the surface a little bit? That's something we've talked about in the past?

Yes, well, first of all, it was in the fourth quarter. Okay. That, just so I think we've said 7% in the fourth quarter. Look, I think we're, we're very similar in terms of the view, we're gaining market share, and that's how we look at it the 5% to 6% asset growth is a good measure. And you're going to -- you just need to see it in AUM. It's not directly correlated to, to revenue, because there is mixes, and there's things that happen within there. But at the end of the day, your question is a good one and one that we're, we're focused on and continue to focus on. And that is that the objective and the success metric and wealth management is going, for us, is throw a number out there. This isn't a projection, but we have 400 billion, well, we want a trillion dollars of client assets. All right, and we're and that's what we're focusing on. And we're going to get there by organically growing with our existing clients, getting new clients and by recruiting. And those always sound like, hugely aspirational, but they're really not. There are things that we can do. I always, when I started our AUM was 8 million. So we can do that. And we will, AUM growth is a core foundation to our growth forward, as it has been for the last 25 years.

Got it? That's great. Thanks. And then another follow up for me on the institutional side. When we look at the advisory business, the contribution from the fund placing business partners is something we've talked about in the past, it sounds like that business has grown. And in your commentary, it sounds also like that's going to be driver of the growth and the competence you're seeing there for 2022. Can you help us frame what the size of that business in terms of revenue contribution is today? And when you want to help with a jumping off point.

We haven't, we don't break out the fund placement revenues atleast we haven't on this call. So I'm hesitant putting a number out there. Today, what I'll say is that what I'm seeing and I know Victor's on the call, too. But what I'm seeing is the interrelation of all these businesses. And so, we're our fund placement business with Eaton Partners, and our fund lending business and Stifel Bank, and our M&A Bankers and our debt capitals and our what all of these teams that we've put together, have really, are really coming together. And that's why you're seeing these market share gains. And so we decided a while ago that we needed to be in the fund placement business as a sort of a leg on the stool and we also decided we needed to be in the fund lending business. And they're all very important contributors to what we're building in the institutional business. And that’s always that I want to answer this question because it's the point I'm always trying to get across is to understand what we've built in the institutional business, both banking, and transactional sales and trading in all the facets of that. So I don't, I can just tell you Eaton Partners are doing great and, and it's part of a very, successful global investment banking franchise.

Thanks very much.

Thank you.

And there are no further questions at this time.

Well, very good. Well, I realized this call was a little bit longer than our normal call. So I thank you. We did want to provide some guidance and some color that’s the way we're thinking about the business. I look forward to reporting on our continued growth and success in the first quarter of 2022. And we'll talk to you then. Thank you.

Thank you for participating. This concludes today's conference call. You may now disconnect.