Stifel Financial Corporation

that time, you may do so by pressing star and the number one on your telephone keypad. As a reminder, today's conference is being recorded. It is now my pleasure to hand the conference over to Mr. Joel Jeffrey, head of investor relations.

Thank you, operator. I'd like to welcome everyone to Stiefel Financial's first quarter 2021 financial results conference call. I'm joined on the call today by our chairman and CEO, Ron Krzyzewski, our co-presidents, Victor Nisi and Jim Zemlack, and our CFO, Jim Marish. Earlier this morning, we issued an earnings release and posted a slide deck to our website, which can be found on the investor relations page at www.stiefel.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 you 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 and our slide presentation for information on forward-looking statements and our non-GAAP measures. This audio cast is copyrighted material of Stiefel Financial Corp. and may not be duplicated, reproduced, or rebroadcast without the consent of Stiefel Financial. I will now turn the call over to our Chairman and CEO, Ron Kruszewski. Ron?

Thanks, Joel, and good morning, and thank you for taking the time to listen to our first quarter 2021 results. I want to start this call by thanking all of my partners at Stiefel for delivering record results. Our value as a company is and always will be our people. So let me give some highlights of our quarter, have Jim Marishin review our balance sheet and expenses, and I will wrap up with our outlook before Q&A. As you can see on slide one, the first quarter of 2021 was another record for Stiefel as we continue to benefit from our ongoing investment in our firm as well as the strength of the operating environment. Our revenue in the first quarter was a record of nearly $1.14 billion, an increase of 24% and surpassed last quarter's record by more than $75 million, driven by record revenue in both our global wealth management and institutional groups. The growth in revenue and our focus on expense management resulted in non-GAAP earnings per share of $1.50, which was up 88% year-on-year. and represented the second highest quarterly EPS in our history. The investments that we've made in our business have enabled us to participate to a far greater magnitude than we would have had we not invested in the business. Our record results were driven by our past recruiting success, the growth in our balance sheet, and robust capital markets. Other highlights for the quarter, pre-tax margins of more than 21%. annualized return on tangible common equity of over 28 percent, and tangible book value, which increased 32 percent. Turning to the next slide, as I stated, our first quarter net revenue increased 24 percent to a record surpassing 1.1 billion. Compensation as a percentage of net revenue came in at 60.9 percent, which was just above the high end of our annual range, yet is consistent with our policy. of accruing for compensation conservatively early in the year. Our operating expense ratio was about 18%, but excluding credit provision and investment banking gross-ups, our operating expense ratio totaled approximately 16%. This came in below our full-year guidance due to the strength of our revenue and strong expense management. As the economic outlook improves, we, like other banks, have updated our economic models. coupled with strong credit performance in our loan portfolio, resulted in a release of $5 million of our credit provisions during the quarter. As you recall, our provision expense last year was driven by the adoption of CECL, and more specifically, the negative economic outlook that was a key input into the calculation. So, neutralizing the impact of credit provisions Stiefel's pre-tax, pre-provision income totaled $238 million, which increased 61% from the first quarter of 2020. Moving on to our segment results and starting with global wealth management. First quarter revenue totaled a record $631 million, up 8% year-on-year. While this increase is impressive, I believe it understates the strength of our business as it includes a nearly $24 million decline in net interest income at our bank subsidiary. Excluding the impact of lower bank NII, our private client business improved 13%, driven by the strength in asset management as well as growth in brokerage revenue, as we benefited from enhanced client activity levels and continued success in recruiting. We again finished the quarter with record client asset levels, Total assets under administration of nearly $380 billion increased $21 billion from the prior quarter. Additionally, fee-based assets of $138 billion rose 7% sequentially, which should drive further growth in the asset management and service fees line item in the second quarter of this year. The next slide highlights the strength of our recruiting and the growth drivers of our platform. We had a solid quarter in terms of advisor additions as we added 15 advisors with total trailing 12 month production of 13 million. While this was fewer advisors than we've typically recruited in recent quarters, I'd remind you that recruiting is cyclical and it's best examined over a longer timeframe. Since the beginning of 2019, we've added 300 financial advisors with cumulative production of approximately $233 million. As I look at the remainder of the year, our recruiting pipelines remain at robust levels, and I anticipate another strong year. As you've probably seen from our recent press release, we announced our intention to begin actively recruiting in the independent channel. In the first quarter, we announced that we were rebranding Century Securities, which we've operated since 1990, as Stiefel Independent Advisors. Given the growth in this industry channel and the fact that we already have the legal and supervisory structure in place, plus an outstanding platform, we believe that our overall recruiting efforts will be enhanced by our renewed focus on this market channel. Moving on to our institutional group. This quarter represented our second consecutive record quarter for our institutional group. Net revenue totaled $506 million, which was up 52% from the prior year and surpassed last quarter's record by approximately $15 million. Our performance was strong across all of our major revenue lines as our business continues to benefit from strong market activity, the recent investments in our business, and contributions from both Canada and Europe. We generated a 23% pre-tax operating margin, which was up more than 1,000 basis points, from the same period a year ago. Looking at the revenue components of our institutional business, I would note that our equities business totaled $226 million, up 74 percent, while fixed income totaled $146 million, which increased 10 percent from the comparable first quarter of 2020. With respect to our trading businesses, we generated record equity brokerage revenue in the first quarter, surpassing our prior record set a year ago by 13% as strong activity levels continued and trading gains increased. Additionally, I'd note that our electronic brokerage businesses, which include our ATS and ALGO products, are now fully launched, and we would expect to see increased contributions from these products as the year progresses. Fixed income brokerage revenue in the quarter was up 12% sequentially, and represented our third highest quarterly revenue, trailing only the first and second quarter of last year. Similar to my comments last quarter, our fixed income trading continues to be driven by increased activity across the board, as well as non-QCIP businesses. On slide seven, investment banking revenue of $339 million was our second consecutive quarterly record, surpassing last quarter's record by a few million dollars. driven primarily by record capital-raising revenue. Equity underwriting revenue will stand out in the quarter, coming in at $160 million and surpassing the record we set last quarter by nearly $50 million. This is a good example of how, by investing in our business over the last several years, we've become a more significant player, as we were a book runner on more than 50% of the IPOs we participated in the quarter. Our strongest verticals were healthcare, technology, financials, and consumers. As widely reported, there was an incredible amount of SPAC-related activity within our industry during the first quarter. However, SPACs accounted for a little more than 15% of our equity underwriting revenue in the quarter. So whether the recent slowdown in SPAC activity represents a pause or a saturation point, we are confident about the strength of our more traditional pipeline. While our equity business was quite robust, we also recorded great results in fixed income. Our fixed income underwriting revenue of $49 million was a record for the first quarter and was up 43% year on year. Our municipal finance business rebounded from challenging market conditions in the first quarter of 2020 as we lead managed 236 municipal issues which represented an increase of 42%. While we are off to a strong start for the year, we believe that if Congress were to pass an infrastructure bill, we would see additional tailwinds to our public finance business. We also continue to see solid contributions from our growing corporate debt issuance business. Regarding our advisory business, revenue of $130 million represented our third highest quarterly revenue and a record by almost 25 percent for any first quarter. In terms of verticals, we benefited from the expected pickup in financials and continue to see broad-based results from technology, consumer, and healthcare. Looking forward to our second quarter, based upon anticipated closings of some larger previously announced transactions and, of course, barring a substantial change in the market or the economy, we expect to see a solid increase in our advisory revenue. In terms of our overall pipelines, they are up double digits compared to where we began the year, and I remain very optimistic for our investment banking business in 2021. And with that, let me now turn the call over to our CFO, Jim Marichan.