Stifel Financial Corporation

Good day and thank you for standing by. Welcome to the steeple third quarter 2021 earnings conference call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one in your telephone. Please be advised that today's call is being recorded. If you require any further assistance, please press star zero. I would now like to turn the call over to Mr. Joel Jeffrey, head of investor relations. Please go ahead.

Thank you, Operator. I'd like to welcome everyone to Stiefel Financial's third 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 Marishen. Earlier this morning, we issued an earnings release and posted a slide deck and financial supplement 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 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 our slide presentation for information on forward-looking statements and 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.

Thanks, Joel. To our guests, good morning, and thank you for taking the time to listen to our third quarter 2021 results. I'll start the call with some highlights from our quarter and first nine months. Then Jim Marichan will review our balance sheet and expenses, and I'll wrap up with some concluding thoughts. Our third quarter represented our second highest net revenue and earnings per share as both operating segments, global wealth and institutional generated strong results. As I've said before, our success is driven by the continued reinvestment in our business, and based on our investment banking and recruiting pipelines, organic bank growth, and expertise in acquisitions, Steeple remains well-positioned to continue and build upon our decades-long growth. Revenue in the quarter totaled nearly $1.15 billion, an increase of 30%. While certainly pleased with our quarterly revenues, It is noteworthy that we achieved this despite the fact that several large advisory assignments, which we had forecast to close in the third quarter, have slipped into the fourth quarter. For the nine-month period, we generated record revenue of more than $3.4 billion, up 28% of the comparable period in 2020. The growth in revenue and lower expense ratios resulted in non-GAAP EPS of $1.65, which is up 56% year-on-year. and $4.85 here today, which is up 68%. The strength of our results were driven by a combination of revenue growth and expense discipline, resulting in pre-tax margins of nearly 24%. In addition, reflecting our focus on returns to investor capital, we earned nearly 28% annualized return on tangible common equity. Tangible book value per share also increased 27% in the last year. Turning to the next slide, our third quarter net revenue was driven by record global wealth management revenue and robust institutional revenue. As we forecasted, compensation as a percentage of net revenue declined sequentially to 58.2%. Our operating expense ratio was 17.9%, and excluding credit provision and investment banking growth subs, totaled 16.9%, which was within the guidance range we gave on last quarter's call. Taken together, Stifel's quarterly pre-tax income totaled $274 million, which increased 60% from the third quarter of 2020. As I said on last quarter's call, Stifel is and will continue to be a growth company, and our results in the third quarter and year-to-date illustrate our impressive long-term growth trajectories. Our disciplined approach to capital deployment and acquisitions has resulted in a diversified business model that has not only made us more relevant to our clients, but also enabled us to grow during good and bad market environments. Last quarter, we updated our full year 2021 revenue guidance to be in a range of $4.5 to $4.7 billion. Our annualized nine-month revenue is essentially in the middle of our guidance and would represent our 26th consecutive year of record net revenue, and up over 20% from last year. Our performance in 2021, and quite frankly, over the past six years, has been a testament to our focus on consistently reinvesting in our business and our people. We've built a diversified business comprised of highly talented people that has enabled our firm to generate consistent growth regardless of the operating environment. which is something I believe gets overlooked by analysts and investors. We take a disciplined approach to capital deployment by focusing on where we can generate the best risk-adjusted returns. Since the end of 2015, this approach has enabled us to consistently grow our assets from $13 billion to over $30 billion, execute and integrate 11 acquisitions, add nearly 700 financial advisors, initiate and consistently grow our dividend, and repurchase approximately 20 million shares. We accomplished all of this while improving our pre-tax margins over that time period from 10% to nearly 24%, and through the first nine months of 2021, generated an annualized return on tangible equity of nearly 30%. I would note these results are against a backdrop of a zero-rate environment, and Stiefel is very well positioned from a net interest income and margin perspective for an increase in interest rates. Speaking of good acquisitions, I am pleased to welcome our new partners from Binding Sparks. We expect this transaction to close at the end of October, and I'm excited about the strategic fit of this business. As shown on this slide, we are adding a highly complementary business to our already strong fixed income franchise. Binding Sparks focuses on providing institutional fixed income brokerage balance sheet management, portfolio accounting, and underwriting services to depository institutions. Our analysis indicates that 70% of ViningSparks revenue is generated from depositories with less than $2 billion in assets, while nearly 75% of Steeples' depository revenue comes from clients with greater than $2 billion in assets. As such, we believe that the combination of our two firms is not only highly complementary, but cements Stiefel's position as the leading investment bank for depository institutions in the United States. Looking another way at the complementary profile of this combination, there exists only a 5% revenue overlap within end clients of the combined client base. We also believe there exists solid synergy opportunities in debt offerings and M&A through KBW and correspondent banking through Stiefel Bank. Moving on to our operating segments and starting with global wealth management. Again, we posted record quarterly and year-to-date revenue. Third quarter revenue totaled $656 million, up 24% year-on-year, and year-to-date revenue was approximately $1.9 billion, an increase of 19%. This growth was driven by recruiting, increased client activity, and growth in interest-earning assets. The continued growth in our asset management revenue in the third quarter was buoyed by higher market valuations and increased client assets in the second quarter as the majority of our fee-based assets go in advance. Despite muted growth in equity valuations during the third quarter, as measured by the S&P 500, we finished the quarter with record client assets of $407 billion and fee-based assets of approximately $150 billion. I am pleased with both our loan growth and improvement in both net interest income, which increased 21% over last year, and a 10 basis point sequential improvement in our net interest margin. Jim will provide a little more color later in this presentation. The next slide highlights the strength of our recruiting and growth drivers of our platform. For the quarter, we added 46 advisors, including 41 experienced advisors, with total trailing 12-month production of $35 million. Our recruiting pipelines remain very robust, and furthermore, I expect that our independent channel will begin to add to our recruiting success as that advisor channel is gaining traction and momentum. Moving on to our institutional group, we posted our second highest revenue quarter as we continue to benefit from increased activity levels and the scale of our business. Our quarterly net revenue totaled $492 million, which was up 36% from the prior year. Nine-month revenue increased 39% to over $1.5 billion. Record quarterly advisory revenues of $208 million were up nearly 160%, while capital raising posted revenue of $153 million, up 18%. As expected, trading revenue declined to $124 million, while year-to-date trading declined 10% to $455 million. Our institutional pre-tax margin for the quarter was 25.4%, which was our second highest, trailing only the second quarter of this year. For the first nine months, pre-tax margin was 25.3%, and was up nearly 700 basis points as we continue to generate substantial top-line growth, which drives operating leverage. Looking at the revenue components of the institutional group, our equities business posted record nine-month results of $533 million, up 37%. while our third quarter revenue totaled $142 million of 7% year-on-year. Our fixed income business posted year-to-date revenue of $428 million and quarterly revenue of $135 million. Our quarterly fixed income business reflected strength in capital raising offset by a decline in trading revenue. I'll focus on the trading businesses of these segments and discuss capital raising on the next slide regarding investment banking. With respect to our trading businesses, quarterly equity revenue totaled $48 million, down 21% sequentially. As I stated earlier, this was the result of lower market activity level as volumes on the NYSE and NASDAQ declined 8% sequentially. Additionally, we incurred mark-to-market losses attributed to warrants associated with certain investment banking transactions versus gains in the prior quarter. For the first nine months, Equity trading revenue was $189 million, up 1% from 2020. Fixed income trading revenue of $76 million was down 17% sequentially as we saw lower activity levels in agencies, corporates, and munis as overall market activity declined a similar amount. On slide 9, investment banking quarterly revenue increased 71% to $372 million. which was just $5 million short of what would have amounted to our fourth consecutive quarterly record. Year-to-date, investment banking revenue totals nearly $1.1 billion, up 77% as both advisory and capital raising are having record years. The $208 million of advisory revenue was our second consecutive record quarter, driven primarily by the strength of our U.S. business, notably financials, diversified services, and technology. While essentially all of our major protocols generated strong results, we also saw sequential gains in healthcare, industrials, and in the fund placement business from Eaton Partners. With our pipelines at record levels and barring a substantial change in the market or the economy, we expect another strong advisory quarter for the fourth quarter of 2021. Moving on to capital raising, our equity underwriting business posted revenue of $104 million, up 22%. We saw a balance in this business with contributions from healthcare, technology, financials, and industrials. Our fixed income underwriting business posted its second consecutive record quarter with $61 million in revenue, up 6% sequentially. Our municipal finance business posted another great quarter as we lead managed 257 municipal issues. For the first nine months, our market share in terms of number of transactions increased year-on-year by 140 basis points to 12.7% market share. In addition to the strength of our public finance business, we continue to see strong contributions for our debt capital markets business as we completed a record number of deals in the quarter. While activity levels and equity capital raising has slowed from the robust levels earlier this year, overall activity remains solid and with strong pipelines in our fixed income underwriting business, I expect another strong quarter for the fourth quarter. And with that, let me turn the call over to our CFO, Jim Marison.