Stifel Financial Corporation

Welcome to the Stiefel Financial Fourth Quarter Financial Results Conference Call. As a reminder, today's call is being recorded. At this time, I'd like to turn the call over to Mr. Joel Jeffrey, Head of Investor Relations at Stiefel Financial. Please go ahead.

Thank you, Operator. I'd like to welcome everyone to Stiefel Financial's Fourth Quarter and Full Year 2023 Conference Call. I'm joined on the call today by our Chairman and CEO, Ron Kruszewski. 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 disclosures 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 by Stiefel Financial 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 Krzyzewski.

Thanks, Joel. To our guests, good morning, and thank you for taking the time to listen to our fourth quarter and full year 2023 conference call. Let's begin by discussing our year in 2023, whereby Stiefel generated strong results in an operating environment that was less than ideal. The benefits of our diversified business model enabled us to successfully navigate market conditions that included increased geopolitical risks, tightening of financial conditions, primarily due to significant increases in short-term rates and quantitative tightening by the Federal Reserve, both implemented to corral inflation. and the failure of three major banks in the United States. Led by record results in global wealth management, which produced its 21st consecutive year of record net revenue, driven by record asset management revenue and net interest income, Stifel overall generated net revenue of approximately $4.4 billion. This was essentially in line with 2022, despite a significant industry-wide slowdown in investment banking activity. As we'll discuss later, these results are directly correlated to our consistent reinvestment in our business, our focus on servicing our clients, as well as our strategy of deploying our substantial excess capital in ways that generate strong risk-adjusted returns. Taken together, we generated operating pre-tax margins and returns on tangible common equity of approximately 19%, excluding the impact of the non-recurring legal charge in the third quarter. With respect to capital deployment, we typically deploy the excess capital we generate each year, and 2023 was no different. Last year, we generated 630 million of excess capital and deployed it as follows. The repurchase of 7.2 million shares, totaling approximately 440 million, 211 million in common and preferred dividends, and a modest amount of balance sheet and acquisition activities. Underscoring our confidence in improving market conditions, I'm happy to announce that our board has authorized a 17% increase in our annual dividend on common shares from $1.44 to $1.68 per share. On slide two, we look back at the growth of our business since 2015 and 2019. Despite constantly changing market conditions, the investments we've made in our business results in substantial growth. Net interest income is up more than 760% since 2015 as a strategy to grow our balance sheet enables Stiefel to capitalize on the increase in short-term interest rates over the past two years. Importantly, we've achieved this growth without taking excessive interest or credit risk. Additionally, the investments we've made in recruiting on both the wealth management and institutional segments have led both segments to more than double revenue over the past eight years. The operating leverage from these investments resulted in earnings per share increasing 270% over this timeframe. The comparison of 2023 to 2019 is also important as it illustrates the benefits we've seen from recent acquisitions, recruiting, and balance sheet growth. Total revenue is up 30% in the past four years as wealth management growth of 40% more than offset relatively flat institutional revenue. What should not be lost here is the potential upside we see in our institutional business. Specifically, the average number of investment banking managers and directors has increased by 33% since 2019, but our advisory revenue was relatively flat due to the market conditions. If our production per MD returns to historical levels, we would experience substantial growth for both our top and bottom lines. Looking at our quarterly results, we had a strong rebound from the third quarter. Net revenue of nearly $1.15 billion was our third highest quarterly revenue as a combination of a pickup in institutional revenue and continued strong wealth management revenue drove this improvement. Given the flexibility of our operating model, we were able to maintain our compensation ratio at 58% and generate $1.50 of EPS. which was a 27% sequential quarterly increase in operating EPS, which excludes a significant one-time legal reserve taken in the third quarter. Moving on to slide four, we look at the variance table to consensus estimates. Total net revenue beat the street by 60 million as each of our primary revenue lines surpassed expectations. Transactional revenue came in 30 million above the street on stronger fixed income revenue as our rates business has begun to rebound from the weakness tied to bank failures, higher rates, and an inverted yield curve. Investment banking came in 21 million above expectations, driven by higher advisory and fixed income capital markets, primarily public finance. Total expenses were higher than forecast, but much of that was reflected in compensation expense due to higher revenue in the quarter, as the comp ratio remained consistent at 58%. and was in line with street consensus. Non-comp expenses were $10 million higher than expectations as a result of higher occupancy costs and higher legal expenses that was partially offset by a lower loan loss provision. Before I turn the call over to Jim to go through our quarterly results, I wanted to talk about our wealth management business. While much of the discussion of our near-term upside is focused on our institutional business, I want to emphasize that our global wealth segment has been the long-term growth engine of our firm and is a cornerstone of default success. As stated previously, our wealth management segment has posted 21 consecutive years of record revenue, as our focus on recruiting, serving our clients, respecting the entrepreneurial spirit of our advisors, and growing client assets has been fundamental to our success. Slide 8 illustrates these points. Since 2014, global wealth management revenue has increased 150%, while the percentage of recurring revenue has increased from 44% to 78%. Again, this level of growth has been the result of our strategy to recruit high-quality advisors and provide them with extraordinary level of service. In this effort, we have continually invested in resources, support, and technology to reduce bureaucracy and enable our advisors to thrive. Our recruiting efforts have been one of the key elements of our growth efforts. Since the end of 2018, we've added more than 700 financial advisors with cumulative trailing 12 production of approximately 435 million. We continue to see increased momentum in our recruiting efforts as the number of advisors we added to our platform increased by nearly 30% in 23 as compared to 2022. So while we see significant upside in revenue and margins, As our institutional segment gets back to historical norms, our long-term growth and success has been and continues to be driven by our wealth management franchise. With that, let me turn the call over to Jim Marish to discuss our most recent quarter results.