Stifel Financial Corp. (NYSE:SF) Q3 2018 Earnings Conference Call Transcript

Oct 30, 2018 • 05:00 pm ET

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Stifel Financial Corp. (NYSE:SF) Q3 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

I would like to welcome everyone to the Stifel Financial's Third Quarter 2018 Financial Results Conference Call.

(Forward-Looking Cautionary Statements)

I would also like to direct you to read the forward-looking disclaimers and Stifel's quarterly earnings release, particularly as it relates to the firm's ability to successfully integrate acquired companies or the branch offices and financial advisers, changes in the interest rate environment, changes in legislation and regulation.

You should also read the information on the calculation of non-GAAP financial measures that's posted on the Investor Relations portion of the firm's website at www.stifel.com. This audio cast is copyrighted material of Stifel Financial Corporation and may not be duplicated, reproduced or rebroadcast without the consent of Stifel Financial Corporation.

I will now turn the call over to Stifel's Chairman and CEO, Ron Kruszewski. Sir, you may begin.

Executive
Ronald Kruszewski

Thank you, operator. Good afternoon to everyone, and thank you for taking the time to listen to our third quarter 2018 results. Today we issued a press release with our results and posted a slide deck on our website.

Joining me on the call today is our Co-President, Jim Zemlyak, and our newly appointed CFO, Jim Marischen. I'm going to run through our quarterly and year-to-date highlights, our guidance for the fourth quarter and 2019, then our business segments. Jim will take you through our revenue expense lines as well as our balance sheet, and then I'll come back with my concluding thoughts.

The third quarter was very solid with record wealth management revenue, driven by record asset management, and net interest income more than offsetting a modest decline in our institutional business, caused primarily by industry-wide weakness in sales and trading revenue. Investment banking revenues increased 5% sequentially with strong capital mark -- capital raising, offsetting a decline in advisory fees. Overall third quarter revenue totaled $738 million. I'm pleased with our expense management, which drove non-GAAP pre-tax margins of 20.6%, up nearly 400 basis points year over -- over the prior year. As a result, non-GAAP earnings per share were $1.35, up 52% over 2017. Quarterly non-GAAP return on equity, and return on tangible common equity totaled 15.5% and 25.2% respectively.

I'm also pleased with the addition of 31 net new advisors during the quarter, which was our best quarterly recruiting total in roughly 10 years, excluding acquisition. We continue to see growth advisor additions translate into strong net additions of the number of -- as the growth number advisors added in the third quarter exceeded those in the second quarter, and displace (ph) the number of retirements and non-regrettable departures declined from the previous quarter. While recruiting levels can vary from quarter-to-quarter, we are building momentum as we continue to see elevated levels of on-site visits by recruits, and we are succeeding and turning an increasing number of them into Stifel advisors.

Finally, as we indicated on our last call, we continue to repurchase shares. Since the end of the second quarter, we have repurchased approximately 1.2 million shares at an