Stifel Financial Corp. (SF) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Shareholders of Stifel Financial Corporation. Today's meeting is being recorded. It is now my pleasure to turn today's meeting over to Ron Kruszewski, Chairman and CEO. Mr. Kruszewski, the floor is yours.

Thank you, operator. Good morning, and welcome to Stifel's 2022 Annual Meeting. I will now ask our Corporate Secretary, Mark Fisher, to provide an introduction to the technical details and rules of conduct for today's virtual-only meeting and to provide a quorum report. Mr. Secretary?

Thank you, Ron. Today's virtual-only meeting is a live audio webcast. Shareholders who have already voted and do not want to change their votes do not need to take any further action. If you have not voted or wish to change your vote, you may do so at any time prior to the 10 a.m. Central Time by clicking the Vote link at the upper right of your screen or by visiting www.investorvote.com/sf. If you need a copy of the annual report or the proxy statement, links are provided under the documents tab at the upper right of your screen and at the Investor Relations page at stifel.com. If you have logged in using a control number, you may submit questions online. This function is not available if you've logged in as a guest. Consistent with our bylaws, we have rules of conduct for this meeting in the interest of a fair and orderly meeting. These rules are available under the documents tab at the upper right of your screen. Mr. Chairman, as to quorum, the tellers have submitted a certificate showing that at least 99,898,509 shares or 93.7% of the total outstanding shares of common stock of the company are represented at this meeting. The quorum is present.

Thank you. I call the meeting to order and welcome our shareholders to this annual meeting. Thank you for joining us today. The officers and directors view you as partners, and we value your input. The directors of the -- and officers of our company, in addition to myself, participating in today's meeting are Directors, Adam Berlew, Kathleen Brown, Michael Brown, Maura Markus, David Peacock, Tom Weisel and Michael Zimmerman. Also participating are senior officers; James Zemlyak, Co-President; Mr. Nesi, Co-President; Mark Fisher, General Counsel and Secretary; James Marischen, Chief Financial Officer; and David Sliney, Chief Operating Officer. Joining us today's from Ernst & Young are Dan Tryniski and Bret Ryan. Ernst & Young is being recommended to you as our independent auditing firm for the year ending December 31, 2022. We will now begin the formal business of the meeting. In accordance with the bylaws of the company, I'm acting as Chairman of the meeting, and Mark Fisher is acting as Secretary. I now appoint Jim Lashover and Michael Buckley as tellers to tabulate the votes at this meeting. An affidavit of mailing of the notice of this meeting to all shareholders of record on April 14, 2022, will be filed with the minutes of this meeting. The previous Annual Meeting of Shareholder was held on May 26, 2021. The minutes of that meeting have been made available to you under the document tab at the upper right of your screen. I will deem these minutes acceptive without objection unless a shareholder or proxy objects by e-mail to Stifel Investor Relations at stifel.com on or before June 30, 2022. We will now proceed to the proposal of -- excuse me, proceed to the proposal of directors for election. Our company's Board of Directors has proposed to the company's shareholders that the following individuals be elected at this annual meeting as directors, each to serve as Director of the company for a 1-year term or until a successor has been duly elected and qualified: Adam Berlew, Kathleen Brown, Michael Brown, Robert Grady, Ronald Kruszewski, Daniel Ludeman, Maura Markus, David Peacock, Thomas Weisel and Michael Zimmerman. This proposal, item 1, has been duly submitted to the shareholders for a vote. As reflected in the notice of this meeting, we have 2 additional proposals before you. Item 2 is approval of an advisory resolution on executive compensation, sometimes referred to as say on pay. The Board of Directors has recommended that shareholders approve this item 2. Item 3 is the Board of Directors' proposal that shareholders ratify its selection of Ernst & Young as independent auditors for the fiscal year ending December 31, 2022. Items 2 and 3 have each been duly submitted to our shareholders for a vote. I now recognize the representative of Ernst & Young and invite them to address this meeting. Is there any statements that you wish to make at this time?

Not at this time.

Thank you. Later in the meeting, I will recognize anyone wishing to ask questions of the representatives of Ernst & Young. As already stated, shareholders who have already voted and do not want to change their votes, do not need to take any further action. If you have not voted or wish to change your vote, you may do so at any time prior to 10 a.m. Central Time by clicking on the Vote link in the upper right of your screen or by visiting www.investorvote.com/sf. So before hearing the results of the balloting, I will talk to you about the 2021 year for Stifel. This portion of the annual meeting will be accompanied by visuals. The cover of this year's annual report is simply success. 25 years ago, when I joined Stifel as CEO, we adopted a business plan for success that remain unchanged to this day. The thought process started with our clients. How can we best meet the needs of a diverse and growing set of investors, companies and institutions. The answer was simple, but not easy, attract the best people to work with us. To become the adviser of choice for clients, we needed to be the firm of choice for associates. If we could achieve that, our stock price will take care of itself, and we would naturally be an investment of choice for investors. This simple, self-reinforcing cycle was the foundation of our Of Choice business plan and has remained the core of our philosophy and culture ever since. During our quarter century of commitment to this plan, Stifel has grown from $102 million to $4.7 billion in revenue from $39 million to recently approximately $8 billion in market capitalization. And from January 1, 1997 until February of 2022, our stock price has increased 50-fold compared to the sixfold increase in the S&P 500. Alongside this financial success, however, another kind of payoff has been quietly compounding. As I look across the firm now, it is clear that Stifel has grown into a hub for success-minded people, clients and associates alike. With the next generation of successful entrepreneurs look for a place that reflects their own driving values as a client and associate or an investor, they will feel at home at Stifel. They will recognize us as a network to success. 2021 demonstrated how our 25-year of choice business plan has evolved to the point where we have become a place where success meets success. 2021 was an extraordinary and rewarding year for both Stifel and its shareholders. The company posted revenue of more than $4.7 billion, our 26th consecutive year of record revenue, an increase of 26% over 2020. On a non-GAAP basis, our net earnings were $840 million, a 313% increase since 2016. Diluted earnings per share totaled $7.08 and return on tangible equity was 31%, all records. Reflecting our consistent earnings and growth, we've doubled our annual dividend from $0.60 to $1.20 per share. In calendar 2021, Stifel stock rose 40%, exceeding the S&P price increase of 27%, a clear benefit of our strong financial metrics is the generation of significant cash flow. In 2021, Stifel increased our capital by approximately $1 billion. We remain focused on maximizing risk-adjusted returns while deploying our capital. Yet, as a growth company, we believe that investing in our business to enhance our relevance to clients is essential. In pursuit of this objective in 2021, we grew our loan portfolio by nearly 50%, completed the strategic acquisition of Vining Sparks, repurchased $173 million in common stock and paid common and preferred dividends of approximately $100 million. In addition, given our outlook for 2022, the increased reach and breadth of our business, and our ability to generate significant excess capital after continued and anticipated investments in our franchise, we announced the doubling of our annual common dividend to $1.20 per share from $0.60 per share. Both of our operating segments had stellar years. Global Wealth Management achieved record revenue of $2.6 billion, an increase of 19% over 2020. In 2021, strong adviser recruiting, increased client activity and growth in interest-earning assets yield record results for our Global Wealth Management segment. Our Private Client Group now consists of more than 2,300 financial advisers who serve clients from nearly 400 offices across the country. We had a strong year for financial adviser recruiting, adding 121 advisers with total 12-month trailing production of more than $77 million. In addition, we announced our intent to scale up our presence in the rapidly growing independent segment, rebranding our independent broker-dealer subsidiary as Stifel Independent Advisers. Our Global Wealth Management business continues to benefit from growth and stability of revenue. At the end of 2021, we managed approximately $436 billion in client assets, up 22% from 2020. Our fee-based assets increased 26% from a year ago and transactional revenues increased 13%, reflecting strong client activity during the year. Asset management revenues increased 32% from 2020, reflecting higher asset values and strong fee-based asset flows. Stifel Bancorp ended the year with $25 billion in assets, while maintaining a conservative risk profile, strong mortgage activity, high demand for security-based lending and recent investments into our fund banking capabilities were contributors to the growth of our loan portfolio by 46% to $16.8 billion. This drove a 7% increase in net interest income. Stifel's credit metrics remain solid with nonperforming asset ratio of just 0.07%. This compares very favorably to the overall market and reflects our conservative approach. Our institutional business achieved record revenue of $2.2 billion, up 36% from 2020. We've been following a strategy of growth through recruiting either individual professionals or teams through acquisition for some time now. Our recent success is a direct result of that strategy and have enabled us to continue to recruit talented, successful professionals from many of our competitors, established programs for talented diversity candidates to succeed, and even recruit entire successful firms to combine with us. That virtuous cycle has powered our franchise into a leader in assisting the emerging leading companies in their fields. These investments we've made in people, products and technology, combined with our organic growth of strategic combinations led to record financial results in 2021 for our institutional group. Within the institutional group, investment banking revenues was 66% to a record $1.5 billion in 2021 We were pleased to be named U.S. Middle-Market Equity House of the Year by International Financing Review for the fourth time. And reflecting our growth, our managing director headcount exceeded 200 for the first time. Our advisory practice had an outstanding 2021 with record revenue of $856 million, up 100% from 2020 on higher completed transactions and increased private placement fees. This growth underscores the diversity of our business and the investments we've made across multiple products and verticals. Stifel and Miller Buckfire won The M&A Advisor's Restructuring Deal of the Year, Industrial Deal of the Year, and SPAC deal of the year awards for advising on Faraday Future's restructuring. It's also worth mentioning that our Keefe, Bruyette & Woods subsidiary had advised on 10 of the 15 largest U.S. bank merger since 2020, representing an industry-best 67% market share. With respect to capital raising, our record revenue of $661 million represented an increase of 35% from 2020. Our institutional sales and trading business posted revenue of $616 million. That figure comprised of $255 million in equity revenue and $361 million in fixed income trading revenue. Equity underwriting revenue increased 42% to a record $434 million, driven by higher volumes. Stifel ranked as the fifth most active equity underwriter and 11th most active bookrunner across all equity and equity-linked products. Institutional fixed income net revenue totaled nearly $700 million. Fixed income capital raising revenue was up 25% to $227 million, driven by increases in our public finance and corporate debt issuance businesses. Stifel became the first firm to ever underwrite 1,000 negotiated municipal bond sales in a single year, and our Public Finance Group was the nation's leading municipal bond underwriter for the 12th consecutive year. Among our achievements in 2021, Stifel vaulted into the top 5 of Institutional Investor's All-America Fixed Income Research Team. On the equity side, we completed the transformation of our electronic equities offering, which now includes a proprietary alternative trading system and a full suite of algorithms. We also remain one of the largest providers of research coverage in North America and Europe. It is worth noting that we achieved these results by navigating the twists and turns of the ongoing pandemic, which is a tribute to the entire organization, require the flexibility and creativity of every associate to continue to serve our clients in this environment, and I thank them for their efforts. Such outstanding financial results year-over-year are only possible thanks to Stifel's culture of success. In this annual report, we trace that culture across the entire firm and show how it is woven into our strategic plan. We told stories of success. We looked at the way Stifel people recognizes success, combines with success, share success, and supports and cultivate the success of the future. As always, it starts with our clients. Client service is the most visible and most critical expression of our vision to be the firm "where success meets success". The reason is simple, even the most routine interaction as an opportunity to treat people with respect. They show we believe in their potential for success. As we look to build on our traditional service in 2022 and beyond, the goal is to use technology to improve those connections without getting in the way. We aim to instill a culture of, yes, we can, in our service associates and back them up with the tools to make them confident in that statement. This year, our service teams are working on initiatives based on analysis of client journey maps as well as loyalty and service metrics. However, we will always depend on the human touch: a friendly voice answering the phone as opposed to a bot or a marketing funnel. All our innovations and client service will uphold its fundamental commitments. Stifel's can-do attitude has always been anchored by a culture of ownership. Simply put, we think that owners will take better care of their assets, which make them better stewards of capital as well. We also believe that fostering an ownership mindset has been an essential part of our more than 2 decades of growth and success. Historically, about 30% of the firm's fully diluted shares outstanding have been owned by approximately half of the firm's associates. Since 1997, I have had the goal of broadening that inside ownership. Recently, we took a bold step toward achieving this goal by awarding approximately 4,200 associates with a one-time restricted stock grant of $5,000 per individual. Going forward, qualifying new associates will be eligible for a similar award. With the implementation of this program, in combination with existing owner associate ownership, substantially all Stifel associates will achieve equity ownership of the company, yet another example of Stifel's one firm culture where everyone is empowered to think and care about the company like an owner. In the spirit of being a firm, where success meets success, Stifel partners with innovative technology providers who can deliver best-of-breed capabilities to our clients and associates. Working alongside the best minds in each domain, our expert teams co-develop the technology required to improve and evolve the Stifel platforms. Examples include the innovative work we did with NASDAQ Market Technology to develop world-class electronic trading capabilities and our partnership with an industry disruptor, Addepar, to deliver family office reporting capabilities to all our financial advisers. 2022 will be a continuation of these efforts. This year will mark a significant milestone in our work with Salesforce to reimagine our Global Wealth and Institutional technologies, reaching almost 6,800 professionals. Our Wealth Tracker platform will continue evolving with more client-initiated features and organizational capabilities. And behind the scenes, we will continue to expand our cloud-based capabilities to enhance our infrastructure, security and data. At Stifel, we recognize the impact our firm has had on the clients we serve, our associates and the communities in which we live and work. As such, we continue to integrate environmental, social and governance, ESG, considerations into our business practices. To us, it's not just good for business, it's the right thing to do. We are committed to acting and increasing our transparency on issues such as diversity and inclusion, ethics and integrity, risk management and sustainable finance. And we work to keep Stifel a safe and welcoming workplace for our associates, one in which we can strive to truly understand each other's needs and our best path to building impactful relationships with both our colleagues and our clients. I'm proud of the significant strides we've made in our ESG initiatives in the past few years, and I invite our shareholders to learn more about them by reading our inaugural environmental, social and governance report, which is available at stifel.com. So, look, 2021 was a great year, and we do not expect 2022 to resemble 2021, especially considering the war in Ukraine and the increase of inflation, the latter of which requires a tightening of monetary policy and reduction of fiscal stimulus. With respect to inflation, its emergence, simply, reflects too much money, created through the combination of vast federal spending and easy monetary policy, chasing too few goods. U.S. economist Milton Friedman succinctly observed inflation can only be produced by a more rapid increase in the quantity of money than in output. With respect to the current war in Ukraine, above all, it's a humanitarian tragedy, and our thoughts are with the people of Ukraine. Regardless of a diplomatic solution, it is hard to imagine that these events do not impact the world orders, the global economy, free trade and the position of the U.S. dollar in that hierarchy. Taken together, these factors introduced significant uncertainty and as a result, more inherent risks. That said, as Stifel have demonstrated for over 25 years, we are a company that is both well positioned and capable of adapting to changing environment. The balance of our business model, augmented by acquisitions, creates continued opportunities for growth and gives us confidence in our ability to generate strong results. And I would note that markets like this also underscore the value of advice and that is what Stifel provides to our clients. So as always, we sincerely thank our shareholders and clients for their support as well as our approximately over 9,000 associates for their commitment to excellence and success. So back to our voting results. I now ask the secretary to read any questions that have been asked of me or the representatives of Ernst & Young. Mr. Fisher?

Mr. Chairman, there were no questions properly before the meeting and any questions received will be responded to directly.

Thank you, Mark. I now ask the Secretary to report on balloting and to state whether any other business is properly before this meeting.

Mr. Chairman, each of the following has received the majority of votes cast to serve as a director of the company for a 1-year term or until a successor has been duly elected and qualified. Adam Berlew, Kathleen Graham, Michael Brown, Robert Grady, Ronald Kruszewski, Daniel Ludeman, Maura Markus, David Peacock, Thomas Weisel and Michael Zimmerman. The proposal contained in item 2, which approves the advisory resolution on executive compensation, sometimes referred to as say on pay, has received the majority of votes cast and has been approved. The proposal contained in item 3, the resolution ratifying the appointment of E&Y as our independent registered public accounting firm for the year ending December 31, 2022, has received the majority of the votes cast and has been approved. Mr. Chairman, I'm aware of no other business properly before this meeting nor any reason why this meeting may not now be duly adjourned.

That so, I declare the meeting adjourned. Thank you, everyone, and good day.

This concludes the meeting. You may now disconnect.