Good morning and welcome to Raymond James Financial’s Third Quarter Fiscal 2022 earnings call. This call is being recorded and will be available for replay on the company’s Investor Relations website. Now, I will turn it over to Kristie Waugh, Senior Vice President of Investor Relations at Raymond James Financial.

Good morning, everyone. And thank you for joining us. We appreciate your time and interest in Raymond James Financial. With us on the call today are Paul Reilly, Chair and Chief Executive Officer, and Paul Shoukry, Chief Financial Officer. The presentation being reviewed this morning is available on Raymond James Investor Relations website. Following the prepared remarks, the operator will open the line for questions. Calling your attention to slide two. Please note certain statements made during this call may constitute forward-looking statements. These statements include but are not limited to information concerning future strategic objectives, business prospects, financial results, anticipated timing and benefits of our acquisition, our level of success integrating acquired businesses, divestitures, anticipated results of litigation and regulatory developments, impacts of the COVID-19 pandemic or general economic conditions. In addition, words such as may, will, should, could, plans, intends, anticipates, expects, or believes or negatives of such terms or other comparable terminology, as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements. Please note that there can be no assurance that actual results will not differ materially from those expressed in the forward-looking statements. We urge you to consider the risks described in our most recent Form 10-K and subsequent Forms 10-Q and Forms 8-K, which are available on our Investor Relations website. During today’s call, we will also use certain non-GAAP financial measures to provide information pertinent to our management’s view of ongoing business performance. A reconciliation of these non-GAAP measures to the most comparable GAAP measures may be found in the schedules accompanying our press release and presentation. Now, I’m happy to turn the call over to Chair and CEO, Paul Reilly. Paul?

Good morning. And thank you for joining us today. I know with our recent acquisitions, the numbers are a little more complicated, but I am pleased with our results for the fiscal third quarter and the first nine months of the fiscal year. Despite challenging market conditions we have continued to invest in our business, our people, and technology to help drive growth across all of our businesses. In the private client group, excellent retention and recruiting of financial advisors contributed to industry-leading growth with domestic net new assets of 9.4% over the trailing 12-month period. In the capital markets business, while investment banking revenues were negatively impacted by continued market volatility during the quarter, we continue to see strong pipelines. As the expertise we have added both organically and through niche acquisitions has performed very well. In fixed income, we completed the acquisition of SumRidge Partners just after the quarter on July 1, which will enhance our platform with technology-driven capabilities and a fantastic team with extensive experience in dealing with corporate. In June, we completed the acquisition of Tristate Capital Holdings, including Tristate Capital Bank and Chartwell Investment Partners, adding $11.8 billion of loans and $9.4 billion in financial assets under management. In addition to Tristate’s contribution to our loan portfolio, Raymond James Bank grew loans at an impressive 8% during the quarter, reflecting attractive growth across almost all loan categories. So as we always do in any market cycle, we continue to invest for the long term, always putting the client first. While the decrease in fee-based assets from the equity market declines during the quarter will negatively impact asset management and related administrative fees in the fourth quarter, we are well-positioned for increases in short-term rates, given our attractive growth of earning assets, the majority of which float with the short end of the curve. Furthermore, we have maintained a flexible balance sheet with solid capital ratios well in excess of regulatory requirements. Turning to the results on slide four, I fully appreciate there were a lot of moving parts this quarter, which Paul Shoukry will explain in more detail. In the fiscal third quarter, the firm reported net revenues of $2.72 billion and net income available to common shareholders of $299 million, or earnings per diluted share of $1.38. Year-over-year and sequential revenue growth reflects primarily the benefit of higher short-term interest rates on both RJBDP fees from third-party banks and net interest income, which more than offset the declines in total brokerage revenues and investment banking revenues resulting from the challenging market environment. The decline in net income available to common shareholders was primarily attributable to increased business development expenses and a higher bank loan provision for credit losses during the current quarter, which reflects the strong growth at Raymond James Bank, a weaker macroeconomic outlook, and the $26 million initial provision for the credit losses on loans acquired from Tristate Capital Bank, as Paul will discuss in more detail. Excluding $65 million of expenses related to acquisitions, quarterly adjusted income available to common shareholders was $348 million, or $1.61 per diluted share. Annualized return on equity for the quarter was 13.3% and adjusted annualized return on tangible common equity was 18.1%, impressive results especially given the challenging market environment and our strong capital position. Moving to slide five, sharp equity market declines in the quarter, including a 16% sequential decline in the S&P 500 index, negatively impacted client asset levels. We ended the quarter with total client assets under administration of $1.13 trillion and PCG assets and fee-based accounts of $607 billion. Financial assets under management of $182 billion, which includes Chartwell Investment Partners, decreased 6% sequentially as a decline in equity markets more than offset net inflows and the acquired assets during the quarter. We ended the quarter with 8,616 financial advisors, a net increase of 203 over the prior year period, and a decrease of 114 compared to the preceding quarter. Results this quarter reflect the transfer of 188 advisors, primarily from one firm to our RIA and custody services division during the quarter. While transfers to RCS impact the advisor count, the client assets typically remain in custody at the firm. Excluding these transfers, the number of financial advisors increased by 74 from the preceding quarter, reflecting our continued low attrition and strong recruiting. Our focus on supporting advisors and their clients, especially during volatile markets, has led to strong results in terms of advisor retention as well as our recruiting of experienced advisors to the Raymond James platforms through our multiple affiliation options. Over the trailing 12-month period ending June 30, 2022, we recruited to our domestic and independent contracting and employee channels financial advisors with approximately $300 million of trailing 12 production and approximately $47 billion of client assets at their previous firms. Highlighting our industry-leading growth, we generated domestic PCG net new assets of nearly $98 billion over the four quarters ending June 30, 2022, representing 9.4% of domestic PCG assets at the beginning of the period. Third quarter domestic PCG net new asset growth was 5.4% annualized, a strong result given the impact of planned tax payments in the quarter. Bank loan growth continues to be strong. Raymond James Bank generated impressive loan growth of 26% year-over-year, and 8% sequentially to a record $30.1 billion. Additionally, Tristate Capital Bank bought over $11.8 billion of loans this quarter, which represents a record for them as they have continued to generate very attractive loan growth across their portfolios. Moving on to segment results on slide six, the private client group generated record results with quarterly net revenues of $1.96 billion and pre-tax income of $251 million. While asset-based revenues declined, the segment results were lifted by the benefit from higher short-term interest rates. The capital market segment generated quarterly net revenues of $383 million and pre-tax income of $61 million. Capital markets revenues declined 14% over the prior year period, and 7% sequentially, mostly driven by lower fixed income brokerage revenues and equity underwriting revenues due to the volatile and uncertain markets. The asset management segment generated net revenues of $228 million and pre-tax income of $93 million. The sequential decline in revenues and pre-tax income in the asset management segment was primarily attributable to the negative impact on financial assets under management from the decline in equity markets. The bank segment, which now includes Raymond James Bank and Tristate Capital Bank, generated quarterly net revenues of $276 million, which is a record result and pre-tax income of $74 million. Remember, we closed on Tristate Capital on June 1, so this quarter only reflects one month of their results. Net revenue growth was mainly due to higher loan balances and significant expansion of the bank’s net interest margin to 2.41% for the quarter, up 40 basis points on the preceding quarter. Despite revenue growth, the bank’s segment pre-tax income declined primarily due to the higher bank loan loss provision in the quarter. Looking at the fiscal year-to-date on slide 7, we generated record net revenues of $8.17 billion during the first nine months of fiscal 2022, up 16% over the same period a year ago. Record earnings per diluted share of $4.99 increased 8% compared to the first nine months of fiscal 2021. Additionally, we generated strong annualized return on common equity of 16.3% and annualized adjusted return on tangible common equity of 20.1% for the nine-month period. Moving to the fiscal year-to-date segment results on slide eight. All four core operating segments generated record net revenues, and the private client group, capital markets, and asset management segments generated record pre-tax income during the first nine months of the fiscal year, again reinforcing the value of our diverse and complementary businesses. And now for a more detailed view of the third quarter and year-to-date results, I will turn the call over to Paul Shoukry. Paul?

Thank you, Paul. Starting with consolidated revenues on slide 10. Quarterly net revenues of $2.72 billion grew 10% year-over-year and 2% sequentially as management fees grew 13% over the prior year's fiscal third quarter and declined 3% compared to the preceding quarter in line with the guidance we provided on last quarter’s call. As a result of the steep declines in the equity markets during the quarter, private client group assets and fee-based accounts ended the fiscal third quarter down 11% compared to March 2022, creating a significant headwind for asset management revenues in the fiscal fourth quarter. Brokerage revenues of $513 million declined 7% compared to the prior year's fiscal third quarter and 9% compared to the preceding quarter. The decline in brokerage revenues was largely due to lower asset-based trail revenues in the private client group, as well as a decrease in brokerage revenues in the capital market segment. I know some other financial services firms posted year-over-year increases in institutional fixed income brokerage revenues. But remember, we intentionally do not have a meaningful presence in a much more volatile interest rate commodities and currency trading businesses, which benefited many of those larger firms this quarter. I'll discuss accounting service fees and net interest income shortly. Investment banking revenues of $223 million declined 5% compared to the preceding quarter. While our pipelines are strong, there's a lot of uncertainty given the heightened market volatility. Given the market environment, we are really pleased with the investment banking results this quarter. Our best guess right now is that we could achieve a similar result in the fiscal fourth quarter if the markets remained relatively resilient over the next couple of months. Moving to slide 11, clients' domestic cash sweep balances ended the quarter at $75.8 billion, down 1% compared to the preceding quarter and representing 7.8% of domestic PCG client assets. As of this week, these balances have declined to approximately $73 billion, reflecting the quarterly fee payments, which were paid in July, and comprise roughly half of the decline this month, as well as some continued cash sorting activity during the month. Turning to slide 12. Combined net interest income and RJBDP fees from third-party banks was $370 million, up an astounding 102% over the prior year’s fiscal third quarter and 65% from the preceding quarter. This revenue growth is largely a result of higher loan balances in the bank segment as well as higher short-term interest rates, which really reinforces our long-standing approach of taking limited duration risk with a high concentration of floating-rate assets. You can see on the bottom left portion of the slide, the bank segment's net interest margin increased substantially by 40 basis points sequentially to 2.41% for the quarter. The average yield and RJBDP balances with third-party banks increased by 88 basis points in the quarter. Both the name and the average yield from third-party banks are expected to increase further from the recent and anticipated rate increases. For the fiscal fourth quarter, factoring in the rate increase this week and some assumptions around deposit beta and other variables, we would expect the average yield on RJBDP from third-party banks for the fiscal fourth quarter to average around 1.7%. As for the bank segment's NIM, we expect it to average around 2.7% for the fiscal fourth quarter, which would reflect around two months of this week’s interest rate increase and a full quarter of Tristate Capital’s contribution. But these projections will obviously be impacted by the actual deposit beta we experience. We will continue to put clients first and focus on staying on the more generous end of the spectrum for our clients. So far, our cumulative deposit beta since the Fed started increasing rates in March has been around 20%. But that has accelerated with each subsequent increase to about 30% with the June increase. We expect the deposit beta to continue increasing with each incremental rate increase. Moving to consolidated expenses on slide 13. Let me point out a significant change we made this quarter to our presentation of expenses. Namely, we eliminated the acquisition-related expense line item and now include all the expenses in their respective line items. At the same time, we are now capturing more acquisition-related expenses in our non-GAAP adjustments including items such as amortization of acquired identified intangible assets, acquisition-related retention, and a bank loan provision item I will discuss in more detail shortly. For example, this quarter $65 million of expenses related to acquisitions are included in the non-GAAP adjustments. As detailed on the reconciliation table on slide 21, which provides the amount of associated expense per line item as well as a five-quarter history. We hope these refinements, which I know have been very common across many of our peers, are responsive to many of your requests and help you gain a better understanding of our operating results. And as always, we will emphasize our GAAP results alongside any adjusted results we disclose. So turning to our largest expense, compensation. The total compensation ratio for the quarter was 67.5%, which decreased from 69.3% in the preceding quarter. We also introduced an adjusted total compensation ratio this quarter, which adjusts for acquisition-related retention and compensation as outlined on slide 23. The adjusted compensation ratio was 66.8% during the quarter. The sequential decline in the compensation ratio largely reflects the benefit from higher net interest income and RJBDP fees from third-party banks. Non-compensation expenses of $469 million, which includes $47 million of acquisition-related expenses included in our non-GAAP earnings adjustments, increased 21% sequentially. Business development expenses increased $58 million, reflecting the advisor recognition events, and conferences, as well as increased pent-up travel during the quarter. To put this in perspective, prior to COVID, the fiscal third quarter was typically the high watermark for this line item, and in the fiscal third quarters of both 2018 and 2019, this line item totaled $57 million. Since then, our business and revenues have grown substantially, including through several acquisitions. The bank loan provision for credit losses increased considerably to $56 million. A big portion of this increase was a $26 million initial provision associated with the Tristate Capital acquisition, where purchase accounting requires us to establish an initial allowance for loan losses associated with the acquired loans as the pre-closing allowance does not transfer over. To help you with comparability to prior periods, we did adjust for this portion of the bank loan provision in our non-GAAP results. The remaining portion of the bank loan provision during the quarter, around $30 million, was primarily associated with an 8% sequential loan growth at Raymond James Bank and a weaker macroeconomic outlook. Other expenses increased to $85 million for the quarter. The majority of the sequential increase was attributable to increased expenses associated with acquisitions during the quarter, which are included in the non-GAAP adjustments. There has been a lot of noise over the past couple of quarters with the Charles Stanley and Tristate Capital acquisitions. The main takeaway on expenses is we remain focused on the disciplined management of all compensation and non-compensation related expenses while still investing heavily in growth and ensuring high service levels for advisors and their clients. Slide 14 shows pre-tax margin trends over the past five quarters. In the fiscal third quarter, we generated a pre-tax margin of 15.3% and then adjusted pre-tax margin of 17.7%. While the market environment has certainly become more challenging since our analysts and investment day in May, we still believe the 19% to 20% pre-tax margin target we laid out is appropriate, given the significant benefits of higher short-term interest rates, assuming the market stays relatively resilient at current levels. On slide 15, at the end of the quarter, total assets were at $86.1 billion, an 18% sequential increase, reflecting the addition of Tristate Capital, as well as solid growth of loans at Raymond James Bank. Liquidity and capital remain very strong. RJF corporate cash at the end of the quarter was at $2 billion, well above the $1.2 billion target. The tier one leverage ratio of 10.8% and the total capital ratio of 21.4% are both more than double the regulatory requirements to be well-capitalized, providing significant flexibility to continue being opportunistic and invest in growth. I would note that the tier one leverage ratio includes just one month of Tristate Capital assets and doesn't yet reflect the assets from SumRidge, which closed on July 1. So the spot tier one leverage ratio following the SumRidge acquisition is below 10%, still well above the 5% regulatory requirement. I said on last quarter's call, we don't view the client cash we hold on the balance sheet at the broker-dealer and the client interest program, which ended the quarter at $13.7 billion, the same as our other balance sheet assets. We still have ample balance sheet flexibility after adjusting for those excess cash balances on the balance sheet. I am very pleased with the progress we have made deploying capital over the past two years since we first disclosed our capital targets, reinforcing our priority to utilize capital to invest in long-term growth across all of our businesses and deliver attractive returns to our shareholders. The effective tax rate for the quarter increased to 27.5%, up from 25.4% in the preceding quarter, primarily due to higher non-deductible losses on the corporate-owned life insurance portfolio. Slide 16 provides a summary of our capital actions over the past five quarters. Following the closing of the Tristate acquisition on June 1, we began repurchasing common shares under our board authorization. We repurchased approximately 1.14 million common shares for $100 million, or approximately $88 per share. As of July 27, 2022, approximately $900 million remained available under the board-approved share repurchase authorization. As we explained on prior calls and analyst investor day in May, our current plan is to offset the share issuance associated with the acquisition of Tristate over the next few quarters. I believe our action in June demonstrates this commitment. We will continue to closely monitor market conditions and other capital needs as we evaluate further repurchases over the coming quarters. Lastly, on slide 17, we provide key credit metrics for our bank segments and remember, these metrics reflect our newly formed bank segments, which includes Raymond James Bank and Tristate Capital Bank. The credit quality of the loan portfolio remains strong, and most trends continue to improve. Criticized loans as a percent of total loans held for investment ended the quarter at 1.63%, down from 4.07% at June 2021 and 2.63% at March 2022. Now I'll turn the call back over to Paul Reilly to discuss our outlook. Paul.

Thank you, Paul. As I said at the start of our call, I am pleased with our results. While there are many uncertainties, I believe we are well-positioned to drive growth across all of our businesses. In the private client group, next quarter results will be negatively impacted by the expected 11% sequential decline of asset management and related administrative fees that Paul described earlier. However, focusing more long-term, our recruiting pipelines remain strong and combined with solid retention, I'm optimistic we'll continue to deliver industry-leading growth as advisors are attracted to our client-focused values and leading technology platform. The segment will also continue to benefit from higher short-term interest rates. In the capital market segment, the M&A pipeline remains robust, but the pace and timing of closings will heavily be influenced by market conditions. Over the long term, I am confident we are well-positioned for growth due to the significant investments we made over the past five years in our platform and increased our team and productive capacity. In the fixed income space, we expect some rich partners to enhance our current position and the rapidly evolving fixed income and trading technology marketplace. In the asset management segment, while financial assets under management are starting the fiscal fourth quarter lower due to equity markets, we are confident that the strong growth of assets and fee-based accounts in the private client group segment will drive long-term growth of financial assets under management. Additionally, we expect Caroline Tower Advisors with its new addition of Chartwell Investment Partners to help drive further growth through increased scale distribution and operational and marketing synergies. The bank segment is well-positioned for rising short-term interest rates, as we have ample funding and capital to grow the balance sheet prudently. Most importantly, the credit quality of the bank segment's loan portfolio remains strong. As always, I want to thank our advisors and all of our associates for their perseverance and dedication to providing excellent service to their clients each and every day. With that, operator, I'm going to open it up for questions. Thank you.

Thank you. The first question comes from Gerry O’Hara of Jefferies. Please go ahead.

Great, thanks. And good morning. I was hoping you might be able to just help unpack a little bit of the comments around the cash shorting in the quarter and just sort of maybe give us a sense of what you saw and perhaps what we might expect in that dynamic. Thank you.

Thanks, Gerry. Good morning. Actually, the cash balances in the quarter stayed relatively resilient as you saw, only down about 1% for the quarter. Now, in the month of July, we have seen a decline in client cash balances; we are at about $73 billion now. Almost half of that was from the quarterly fee billings, which all come out in the first month of the quarter. The other portion kind of reflects the cash sorting that we've been expecting for quite some time now as rates start to increase. Just to put it into context, just a year ago, we were at $63 billion of total client cash balances, which were elevated from the pre-COVID days. So I don't think it should be surprising to see some cash sorting as rates increase going forward.

Great, thanks. And then maybe just a follow-up on expenses. Paul, I appreciate the sort of commentary around the growth of the business and the quarter being typically something of a high watermark, but can you maybe help us just sort of think about how that might trend on a run-rate basis over the next couple of quarters given obviously, increased T&A and some of the other sort of normalization expense pressures that we're seeing? Apologies if I missed it, but I think that'd be helpful.

Certainly. Business development expenses were much higher this quarter. Last quarter, it seems like an eternity, but we were still dealing with Omicron. So people really weren't traveling at the beginning of the quarter. This quarter, we have our biggest advisor conference for the independent adviser business. This is a quarter we've had it historically, even pre-COVID, which is why it usually is the high watermark quarter. People are starting to travel again. There is a lot of pent-up travel out there with people wanting to see each other in person again. So when looking at just stepping back and looking at non-compensation expense in the aggregate on a GAAP basis, it ended up being $469 million for the quarter. Now about $47 million of that were non-GAAP adjustments related to acquisitions. So that gets us down to an adjusted basis for non-GAAP, a non-compensation expense of about $422 million. We still have two months of Tristate Capital to reflect there. So that's about $10 million if you look at their $15 million run rate, but some of the expenses this quarter were elevated. So maybe it's a good sort of jumping off point plus or minus a few million dollars as we look at the next couple of quarters.

I know the line item was higher than people may have anticipated. But I think you also must remember if you compare it to the '19 and '20 numbers, that was about 3% of revenue for those quarters. It's about 2% of revenue this time. We've grown significantly. I think we're managing the costs very well. Our big conferences, and our largest advisor events have occurred in this quarter. So it's not typical.

Understood. Thanks for taking my questions this morning.

Thanks, Gerry.

Thank you.

The next question comes from Alex Blostein of Goldman Sachs. Please go ahead.

Hey guys, this is Michael on for Alex. So I think we kind of want an update on the timing and size of how you're thinking about swapping TSE's deposits with RJBDP deposits. Any updated color you can give us would be great. Thanks.

I will first let Paul talk about that. But I think you guys we can deploy cash on either bank. It’s really almost irrelevant whether it's in Tristate or Raymond James Bank versus the sweeps. So we have a lot of options and flexibility to maximize the earnings on cash as banks are looking for bank sweeps again, where they weren’t before. So it's a question. I know you all keep asking. We've already made some progress on that. But part of it really depends on Tristate's clients; they're operating for their clients and they have depository relationships there too. But we’re making progress. Paul, let you get into a little more detail. I think strategically as you go forward, you should look at how much it's deployed and not necessarily in which franchise. So Paul?

Thank you. I think you've covered it very well, Paul, and we've already supplemented their deposit base with about a billion dollars of our deposits, and we have plans to supplement with another billion. But as Paul said, they're running an independent business; they have their clients. We want to certainly honor their relationships with their clients. Over the next few years, those deposits in those diversified funding sources could be very valuable to us as an organization overall. So we're not focused on the short-term accretion of a standalone business. We’re really focused on maximizing flexibility in earnings for the organization overall.

Great, thanks. So it sounds like the kind of initial commentary you guys gave when the acquisition was closed. Is this kind of what we can still expect?

I'd say the trend is that way. We could change based on where we can deploy the cash and what they need. So far we're on the kind of the plan.

All right, great. And then maybe one quick follow-up. You guys gave us the guidance for the fiscal fourth firm-wide NIM. Maybe you can help us think about like a good jumping-off point for NII and flush that out a little bit. Thanks.

We gave you kind of the biggest component with the NIM average, for the fiscal fourth quarter. We're expecting it to be about 2.7%, which would be almost 30 basis points higher than the 2.4% that it averaged this particular quarter. We've had some nice growth in earning assets, both from Raymond James Bank on a standalone basis, which grew 8% sequentially. And of course, adding on Tristate. Those kind of give you the main inputs to calculating net interest income, and then the RJBDP fees, which are substantial as well; they averaged 88 basis points this quarter. The cash had swept over to third-party banks. With the rate increase that was announced yesterday and some assumptions around deposit beta, we expect that to increase to 1.7% on average for next quarter. So really significant tailwinds coming from net interest income and RJBDP fees from third-party banks. The important thing is we've been criticized for quite some time for not taking more duration. I know a lot of our peers have done that. Our longstanding approach of staying flexible and not trying to time the rates, the markets, and the bond curves is going to serve us very well in this rising rate environment.

Great. Thank you, guys.

Thank you. The next question comes from Steven Chubak of Wolfe Research. Please go ahead.

Hey, Paul, since you ended on that response, talking about your decision to manage the bank in such a way where you have more shorting gearing, I know that serving you quite well, certainly in this upcoming tightening cycle. At the same time, the market is starting to price in rate cuts beginning in '23. And the last fed easing cycle, the decision to maintain that sensitivity did create a fair amount of earnings volatility. You cited some peers that have overextended themselves taking on too much duration. I happen to agree with that statement. I think that they're getting punished as a result in this type of environment. But there's also a balance that could be struck, where you maintain some healthy mix of fixed versus floating rate assets. Curious if that's something you'd be amenable to, to protect that earnings downside if and when the Fed begins easing?

Yes, Steven, you remember this well because you're very close to it. In 2015 we had no securities at all on the bank's balance sheet. So we do, we have been more balanced and diversified in that regard. I think we plan on continuing to be more balanced and diversified. Almost all of our deposits are floating rate deposits. So to take on much more duration would essentially be making a bet between and a mismatch between the assets and the deposits. Our focus is to your point to be more diversified. We are much more diversified than we were just five or six years ago with our securities portfolio. We also have jumbo mortgages on the balance sheet that have some duration to it, tax-exempt loans, etc. But I do think you should expect us to continue to be exposed, more exposed to the short end of the curve, just given the nature of our deposit base, which is floating.

Really helpful, caller, Paul, and for my follow-up just on some of the deposit beta commentary. If I think about how you guys manage deposit costs last cycle, you tended to be more in line with the industry in terms of overall beta. So far, you've been running a little bit ahead of peers. I believe the word used on the call was generous with deposit rates, what beta should we be modeling beyond the fiscal third quarter? And what's driving the decision to be more competitive on pricing this cycle? Is that reflective of some of the cash already headwinds you cited or something else?

Yes, I just think that we knew a bunch of rate increases were coming. A lot of people could take a process; you could maximize your return. Our belief when everybody was talking about how much cash and there was too much cash is that as businesses grew and rates went up and you can see what's happened in the public markets where people haven't had access, there would be more demand for cash. We're seeing that in the bank sweep program, even the biggest banks coming back into the bank sweep program, which tells you, everyone's looking for liquidity. Our view was we could be more aggressive. We would have chances on further increases to modify or not to be as aggressive if we could see a cooling down or going the other way but to ensure that we first treated clients fairly while we did a good job of retaining cash balances. We've lived through cycles when cash was really tight in the industry. While some people are already putting out high-yield savings and other CDs and deposits to fund now, right? Their sweep rates may be lower, but they're also adding higher-cost deposits. We're just trying to look long-term on it, take care of clients, and we know in a rising rates situation that they keep rising, we always had time to adjust. Paul, I don't know if you want to comment on changing beta or not. It's hard to tell until we have a rate setting committee. It will certainly be what it was, at least historically, and maybe a little higher.

I think you've covered it well, Paul.

Thanks, Paul and Paul, appreciate you taking my questions.

Thanks, Steve.

Thank you. The next question comes from Kyle Voigt, KBW. Please go ahead.

Hi, good morning. The first question is on PCG segment expenses. Total segment revenues dropped 15%. Compensable revenues dropped 10%. But when you look at the PCG administrative comp expenses, they were up 22% year-on-year. I know some of that may be related to inorganic growth, I guess when you look year-on-year, you haven't have the organic growth rate for those expenses. Any more color as to kind of what's driving that level of growth both year-on-year or even the $17 million sequential increase we saw in that line item? Thank you.

Yes. So that was actually a good catch. What we haven't specifically drawn out in the numbers is that we've all been concerned about our associates and the impact of inflation in this environment. A number of firms have done common across-the-board comp adjustments or salary adjustments. We decided to take a different course, which we did this quarter, to give a really just an off-cycle bonus to our lower-paying associates to help them cope with the inflationary costs of gasoline, housing, and everything else and not do an automatic salary adjustment really for two reasons: salaries are forever. But more importantly, is we wanted to do it thoughtfully across all of our associates in our year-end process, which is actually several months, to make sure people are rewarded accordingly and that the salaries are benchmarked to market instead of just doing a raise now that's hard to do. We gave kind of a one-time bonus, and that really hit the segment. It really is taking care of our associates, doing an unbelievable job. We’ve been great. Our turnover has certainly been up, but it’s been lower than the industry. They’ve been doing an excellent job for us. We felt we owed them to do this, which should carry them until year-end until we get to our normal cycle adjustments. Paul, I don't know if you want to go through any more in terms of numbers or anything else. But that was the biggest impact of that number.

Yes, I mean, I guess you quantify the impact of that bonus, Paul?

Total for the firm is about just under $15 million for the firm, and PCG takes the majority of it just because they're by far the largest business and have the most associates.

Got it. That's helpful. And then my follow-up is just on the advisor account. You noted that there was a switch of 188 advisors with most of them from one firm moving to your RIA division. Can you just help us understand how large those switches were from an AUM standpoint? And then any more color on the switch? Can you kind of remind us of the change in economics when migrations like that happen? Thank you.

First, strategically we've set up and really bolstered our RIA offering just because it was and has been the fastest-growing segment in the industry. The good news is when people have switched to an RIA, they haven't gone to any of our custodian competitors. They've stayed at Raymond James with almost virtually 100% retention. So it's been a good retention tool. This was really one big firm whose business model has changed. We’ve been planning on it for a year. The good news is they stay with Raymond James; their assets are custodial with us. But in the RIA model, they’re not FINRA licensed in a way we count advisors who are producing, but once they go into the RIA space, we can’t count that anymore. If you look at it, since a year and a half ago, it’s been about 250 advisors; there was a big group that moved at the end of the year, relatively big, but it's usually three or four advisors a quarter. This was a one-off movement that really focused on a changing business strategy for them. It’s not business as usual. It’s one of the largest firms on the platform that went RIA, and we don’t see people continuing to move, but it's different than the movement between the rest of our channels.

Thank you. The next question comes from Jim Mitchell, Seaport Research. Please go ahead.

Hey, good morning. Paul, maybe just on the Tristate deal now that it's closed. I think since you announced the deal, obviously, rates are a lot higher. You've had better longer out the Tristate. Is there any way to think can you at least give us maybe a sense of accretion benefits? Is it more than you expected? Is the timing sooner? Is that the way to think about it? If there's any kind of greater specificity that would be helpful?

I think you're right, Jim. All of the sort of some of the major factors, including interest rates, which is a significant factor, are increasing much faster than we originally anticipated, which is a great tailwind. But most importantly, Tristate has been doing a fantastic job serving their clients through the announcement and through the closing and integration. They have continued growing their business nicely with their clients. We’re frankly, a lot of our efforts are staying out of their way because they're doing an excellent job with their client relationships, handling a lot of change all at once. That’s been more positive than we originally anticipated, and kudos to the Tristate Capital team for being able to pull that off. With that being said, our earnings base is going to be higher in a higher rate environment as well. The accretion-dilution analysis is a function of both the numerator and the denominator being our earnings base, so it's hard to compare apples to apples. Frankly, Paul and I aren't concerned about the short-term accretion. We're looking at success over the next 5 to 10 years. What that entails is keeping their franchise and client relationships intact, which is going extremely well. It's great to have the interest rate tailwinds. It's great to see the growth that they're having, but we're not overly focused on the near-term accretion. We're extremely excited by the success that they've had thus far in early innings.

But I guess it sounds like, go ahead.

It is better, and we're pleased.

Okay. And then on the buyback, is that you said a few quarters is that the right pace that you think you can do say? The next three or four quarters you can kind of offset the dilution or the issuance?

I think we're going to be up. We're going to be patient. Yes, we're going to be patient. That sounds like a reasonable timeline, but depending on other capital needs, balance sheet growth, other factors we could do it faster or slower than that. We’re going to be, as I said from the start, and as Paul said from the start, we’re not going to be in a rush to buy it back; it kind of gets us to the same place a year from now whether we do it quickly or we do it in a more deliberate manner.

Sure, but I think the plan is around your timeframe. But again, deploying capital, if you had big bank growth that was very profitable, you had an acquisition, you had something else, you could redeploy some of that capital, but the plan right now is, and there's no plans for any of that right now. But the plan would be to stick to that course. But we'll watch it; if the economy really turns down sharply, you may slow it down. I think everything being equal, that's the plan.

Thank you. The next question comes from Devin Ryan, JMP Securities. Please go ahead.

Hey, good morning, guys. How are you?

Great, Devin.

Hey Devin.

Hey. Most have been asked here. But I do want to dig in a little bit more on advisor recruiting kind of out of the pipeline remains strong. But there's been a lot of change in the environment. So I’d love to give them more context on some of the trends you guys are seeing there. On one hand you have markets down, I am assuming production down, but higher interest rates. The business is more profitable at the firm level. So what you guys, I guess, seeing what were our expectations shifting at all on the adviser side? And then competitively what are you seeing, and the fact that markets are choppy, and sometimes it's hard for advisors to leave when they are inundated in talking to clients. So I'm just curious kind of schematically how the advisor recruiting pipeline is evolving and what you guys are seeing competitively in the market?

Devin, I think that first, it's always been competitive. If you'd look at our kind of our record growth it's probably not all about advisor count, but it's the size of the businesses that have been joining our platform—very, very large teams, ones just a few years ago we would never see. I really think it’s a testament to the platform built in the high net worth and ultra-high net worth space. When Alex Brown joined us, they brought a lot of knowledge and focus to us on building the platform for the entire firm. The recruiting is going very well. It goes in cycles; the independent channel was kind of on fire; the employee channels been the one this year that's doing really, really well. I think that's more a sign of the economy where people are joining and the risk they're taking. We have not seen a slowdown; we thought we would see more people typically when advisors commit in the pipeline; it'll slip. We thought we'd see a lot more slippage, and we haven’t really—maybe a little more. Advisors are still coming. Once they make that decision, we rarely see them decide not to leave their firm. So the pace is still very, very good. It's competitive—it's always been competitive—we always seem to have in certain spaces competitors really jump out in the market. I think we pay a fair transition assistance. I can't say it's the highest in the market, but we compete very well because of the value proposition. So so far, so good; it’s been solid right now.

Great, thanks, Paul. The follow-up here, let me come back to something we talked about in late May at your analyst day. You guys spoke about kind of a focus on new non-compensable revenues and expanding those and I think your admin extension, being one in pilot, the business consulting group, and I know there's others. Interesting opportunity, it feels like from the outside, but once it gets involved around, I guess one, hobbies are going in the early days; and then two, could these actually become material financial contributors a few years out? I appreciate you have to scale them; there has to be adoption, but there's a goal to have them become meaningful revenue drivers was more just around kind of differentiation the platform adding more service and creating kind of more stickiness to the advisor relationship because you're kind of more integrated with them. Thanks.

I think it's almost the latter than the former. Strengthening the platform by offering those services makes it more attractive and easier for people to transition. The uptake on the services has been much better than we thought. Even existing advisors who have big businesses, whether they're having—like everyone's in the war on talent, or someone gets sick and has to be out of the office, we’re finding an uptake of those services, and they're very happy with it. We're in the early scaling days, and I doubt it's going to be a line item like brokerage revenue, but it's certainly going to positively impact the margins for those businesses. We're still scaling on but so far, it’s very, very good. But we're just a few quarters into it. The reception, even from existing advisors, is higher than we thought.

Yes, appreciate that. It was sort of late, but thanks for the call, and I'll leave it there. Thanks, guys.

Thank you. And our final question comes from Manan Gosalia of Morgan Stanley. Please go ahead.

Hey, good morning. I apologize if you've already covered this. But my question is on third-party bank deposits. What we're seeing from other banks this quarter is that deposit growth is slowing, and even shrinking in certain cases. That would mean that the demand for your deposits from third-party banks is likely to increase even further from here. Can you talk about how you're thinking about that, and also the $14 billion or so you have in the CIP program? I recognize that you have a need for those deposits for your own business now, but I was wondering how nimble you can be between CIP, third-party bank deposits, and your own bank?

Great question, Manan. We can be very flexible with the deposits to your point. The CIP balances on the balance sheet are really overflow balances for when we weren't able to sweep the third-party banks because they didn't have the demand. As that demand picks up, which it has been, we’re definitely seeing a change in tone even from the big banks who historically have not been as eager to get those types of deposits. We're starting to see significant demand from those banks as well. As we start seeing that demand pick up, we wouldn't be able to sweep more from CIP to those third-party banks, all else being equal. We have a lot of flexibility. It's great to see the demand come back. We knew the demand would eventually come back, and that's why we wanted to stay flexible with those deposits.

But can you also be flexible between third-party bank deposits and your own bank, depending on what level of loan growth you're seeing at your own bank?

Yes, absolutely. I mean the $25 billion—that’s with third-party banks now and the $14 billion—that's with our client interest programs. That has declined somewhat since the beginning of July, as I said in the comments. But those deposits over time, a good portion—a very large portion of those deposits over time—could be used to fund the balance sheet growth to the extent that we find good risk-adjusted returns on the balance sheet and to the extent that we can grow loans to our private client group clients, etc. Yes, but again, we have a lot of flexibility and a lot of capacity.

Okay, great. And then my second question is just, how are you thinking about SBA loan growth? You have your own offering, and now also Tristate, which you're managing as a separate business, but it still gives you exposure to a similar loan product. As we see this pressure and volatility across both equity and fixed income markets, how should we think about loan growth in that segment given that rates are moving higher and that loan book has a low credit risk? Is there a plan to meet all the demand you have for that portfolio and maybe slow some of the growth in CNI and CRE as recession risks rise? I just wanted to get a sense of how you're prioritizing loan growth in this environment and what you're seeing in terms of demand?

Well, first it's a good question. In a rising rate environment, I think it's still a cheaper source of borrowing for most clients. We anticipate that rates get higher and higher and higher; maybe people don’t borrow, but in this environment, it's still a very effective way of low-cost borrowing. From our standpoint, we love two things about SBA loans: one is the liquidity because it's callable; secondly, it's very secured and it's low risk, and it has, frankly, the best spreads right now, but also it supports clients. We continue to focus on that segment; we can speed up any part of the loan segment, we've done it before. We were one of the few banks that sold COVID loans to reduce risk on the balance sheet. There are times we have taken different parts of the portfolio and slowed it down for a while. Most of the portfolio even CNI as a very liquid portion and the term B loans, we do manage the balance sheet. We're very happy that SBA loans are in demand and growing; we plan to support that. We'll look at the relative contribution of each item depending on where we see the risk-return tradeoffs long term in the market. If we're offering, the market starts offering risky credit only, then you slow down that segment. The Tristate market is very different from ours—certainly our internal markets versus external. Those are run separately, but we like the SBA loans in both categories and both banks, and have the capital and the cash, the funding too, which is important. We have a lot of flexibility and funding.

Great, thanks for taking my questions.

And that was our final question. Turn the call back over to our speakers for any closing remarks.

Yes, I want to thank everybody for attending. I know the numbers were a little bit more difficult with a lot of the acquisition-related expenses and changes. I appreciate the effort; I know there's been a lot of time put into the questions and the write-ups. So I want to thank you, and again, as always, thank our advisors and associates for all they've done to generate these numbers. It’s easy to present them when they're doing such a great job. Thank you, and we'll talk to you next call.

Thank you. This does conclude the conference for today. We thank you for your participation and ask that you please disconnect your lines. Thank you and have a good day.