Good morning. And welcome to Raymond James Financial's Fourth 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 benefits of our acquisitions, our level of success in 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, believes, estimates or continue or negative of such terms or other comparable terminology, as well as any other statements that necessarily depends on future events are intended to identify forward-looking statements. Please note 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 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 am happy to turn the call over to Chair and CEO, Paul Reilly. Paul?

Good morning and thank you for joining us today. Before I discuss our fourth quarter and fiscal year earnings, I want to start by acknowledging the heartbreaking devastation our friends and neighbors, as well as over 200 associates on Florida's Central Gulf Coast experienced a month ago from Hurricane Ian. While it has been difficult to bear witness to their pain and loss, I also have been humbled by the resilience of our associates, advisers and the community there. Fortunately, our Raymond James family impacted by the storm is safe. Just as notable, I can’t adequately express my gratitude for our Tampa Bay Area associates who, despite facing an uncertain path from a Category 4 Hurricane, worked diligently from remote locations to continue delivering our service-first promise. Additionally, our associates at our corporate locations in Memphis, Southfield and Denver rose to the occasion covering for their coworkers and pitching in where they could and working weekends to catch up. For those without power or other hardships, the home office was open to provide a comfortable and clean place to go. When the home office reopened, the camaraderie was obvious and uplifting. We provided emotional and mental health resources to associates, delivered a $500 relief check to all associates in impacted counties, and provided additional time off to help them manage their personal situations. Associates collected two semi-trucks of supplies, which were sent to our Fort Myers branch system to be distributed by advisers and associates in their areas. We have heard several heartwarming stories from recipients in these essential supplies, which in itself shows how the collective efforts and generosity truly made a difference for those who needed it most. The firm also responded by raising more than $1 million from corporate, executive leadership and associate donations to assist the recovery and support of those in need through the Red Cross and our Friends of Raymond James Charity, who directly help associates with needed emergency funds for repairs and recovery. If I sound surprised, I am not; the preparation, perseverance and response to the storm reflected the long history of Raymond James' service culture, and I am especially proud to represent our team today. Now moving to our results, I am very pleased with the results for the fourth quarter and fiscal year, especially given the challenging market conditions. Despite the significant decline in equity markets during the year, we still generated record net revenues and record pre-tax income for the fourth quarter and fiscal year. Throughout the fiscal year, we remained focused on the long-term and continued to invest in our businesses, our people and our technology to help drive growth across our businesses. In the private client group, strong retention and recruiting of financial advisers contributed to industry-leading growth with domestic net new assets of 9% over the fiscal year. Furthermore, the Charles Stanley acquisition completed earlier in the year significantly expanded our presence in the U.K., which is a very attractive market for wealth management. In capital markets, annual investment banking results were very strong, only 3% lower than the record results achieved in fiscal 2021. Record M&A revenues helped offset the very challenging underwriting environment. We continue to see strong pipelines for M&A, as the expertise we have added both organically and through niche acquisitions has been performing extremely well. We completed the acquisition of SumRidge Partners on July 1st, which has enhanced our fixed income platform with technology-driven capabilities and a fantastic team with extensive experience dealing with corporates. This business thrives on rate volatility, so SumRidge generated really fantastic results since we closed on the acquisition in July. However, after a record year last year, our legacy fixed income operations serving depositories have been challenged as the Fed intensifies its monetary tightening initiatives. In the bank segment, loans grew 73% year-over-year and 3% during the quarter, reflecting attractive growth across nearly all loan categories. The acquisition of TriState Capital Bank this year added a best-in-class third-party securities-based lending capability, while also diversifying our funding sources. It is in uncertain conditions such as these that remind us of the importance of focusing on and making decisions for the long-term. As evidenced this quarter, with a sharp increase in net interest income in RJBDP fees, we are well positioned for the continued rise in short-term interest rates with diverse and ample funding sources, strong loan growth, high concentration of floating rate assets and ample balance sheet flexibility, given solid capital ratios, which are well in excess of regulatory requirements. While some of these attributes may be underappreciated in certain market cycles, the value of our long-term approach has really resonated in more volatile and uncertain market environments we have experienced since the onset of the COVID-19 pandemic. In the fiscal fourth quarter, the firm reported record net revenues of $2.83 billion, record pre-tax income of $616 million and net income available to common shareholders of $437 million or earnings per diluted share of $1.98. Net income was negatively impacted by the elevated tax rates this quarter, due primarily to non-deductible losses on corporate-owned life insurance that we utilize to fund non-qualified benefit plans. Excluding $30 million of expenses related to acquisitions, quarterly adjusted net income available to common shareholders was $459 million or $2.08 per diluted share. Year-over-year and sequential revenue growth was driven primarily by 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 asset management and related administrative fees, and total brokerage revenue, largely due to the decline in equity markets. Quarterly net income available to common shareholders increased 2% compared to the prior year's fiscal fourth quarter, reflecting the aforementioned revenue growth, which was partially offset by higher non-compensation expenses and a higher tax rate. Sequentially, quarterly net income grew 46%, driven primarily by the benefit from higher short-term interest rates on net interest income and RJBDP fees from third-party banks, along with lower bank loan provision for credit losses as the prior quarter included the $26 million initial provision for credit losses on loans arising from the acquisition of TriState Capital Holdings. Annualized return on common equity for the quarter was 18.7% and adjusted annualized return on tangible common equity was 24.1%, an impressive result, especially given the challenging market environment and our strong capital position. Moving to slide five, we ended the quarter with total client assets under administration of $1.09 trillion, PCG assets and fee-based accounts of $586 billion, and financial assets under management of $174 billion. Equity market declines in the quarter, including a 5% sequential decline in the S&P 500 Index, negatively impacted client asset levels. We ended the quarter with 8,681 financial advisers in PCG, a net increase of 199 over the prior year period and 65 over the preceding quarter. And remember, the year-over-year increase; the adviser count was impacted by the transition of advisers to our RIA and Custody Service division, where we typically retain the assets, but we don't include the adviser in our accounts. In the fiscal year, we had 222 financial advisers move to RCS, 166 of which came from one firm. Adjusting for these transfers, the number of financial advisers increased by 421 year-over-year, a really strong result. Our focus on supporting advisers and their clients, especially during uncertain and volatile markets led us to strong results in terms of adviser retention, as well as our recruiting of experienced advisers to the Raymond James platform through our multiple affiliation options. Over the trailing 12-month period ending September 30, 2022, we recruited to our domestic independent contractor and employee channels financial advisers with nearly $320 million of trailing 12 production and approximately $43 billion of client assets at their previous firms. And highlighting our industry-leading growth, we generated domestic PCG net new assets of nearly $95 billion over the fiscal year ending September 30, 2022, representing 9% of domestic client assets at the beginning of the period. Fourth quarter domestic PCG net new asset growth was 8.3% annualized. Total client domestic cash sweep balances declined 12% to $67.1 billion or 7% of domestic PCG assets under administration. Paul Shoukry will discuss this more later, but I’d like to highlight that these are lower-cost deposits, as we have not yet utilized high-yield savings accounts to preserve balances. Total bank loans grew 3% sequentially to a record $43.2 billion, reflecting attractive broad-based growth at both Raymond James Bank and TriState Capital Bank. Moving to slide six, the private client group generated record results with quarterly net revenues of $1.99 billion and pre-tax income of $371 million. While asset-based revenues declined, the segment’s results were lifted by the benefit from both higher short-term interest rates. The capital markets segment generated quarterly net revenues of $399 million and pre-tax income of $66 million. Capital market revenues declined 28% compared to the prior year period, mostly driven by lower investment banking revenues and fixed income brokerage revenues, largely due to the volatile and uncertain markets. The asset management segment generated net revenues of $216 million and pre-tax income of $83 million. The declines in revenues and pre-tax income were largely attributable to lower financial assets under management, as net inflows into fee-based accounts in the Private Client Group were offset by fixed income and equity market declines. The bank segment, which includes Raymond James Bank and TriState Capital Bank, generated quarterly net revenue of $428 million, which is a record result and pre-tax income of $123 million. Net revenue growth was mainly due to higher loan balances and significant expansion of the bank’s net interest margin to 2.91% for the quarter, up 50 basis points from the preceding quarter. Once again, reflecting the flexibility and floating rate nature of our balance sheet. This quarter also included a full quarter of TriState Capital results, which have continued to be solid. Looking at the full year fiscal 2022 results on slide seven, we generated record net revenues of $11 billion and record pre-tax income of $2 billion, both up 13% over fiscal 2021. Record earnings per diluted share of $6.98 increased 5% compared to fiscal 2021. Additionally, we generated strong annualized return on common equity of 17% and annualized adjusted return on tangible common equity of 21.1%. Moving to the fiscal year segment results on slide eight, private client group, asset management and bank segments generated record net revenues and the private client group produced record pre-tax income during the fiscal year, again, reinforcing the value of our diverse and complementary businesses. And now for a more detailed review of the fiscal fourth quarter results, I am going to turn the call over to Paul Shoukry. Paul?

Thank you, Paul. Starting with consolidated revenues on slide 10, record quarterly net revenues of $2.83 billion grew 5% year-over-year and 4% sequentially. Asset management fees declined 6% compared to the prior year's fiscal fourth quarter and 10% compared to the preceding quarter, in line with the guidance we provided on last quarter’s call based on fee-based assets. Equity markets declined further during the quarter, resulting in a 3% sequential decline in private client group assets and fee-based accounts. This decline will create a headwind for asset management and related administrative fees in the fiscal first quarter, which I expect to be down close to 4% sequentially in the fiscal first quarter of 2023. Brokerage revenues of $481 million declined 11% compared to the prior year’s fiscal fourth quarter and 6% compared to the preceding quarter, as lower activity and asset-based trail revenues in PCG, as well as decreased fixed income brokerage revenues more than offset the addition of SumRidge, which generated strong revenues in the quarter. As Paul touched on, we expect this to be a tough environment for our legacy fixed income business, as depository clients have quickly transitioned from having excess deposits to investment securities to experiencing deposit run-off as a result of the Fed’s actions. I will discuss account and service fees and net interest income shortly. Investment banking revenues of $217 million declined 3% compared to the preceding quarter, a solid result given the challenging and uncertain market environment and while our pipelines are strong, there remains a lot of uncertainty given the heightened market volatility that could impact investment banking revenues positively or negatively in the coming quarters. Therefore, our best guess right now is that we could achieve a similar level of average quarterly investment banking revenues in fiscal 2023 that we experienced over the last two quarters. Obviously, a lot of variables can and probably will impact that estimate, but that would result in a 20% decline in investment banking revenues in fiscal 2023. That would still represent a much higher level of investment banking revenues than we generated prior to the pandemic, as we have made significant investments to the platform over the past few years, which has significantly increased our productive capacity and market share. Other revenues of $80 million grew 167% sequentially, primarily due to higher affordable housing investment business revenues, which achieved record results in fiscal 2022. Moving to slide 11. Clients’ domestic cash sweep balances ended the quarter at $67.1 billion, down 12% compared to the preceding quarter and representing 7% of domestic PCG client assets. As of this week, these balances have declined to just under $64 billion, reflecting the quarterly fee payments, which were paid in October, as well as additional cash sorting activity during the month. When comparing trends across the industry, it is important to note that these cash sweep balances do not include high yield saving balances, nor do we have a money market sweeps option. So it is sometimes difficult to make apples-to-apples comparisons across the industry. Most of the decline in our sweep balances were experienced in the client interest program at the broker dealer, which was really the last-in, first-out destination of the excess deposits over the past couple of years. As we have been explaining for at least a year now, we anticipated a significant decline in these cash balances as the Fed started increasing short-term interest rates. So we kept the CIP balances invested in deposit accounts and short-term treasuries. The Raymond James Bank Deposit Suite Program continues to be a relatively low-cost source of stable funding and now with the addition of TriState Capital Bank’s independent deposit franchise, we have a more diversified funding base. And while this additional funding source may not have seemed as valuable several months ago, I think everyone now appreciates just how precious deposits are and the importance of having multiple funding sources. Turning to slide 12. Combined net interest income and RJBDP fees from third-party banks was $606 million, up 206% over the prior year’s fiscal fourth quarter and 64% from the preceding quarter. This strong growth reflects the immediate impact from higher short-term rates given the limited duration and high concentration of floating rate assets on our balance sheet. While it can sometimes seem appropriate to take more duration and bet on rates, our longstanding approach to maintain a high concentration of floating rate assets is proving to be a significant tailwind in this rising rate environment. You can see on the bottom portion of the slide, the bank segment’s net interest margin increased a substantial 50 basis points sequentially to 2.91% for the quarter and that’s on top of the 40 basis point sequential increase in NIM in the preceding quarter. The average yield on RJBDP balances with third-party banks increased nearly 100 basis points to 1.85%. Both the NIM and average yield from third-party banks are expected to increase further with the anticipated rate increases. For the fiscal first quarter, factoring in an expected 75 basis point rate increase in November and some assumptions around deposit beta and other variables, we would expect the average yield on RJBDP from third-party banks for the fiscal first quarter of 2023 to be somewhere around 2.5% and the bank segment’s NIM to average around 3.15%. But these projections will, obviously, be impacted by the actual deposit beta we experienced. As we have done this cycle, we will continue to put clients first and focus on staying on the more generous end of the spectrum for our clients. So far, the cumulative deposit beta since the Fed started increasing rates in March has been around 25%, with the most recent increase in September having a deposit beta of about 35%, less than the 50% we expected, but still much more generous to clients than the vast majority of our competitors. Moving to consolidated expenses on slide 13, beginning with our largest expense, compensation. The total compensation ratio for the quarter was 62.1%, which decreased from 67.5% in the preceding quarter. The adjusted compensation ratio was 61.5% during the quarter. The sequential decline in the compensation ratio largely reflects a significant benefit from higher net interest income in RJBDP fees from third-party banks. Non-compensation expenses of $456 million, which includes $13 million of acquisition-related expenses included in our non-GAAP earnings adjustments, decreased 3% sequentially. This quarter reflected a full quarter of expenses from both TriState Capital and SumRidge Partners, which sequentially added just over $25 million of incremental non-compensation expenses, excluding the bank loan loss provision for credit losses. The bank loan loss provision for credit losses decreased to $34 million, primarily due to the $26 million initial provision associated with the TriState Capital acquisition in the fiscal third quarter. This quarter’s bank loan provision primarily reflects sequential loan growth along with a weaker macroeconomic outlook used in the CECL models. So, as you can see, 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 advisers and their clients. Slide 14 shows the pre-tax margin trend over the past five quarters. In the fiscal fourth quarter, we generated a pre-tax margin of 21.8% and an adjusted pre-tax margin of 22.8%, really excellent results. And just to get ahead of it, I know many of you will ask me if we will update our 19% to 20% pre-tax margin target that we laid out at our Analyst and Investor Day in May since we exceeded it this quarter, while that is certainly a reasonable ask. Given the market uncertainty and ongoing cash sorting dynamic, we think it’s appropriate to wait at least a few more months to update all of our targets. But with that being said, I think our solid results this quarter highlight the benefit of our diversified business model, the upside we preserve to higher short-term interest rates and our consistent focus on being disciplined on expenses. On slide 15, at quarter end, total assets were $81 billion, a 6% sequential decrease, primarily reflecting the decline in the client interest program cash balances I mentioned earlier. Liquidity and capital remain very strong. RJF corporate cash at the parent ended the quarter at $1.9 billion, well above our $1.2 billion target. The Tier 1 leverage ratio of 10.3% and total capital ratio of 20.5% are both more than double the regulatory requirements to be well capitalized. The spot Tier 1 leverage ratio at the end of the quarter is actually closer to 10.5%. So our capital levels continue to provide significant flexibility to continue being opportunistic and invest in growth. The effective tax rate for the quarter increased to 28.7%, up from 27.5% in the preceding quarter, primarily due to non-deductible losses on the corporate-owned life insurance portfolio. Going forward, we still believe around 24% to 25% is an appropriate estimate to use in your models, but in rapidly declining equity markets, the effective tax rate increases as we experienced this quarter and last quarter and vice versa when equity markets increase. Slide 16 provides a summary of our capital actions over the past five quarters. Since the closing of the TriState acquisition on June 1st through October 26th, we have repurchased approximately 2.1 million common shares for $200 million or approximately $96 per share under our Board authorization. As of October 26, 2022, approximately $800 million remained available under the Board approved share repurchase authorization, which we typically revisit annually in the upcoming Board meeting. We remain committed to offset the share issuance associated with the acquisition of TriState, as well as share-based compensation dilution. Therefore, we expect to repurchase on average $250 million per quarter in fiscal 2023 or $1 billion total for the fiscal year. Of course, we will continue to closely monitor market conditions and other capital and cash needs as we plan for these repurchases over the coming quarters, but I do want to emphasize this $1 billion objective for fiscal 2023. Lastly, on slide 17, we provide key credit metrics for our bank segment, which now includes Raymond James Bank and TriState Capital Bank. The credit quality of the loan portfolio remains healthy, with most trends continuing to improve. Criticized loans as a percent of total loans held for investment ended the quarter at just 1.14%. The bank loan allowance for credit losses as a percentage of total loans held for investment ended the quarter at 0.91%, down from 1.27% at September 2021 and nearly flat sequentially. The year-over-year decline in the bank loan allowance for credit losses as a percentage of total loans held for investment largely reflects the higher proportion of securities-based loans boosted by the acquisition of TriState Capital Bank. Securities-based loans, which account for approximately 35% of net loans, are generally collateralized by marketable securities, and therefore, typically do not require an allowance for credit losses. If you look at the bank loan allowance for credit losses on corporate loans held for investment as a percentage of the total corporate loans, it was 1.73% at quarter end. Compared to most other banks, we believe this represents a healthy reserve, but we are continuing to closely monitor any impacts of inflation, supply chain constraints and a potential recession on our corporate loan portfolio. Now I will turn the call back over to Paul Reilly to discuss our outlook. Paul?

Thank you, Paul. As I stated at the start of our call, I am pleased with our results, and 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 4% sequential decline of asset management fees and related administrative fees that Paul described earlier. Focusing more on the long-term, I am optimistic we will continue delivering industry-leading growth as current and prospective advisers are attracted to our client-focused values and leading technology and production solutions. Additionally, this segment will also continue to benefit from higher short-term interest rates, although we expect cash sorting will continue as the Fed increases short-term interest rates. In the capital markets segment, the M&A pipeline remains strong, but the pace and timing of closings will be heavily influenced by market conditions. Over the long term, I am confident we are well positioned for growth given the significant investments we have made over the past five years. In the fixed income space, the favorable environment we have experienced over the past couple of years has shifted. Depository clients, once flush with cash and facing limited opportunity for loan growth, are now experiencing declines in deposits and have less cash available for investing in securities. This dynamic will lead to a challenging environment in fiscal 2023. While this headwind exists, we expect SumRidge Partners to enhance our current position in the rapidly evolving fixed income and trading technology marketplace, and SumRidge typically benefits from elevated rate volatility. In the asset management segment, the financial assets under management are starting the fiscal year lower due to the decline in equity and fixed income markets. However, we are confident that strong growth of assets in fee-based accounts in the private client group segment will drive long-term growth of financial assets under management. In addition, we expect Raymond James Investment Management, formerly Carillon Tower Associates, to help drive further growth through increased scale, distribution, operational and marketing synergies. The bank segment is well positioned for rising short-term interest rates and we have ample funding and capital to grow the balance sheet prudently. We will continue to operate TriState Capital Bank as a separately chartered bank and respect its relationships with its clients, which coupled with our strong capital and funding, should foster its ongoing growth. Most importantly, the credit quality of the bank’s loan portfolio remains strong. As always, I want to thank all of our advisers and associates for their perseverance and dedication to providing excellent service to their clients each and every day. Just as you have observed over the past two years, which have been filled with tremendous uncertainty and challenges, we will stay rooted in our commitment to take care of advisers and clients, making decisions for the long-term and maintain a strong and flexible balance sheet. We believe with this approach, we should be able to continue delivering strong results through different market environments and drive results for our associates, advisers and shareholders, just as we have for the past 60 years. With that, Operator, will you please open the line for questions?

Thank you very much. I will proceed with our first question on the line from Manan Gosalia with Morgan Stanley. Go ahead.

Hi. Good morning.

Good morning, Manan.

Good morning. I was wondering if you could discuss your assumptions for deposit betas in your NIM guidance for the next quarter. It seems like even with the 75 basis point increase in the Fed funds rate in November and a significantly higher average Fed funds rate for the upcoming quarter compared to the last one, you are only expecting your NIM to rise by about 25 basis points. So, my question is, what are you anticipating for deposit betas, and is there an element of conservatism in those figures?

As you know, we prefer to provide conservative guidance, and the 3.15% figure is indeed somewhat conservative. It only takes into account the November increase, while the market is also anticipating a December increase. SOFR generally leads these types of increases, as we observed last quarter. We experienced a 50 basis point sequential increase in NIM two quarters ago, followed by a 40 basis point increase this quarter, and we are guiding for 25 basis points, though it could certainly be higher moving forward. We anticipated that the deposit beta would approach 50% as rates continue to rise. For our last incremental increase, it was 35%, and cumulatively, it was 25%. We have been at the forefront of the industry, prioritizing our clients and being generous as rates have increased. Therefore, looking ahead, a 50% estimate might also be too conservative, especially when comparing ourselves to competitors, as we are significantly ahead in sweep rates.

Got it. And then on third-party bank deposits, we saw through this earnings season that many banks are relying more on wholesale funding. So I guess the question is, what are you seeing in terms of demand from third-party banks? And where should we expect that third-party bank fee rate to go, if the Fed stabilizes at 4.5%? And is there a possibility that you are able to earn a higher spread on those deposits as you renegotiate your contracts next year than the typical, I think, Fed funds plus 12.5 basis points or so that you typically earn?

Yeah. I think absolutely. The demand is way up. And as you pointed out, if you look at almost all of our competitors, if you really looked at just what’s happened to cash sweeps there, we are all in the same ballpark. It’s just most of the other firms have gone into high yield savings to supplement their cash or the money market sweeps. So we haven’t done that. So we may. But to-date, we feel like we have ample low-cost funding with our sweeps. And we do see the demand going up, which will impact rates, and Paul, I will let you address the rate dynamic.

Yeah. At the trough in the last year or so, the demand from third-party banks was, obviously, very weak and the pricing was kind of in that fed funds effective range, which was down 20 basis points or so from the peak spreads a couple of years prior. So we are quickly seeing that demand resume. That’s the first step and now we are starting to see prices and the economics improve on the spread. But, again, 20-basis-point spread improvement, if that’s sort of the potential to get back to the last kind of peak spread two years ago, pales in comparison to the base rate improvement that we get from the Federal Reserve on those balances. So, net-net, a significant tailwind though on those balances.

So, regarding the fee rate, it appears that you might exceed the 2 percentage points you reached during the previous cycle. If we assess the conclusion of this rate hike cycle, should we anticipate a fee rate higher than the 2 percentage points from last cycle?

Yeah. I mean we are already guiding just for this upcoming quarter to 2.5% as an example.

Okay. Correct.

Yeah.

All right. Perfect. Thank you.

Thank you very much. We will proceed with our next question on the line is from Gerry O'Hara with Jefferies. Go ahead.

Great. Thanks. Perhaps just a little bit of context or color on the adviser recruiting market. I know it’s obviously been another kind of challenging quarter from a volatility standpoint. So would just love to get a little bit of color as to what you are seeing industry-wide in terms of those dynamics?

I think I've been in this role for about twelve years now, and everyone asks me about the increasing competitiveness of the recruiting market. My response is that it has always been competitive, and we've been performing well. We still see it as very active. Even back in 2009, we anticipated that our best recruiting year would be impacted by the economic downturn, but it actually turned out to be one of our strongest years up until recent times. It's still very active and highly competitive. However, as evidenced by the addition of around 400 advisers this year, if we factor in the RIA channel, we've had another remarkably strong year. The biggest teams we've ever recruited are continuing to join us, which has raised our averages—not only due to market conditions but also because of the appeal of our platform for high net worth and ultra-high net worth advisers. This remains a major part of our strategy, and we believe it will continue to be robust. Our backlog is strong, and while we know it won't last indefinitely, the outlook looks promising in the short to mid-term.

Fair enough. And then perhaps one for Paul Shoukry, can you maybe just comment a little bit, we obviously saw an increase from 2Q to 3Q on the non-comp side of expenses that actually came off a little bit in 4Q. But can you perhaps maybe help us think a little bit about how that kind of run rate might look going into the next couple of quarters?

Yeah, Gerry, most of the sequential increase was really attributable to having a full quarter of results for both TriState Capital and SumRidge, which sequentially added about $25 million of non-compensation expenses. So that was the primary driver of the sequential increase, which we expected. Looking forward, I think, if you look at this quarter as a baseline and I think there’s around $410 million of non-compensation expenses when you adjust out for the loan loss provision and for some of the acquisition-related expenses that we break out in our non-GAAP schedule. And looking forward, I would say, that would be potentially our best guess right now for fiscal 2023 is that number totaling around $1.7 billion in fiscal 2023, which of the $410 million base represents somewhere around 1.5% growth sequentially each quarter in 2023. And most of that growth will really be coming from our technology investments. We are still heavily investing in technology to support advisers, their clients and really all the businesses and functions across the firm. So that’s going to continue to be a significant focus for us going forward. And then you are going to see kind of on a year-over-year basis, growth in business development expenses as the first half of fiscal 2022, travel and conferences, obviously, were still suppressed by the COVID pandemic. So you will see that normalize for the full year in fiscal 2023.

Okay. Great. Thanks for taking the questions.

Thank you very much. We will go to our next question on the line from Alex Blostein with Goldman Sachs. Go ahead.

Hey, guys. Good morning. Thanks for the question. So maybe first just focusing on some of the bank dynamics. I guess if we look at the last cycle, bank NIM peaked at around 3.5% and not to pinpoint you to any specific quarter, but I guess when you use them out a little bit and taking your conservative posture on the deposit betas, but it doesn’t sound like they are going up above 50%. If you think about TriState now in the mix, that’s more loan heavy, so obviously, higher yielding and the absolute level of rates is higher. So should we be thinking closer to 4% bank NIM once the Fed is done or how are you thinking about that sort of run rate on the other end of that cycle?

There are many factors to consider. One key difference now compared to the last cycle is that our securities-based loans are more concentrated. This generally results in a lower net interest margin because they are fully backed by liquid marketable securities. While the risk-adjusted returns are appealing, they usually have a lower net interest margin than corporate loans. Like I discussed with Manan regarding the BDP fees, this time we anticipate rates will be higher than previously, particularly the base rates. Given the mix of loans and various factors at play, I wouldn’t definitively say that 3.5% is a cap, nor would I assert that it could reach 4% just yet. We need to see how cash sorting and deposit cost trends develop.

Got it. All right. Fair enough. Just staying on the balance sheet theme for a minute, you guys, obviously, had the right call on not extending duration a year or two ago and keeping the balance sheet fairly floating. But if you look at what’s going on today, security yields are quite attractive and maybe there’s a little bit more upside. But that’s a fairly good return on invested capital as you kind of look at what the market rates are today. What are your thoughts about building a securities portfolio from here, maybe extending duration a little bit, just to lock in what looks like a pretty attractive rate of return?

Yeah. So we are not against the securities portfolio, but our first thing is to fund our growth in loans and securities become the next part of it. So we agree they are attractive after being beat up for not locking in rates over a number of years, we are not after waiting it out and now having the balance sheet. We are not ready to call that we have reached peak rates and start locking in. So I think at least in the near-term, we are going to be flexible as the Fed probably has a couple of rate hikes and then we will look at it and if things settle down, we may balance in a little more. But our first funding is for growth and then any excess funding, which we are certainly happy to put in securities, because you are right, they have a very good spread right now.

Looking ahead, we've significantly built up our securities portfolio over the past few years due to limited demand from third-party banks. This was a strategic move to support our operations. However, with strong loan growth and cash sorting dynamics, we anticipate that some of the accumulated securities will need to be liquidated over the coming year to finance the loan growth mentioned by Paul, which also includes loans with longer durations. Notably, our mortgage portfolio saw healthy sequential growth during the quarter, and its associated duration provides us with a level of protection. When we do take on duration, our preference is to do so to bolster client relationships. If we have excess cash beyond the needs for loan growth, we are keen to invest in securities since they offer attractive returns. Similarly, we also have options for the cash we sweep to third-party banks. Currently, we have a range of choices, reflecting the flexibility we've maintained in our cash balances over the past few years.

Got it. All right. Thanks. I won’t ask the pre-tax margin question. Just to remind that there was a plus at the guidance next to 20 when you guys gave it last time. I just wanted to make sure that it’s still there.

Yes. It was over 20.

Yeah. I told you so.

Okay.

Thank you very much. We will proceed with our next question on the line from Steven Chubak of Wolfe Research. Go ahead.

Hi. Good morning.

Hi, Steve.

Hi, Steve.

So I wanted to start with a question on FIC. You alluded, Paul, that some of the headwinds to the business. It’s been run rate in the last couple of quarters at about $100 million. This most recent quarter, you noted included SumRidge Partners’ contribution as well. As the Fed continues to remove excess liquidity from the system, do you anticipate further pressure on this $100 million baseline or is that a fair run rate that we can underwrite looking out to next year?

You can see the dynamic. We have a strong fixed income franchise, particularly in the banking space, which is performing very well as they are focusing on the same dynamics as the rest of the industry. As cash tightens, they will prioritize funding loans over securities, just like we will. This could create pressure on our run rate if conditions become tighter. On the other hand, SumRidge is performing exceptionally well right now and seems to be in a favorable position, but the banking segment of our franchise that excels might face more headwinds.

Great. And just for my follow-up, maybe on the comp ratio, certainly a nice positive surprise, especially relative to the guidance. I understand Paul or can appreciate your reluctance to update the 19% to 20% plus margin target. But wanted to get a sense as to how we should think about your philosophy around comp given so much of the revenue growth is going to come from less compensable areas. What’s a reasonable expectation for where the comp rate should be running if rates stay higher for longer?

We believe we have compensated our advisers and associates fairly based on their production, despite the lack of interest payments. When interest diminished, we maintained their payout structure, which has implications for management's compensation. Our current strategy indicates that interest rates will remain non-compensable, affecting some of the bank's compensation. Generally, if there is an increase in interest spread, margin compensation will decrease, and conversely, if this normalizes or reverses, the ratio will improve. Fundamentally, our approach to compensation hasn't changed, so interest spreads are expected to lower it for a period. Right now, spreads are likely higher than usual, but it’s uncertain how long this will last—potentially a year or two. However, we anticipate that these spreads will improve as interest spreads recover.

Yeah. I think the one thing I would add is, the compensation philosophy kind of from outside of the sort of adviser force that Paul was talking about was to help share the success of the firm with our associates. And we are in a high inflation environment and so whereas we are entering year-end, we are leading into being generous to our associates and sharing in the success with our associates just as we always do. And so those year-end increases won’t really be reflected until the second fiscal quarter, the first calendar quarter of the fiscal year and that’s when the payroll taxes reset, of course. But as Paul said, the interest spreads have been a significant benefit to our compensation ratio down in this kind of 62% range.

Okay. And anything on the admin cost side that we need to be mindful of, I do think the admin comp was running a little bit higher than we had anticipated or at least based on what some of the napkin math would suggest when you try to back out some of the non-compensable portions of revenue?

Yes, that reflects a complete quarter of results from both TriState Capital and SumRidge. I believe this serves as a strong baseline moving forward. We plan to increase salaries across the board and are prepared to be generous with this due to the competitive labor market, inflationary pressures, and our firm's ongoing success. We want to share this success with the associates who have contributed to it. Additionally, we are continuing to hire across all our businesses to support and maintain the significant growth we have experienced, and this will be evident throughout fiscal 2023.

Hi. Good morning. So just given the level of sorting right now and the pressure that may put on total available funding as you look out a couple of years, just completely understand the cautiousness and the tone around the size of the AFS book and maybe letting some of that runoff in order to support loan growth. So just two follow-ups on that, was what is the current duration of the AFS portfolio and how much of that portfolio would run off per year if you didn’t reinvest at all in the portfolio? And can you also remind us, are there specific minimums that you need to hold in terms of the CIP and the third-party bank sweep just so we have that as the sorting process continues here?

Yeah. I would say in the securities portfolio, the average duration is somewhere around four years now with the securities portfolio. So if you think about kind of a normal distribution, you might have somewhere around 20% to 25% run-off a year, probably back-end loaded a little bit. But and again, we are going to use a lot of that to fund the loan growth as current plans. There is a baseline for CIP of cash balances there. If you kind of look back at 2019, I think there’s probably $2.5 billion or $3 billion of cash there for a variety of reasons and so maybe that’s kind of a good way to think about the floor there for those balances. And really, with BDP, that’s a function of providing clients FDIC insurance, trying to maximize their FDIC coverage as much as we possibly can given all the constraints and the demand from third-party banks.

Is there a minimum amount that needs to be held on the third-party bank side, perhaps a few billion dollars, or is it a smaller number?

Not really. We view the minimum on the BDP balances as a way to provide a funding buffer. We don’t want to overextend our funding, as we've seen in the industry that doing so can be challenging without a buffer. One of the considerations we are currently evaluating is what we want that buffer to be. Our balance sheet is much more liquid than it was 10 years ago when we established the 50% buffer that some of you may know about. We believe that buffer is now too conservative. However, now that we’ve completed the acquisition of TriState Capital and are assessing their balance sheet, we are in the process of determining the appropriate buffer. We will continue to approach this with a mindset of conservatism.

Understood. That’s really helpful. And I just have one follow-up related to administrative comp. I think on last quarter’s call, you mentioned there was an off-cycle bonus paid in the fiscal third quarter, which caused the PCG segment admin comp to be elevated. But we saw another $15 million sequential increase in that PCG admin comp line in the fiscal fourth quarter. So just wondering what drove that and how much of that is one-time in nature, if at all?

Yeah. I am not sure. I think it was a 5% sequential increase and again that bounces around based on benefit accruals that we adjust for, particularly at the end of the fiscal year and making sure we are fully funded and accrued for on benefits and other things. So there’s nothing that I could point to specifically that would describe that other than just sort of natural growth and changes to the accruals, etc.

Thank you very much. We will proceed with our next question on the line from Jim Mitchell from Seaport Global. Go ahead. Jim, are you there?

Hello. Can you hear me?

I can hear you now.

Okay. Sorry. So deposits are down to about 6% of client assets based on sort of the guidance for October, client cash I should say. Can you remind us of the historical average for cash levels, maybe a low and high range, just trying to think through where that starts to bottom out?

It’s a pretty wide range. I think the peak of that range was in the mid-teens in 2009. But of course, that’s because cash increased and end markets decreased substantially. But I would say, the trough was somewhere in that 5% range, maybe a little lower than 5% in 2019. So to your point, we are at 6%. I think the 25-year historical average is probably in the 7% to 8% range. So it’s a pretty wide range.

Right. And is there a point where you have to more aggressively defend cash balances and deposits to fund the balance sheet?

Yeah, definitely. We’ve been fortunate in managing our finances well, focusing on maintaining a flexible balance sheet. However, cash is essential for running the business. If we notice that our cash levels become concerning, we talked about possibly offering high-rate savings and other options, although we haven’t implemented those yet since we didn’t feel the need. Now we have TriState, which is a strong funding source; their robust net funding operation was a significant factor in our acquisition, contrary to the understanding that having a lot of cash might seem excessive. Last year, we expressed concerns about future cash availability, so we have alternatives now. It’s crucial to have cash to operate effectively and to ensure we can meet our clients' cash needs. Currently, our cash balances haven’t exited the system; they’ve shifted more into fixed income or money markets within our platform. They just aren’t in pure cash form right now.

Thank you very much. We will go to our next question on the line is from Devin Ryan with JMP Securities. Go ahead.

Hey. Good morning, guys. How are you?

Good, Devin.

Devin.

Most questions have been covered. I want to revisit the balance sheet and consider your mix, possibly in relation to Alex’s question. Deposits are becoming more limited, so as you look ahead, aside from considering the securities book, are there other areas within the loan book or more broadly where there’s potential for optimization and opportunities to enhance the risk-adjusted net interest margin?

There probably always is.

Yeah.

So part of what we are doing is we are going through our budgeting exercises to say where do we want to deploy capital. We have got with the banking business, a broader bank business. TriState is an independent business with its third-party platforms. And the question is, between that and Raymond James Bank, where do you allocate capital in the portfolio really to optimize, not partly the balance sheet from our standpoint, but really to allow freedom, for example, for TriState to service their customers. So we are going through that to make sure that the capital allocations make sense both for those businesses and for us. So there always is in periods of rapid transition right now, it’s a little bit harder to do it, but we are in a lot of discussion on it.

And I would say just reinforce that. We really don’t manage the balance sheet allocation to necessarily maximize NIM. We do it to maximize risk-adjusted returns and we believe that securities-based loans both at Raymond James Bank to our own clients and at TriState Capital to their independent clients is the best risk-adjusted return. So that is kind of the priority to the extent that the demand is there, which we think that over time that should continue to be a good tailwind for us and then we look at the other loan categories. We like the mix that we have right now with 35% of our loans and securities-based loans. So that’s kind of how we are thinking about it.

Yeah. Okay. Thanks, Paul. And then a follow-up here just want to talk a little bit about the investment banking outlook. Appreciate there’s always a little bit of crystal ball in there and you guys are going to, I think, conservatism just given the uncertainty in the market. But I just want to make sure I understand how you are thinking about it. You have equity issuance is going to be market-centric, but market stabilize that probably would improve and then your M&A business is structurally larger. So all else equal, that the business trajectory over time is higher than fixed income, it feels like maybe it could remain a bit under pressure if rates remain higher. So just trying to think about how much of maybe there’s more muted near-term outlook is just purely market-centric versus maybe the flip side would be maybe every business doesn’t snap back to where it was over the last year or two, because rates are higher, or there are some other structural dynamics in the market just changed. So I just want to kind of parse through both the cyclical versus anything that maybe a little bit more impaired for a continued period?

If we look at the fixed income business, the challenge in a rising rate environment is determining when investors will shift to long-term investments, which typically occurs as rates rise. I believe this business will perform well. Currently, investors have been favoring shorter-term investments, and when they transition to longer-term options, it will be more beneficial for us, but we need rates to reach a level where people feel confident making that move. We're essentially in a waiting period until that happens. With M&A, it's a bit more complicated. Our backlog and client situation are strong, and we see growth in both our platform and among strategic investors. However, predicting the M&A landscape is trickier. It has been stronger than many anticipated, but the timing of when deals close is uncertain. The last two years experienced unprecedented M&A activity, making it difficult to determine if this will serve as a new baseline or remains an anomaly. We're still very optimistic about that segment, but it's hard to identify the factors that will drive its continuation or lead to a slowdown.

Okay. All right. Thanks very much.

Thank you very much. We will proceed with our next question on the line with Kyle Voigt from KBW. Go ahead.

Hi. Good morning. So just given the level of sorting right now and the pressure that may put on total available funding as you look out a couple of years, just completely understand the cautiousness and the tone around the size of the AFS book and maybe letting some of that runoff in order to support loan growth. So just two follow-ups on that, was what is the current duration of the AFS portfolio and how much of that portfolio would run off per year if you didn’t reinvest at all in the portfolio? And can you also remind us, are there specific minimums that you need to hold in terms of the CIP and the third-party bank sweep just so we have that as the sorting process continues here?

Yeah. I would say in the securities portfolio, the average duration is somewhere around four years now with the securities portfolio. So if you think about kind of a normal distribution, you might have somewhere around 20% to 25% run-off a year, probably back-end loaded a little bit. But and again, we are going to use a lot of that to fund the loan growth as current plans. There is a baseline for CIP of cash balances there. If you kind of look back at 2019, I think there’s probably $2.5 billion or $3 billion of cash there for a variety of reasons and so maybe that’s kind of a good way to think about the floor there for those balances. And really, with BDP, that’s a function of providing clients FDIC insurance, trying to maximize their FDIC coverage as much as we possibly can given all the constraints and the demand from third-party banks.

Is there a certain minimum amount on the third-party bank side, like a few billion dollars that needs to be held there, or is it a smaller number?

Not really. We view the minimum on the BDP balances as a necessary funding buffer. We want to avoid overextending our funding to our banks, as it can lead to difficulties when there isn't a buffer in place. One of the considerations we are exploring is what we want that buffer to be. Our balance sheet has become significantly more liquid compared to ten years ago when we set the 50% buffer, which many of you may be familiar with. We believe that level is too conservative now. However, now that we have completed the acquisition of TriState Capital and are assessing their balance sheet, we are in the process of determining the appropriate buffer. As always, we will err on the side of conservatism in this regard.

Thank you very much. Mr. Reilly, that was the final question, I will turn it back to you for any closing remarks.

I appreciate everyone joining the call. While we experienced a strong end to the year, the current environment regarding equity markets, interest rates, and cash management is quite unpredictable. We value the flexibility provided by our balance sheet and capital base to navigate these challenges. I'm optimistic about the future, although the direction of GDP, interest rates, and inflation remains uncertain. It will be an intriguing upcoming quarter or two. Nevertheless, our advisers have maintained a satisfaction rate of 97% among clients, which is remarkable, and they are needed now more than ever. Thank you for your time, and we look forward to speaking with you soon.

Thank you very much. Thank you, everyone. That does conclude the call for today. We thank you for your participation and ask that you disconnect your lines. Have a good day everyone.