Good morning. My name is Jodi, and I will be your conference operator today. At this time, I would like to welcome everyone to the Raymond James Quarterly Analyst Call. [Operator Instructions] To the extent that Raymond James makes forward-looking statements regarding management expectations, strategic objectives, business prospects, anticipated expense savings, financial results, anticipated results of litigation and regulatory proceedings and other similar matters, a variety of factors, many of which beyond Raymond James' control, could cause actual results and experiences to differ materially from the expectations and objectives expressed in these statements. These factors are described in Raymond James' 2011 Annual Report on Form 10-K, which is available on raymondjames.com and sec.gov. In addition to those factors, in connection with the Morgan Keegan transaction, the following factors, among others, could cause actual results to differ materially from forward-looking or historical performance, difficulty integrating Raymond James and Morgan Keegan's businesses or realizing the projected benefits of this transaction, the inability to sustain revenue and earnings growth, changes in the capital markets and diversion of management time or integration-related issues. To the extent, Raymond James discusses non-GAAP results, the reconciliation to GAAP is available on raymondjames.com and the earnings release issued yesterday. Thank you. I would now like to turn the call over to Mr. Paul Reilly, Chief Executive Officer of Raymond James. Please go ahead.

Thank you, Jodi. Good morning, everyone. After the release, a lot of people asked me how I felt, and despite fighting a cold and economic, political and regulatory uncertainty, I feel pretty good. The -- I think it's important because there's a lot of what I called noise in the quarter, with so much going on within the firm and the integration as the first, put the quarter in perspective. This was a record quarter in revenue and in earnings, and sure, you could say, well, part of that was Morgan Keegan. That certainly aided. But if you took Morgan Keegan out in the related costs of the acquisition and integration, it still would have been a record quarter in revenue and earnings. So I think that if you look -- it was a very solid quarter in terms of operating, much of the beat we recognized, as you have, was from a tax rate benefit driven by COLI, which Jeff will talk a little bit later. But it was a good operational quarter. And in this environment, especially with the integration going on, we feel very good about it. There is a lot of things happening on the cost side, as you've noticed, and we will talk about in some of the segments, especially in Jeff's part. We do have, as we've told you, increased technology spend. We've been very focused in elevating the platform for our financial advisors and our individual clients, which has gone very, very well. But on top of that, we've had the integration with Morgan Keegan. And while we're integrating the Morgan Keegan system, we've made some upgrades to our back-office system, because we would have had to do them twice. And that has elevated technology spend. And we've also used a lot of…

Okay. I think most of the comments I've read from all of you this morning, that have written about us already, have been pretty much right on with how we view the quarter. It was really kind of a confluence of goods and bads and highs and lows for the quarter, and in some ways, for the year as well. I mean, on the positive side of the ledger, we certainly would have the bank, as Paul just mentioned, which had -- has had consecutive record quarters and, by far, a record year. Fixed Income for the last 6 months since the integration is performing about as well as one could expect, given the massive task of integrating 2 fairly sizable businesses and trying to right-size that. There's probably still a little bit more of that to go. But certainly, for the fourth quarter, they performed every bit in line with our expectations. Proprietary Capital, for the last 6 months, has certainly been a pleasant surprise as we've -- in both quarters, to our interest, had a $5 million type profit recognized in that segment. And certainly, this most recent quarter, the tax rate benefited, which I'll talk about in a second. So overall, very positive elements. But there were also some negative elements. Equity Capital Markets continues to be a difficult business. As Paul mentioned, I'll talk about our comp ratio, which we view as a higher than -- it should be and higher than it will be in the future. And certainly, IT costs, as we've made some of these investments, which, again, I'll talk about. So with that, let me talk in some detail about a couple of things, in no particular order. With respect to the tax rate, we've used the reasoning with the COLI in…

One last comment and I'll open it for questions, is that in terms of the integration, we continue to be on schedule. We've stayed ahead on retention. So our targets, I'm very confident we're going to be able to get our operating synergies down on the cost side, that's going to be after conversion. So we're slating for our final conversion in February. There's probably 90 days to get operationally stable and through it all. So we're going to be -- we'll be able to lower some of our costs in between. But I think the great bulk of that is going to happen during that post-integration time frame. But I'm confident that we're on track. I'm confident they're there. And if we can keep the people, it would be a great story. And so far, so good. So with that, Jodi, why don't we open up for questions.

[Operator Instructions] You're first question comes from the line of Chris Harris from Wells Fargo.

So I know there's a lot of noise going on this quarter, a lot of moving parts you guys addressed, I guess, a lot them in the prepared commentary there. Just trying to get a sense on the cost side of things. Paul, you mentioned the majority of the savings to come, I guess, after you integrate. And I'm just kind of curious, right now, you guys are running about $180 million or so of non-comp expense backing out provision and adjustments. Just kind of curious as to where you think that number can go, as you guys start to integrate the platform.

Chris, it's Jeff. I'll remind you that a lot of the future synergy is going to be in the comp line. And non-comp might -- it will probably trend a little lower than that, as we get rid of some of the system and platform duplication that we've got, some of the contracts that are in place that we won't have any more, et cetera. But...

Think of most people [ph] .

Yes. And most of the synergy, to date and remaining, is going to be in the comp line.

Okay. Are you guys still budgeting for that $50 million to $80 million target? I mean, I guess you've already realized some of that but...

I'd say we've probably realized maybe 1/4 of it and a lot of it was in Equity Capital Markets, where we kept the revenue-producing units and -- et cetera. But even the people we've kept there, we haven't had the best of markets to realize the production. So that hasn't really resulted in a synergy. Even though we had quite a bit of headcount reduction in the Equity Capital Markets area, we haven't had the revenues that historically have been there.

Yes. Our estimates haven't changed, Chris. We're pretty confident they're there, and it's just -- we're going to have to get through integration to realize them all.

Okay. All right, fair enough. And a few questions then on the bank. Nice step-down in provision expense in the quarter. You guys are at 181 basis points now, your allowance ratio. Just wondering where you guys are comfortable taking that ratio, assuming credit continues to do well here.

Chris, it's Steve Raney. Yes, you saw that it trended down just slightly. We're actually trying to grow loans and adding to provision accordingly. That said, we've had a pretty benign last 18 months or so in terms of credit. In terms of that ratio, it could come down slightly, but it's not going to come down materially. So we're really watching that closely. We're very comfortable of having quite a bit of coverage in terms of our total allowance to our non-performers. You see that's about 138% right now. We like to have that level of cushion in our credit portfolio. But it could come down a little bit, but not materially.

Okay, Steven. And then while I have you, maybe a quick one on the NIM, and then I'll let others get in here. Pretty big step-down this quarter. I mean, I guess that's similar with pretty much every other bank. What are you guys seeing NIM going over the course of the next year or so?

Yes. Chris, just to clarify, it was down 14 basis points for the quarter. About half of that was attributable to -- we had about $150 million more in cash balances that obviously impact the NIM but don't negatively impact our net interest and bottom line. So about half of that 14-basis-point reduction was related to additional cash balances we had. And the rest was just across the whole loan portfolio. We -- as you know, we introduced this securities-based loan product earlier in the year, back in February. That product has about a 300-basis-point net interest margin. We want to grow that business. It's a very low-risk business, but it is a lower net interest margin business. And we have had some very small reductions in NIM in our corporate and our residential portfolio. That being said, moving forward, I would say maybe compared to the 355 basis points in NIM, it's something in the 340 to 350 range. So not a material drop for the next 12 months, but maybe -- it will come down maybe slightly.

Your next question comes from the line of Hugh Miller with Sidoti & Company.

Certainly appreciate the insights you guys have given us on kind of the exposure to the equity markets. As you talked about kind of a 50% exposure with the retail client assets to equities, can you just talk about how that compares historically? Have you taken a look there to see what -- has that really changed much in the last several years?

Well, I can only give you an anecdotal. I mean, we didn't have the same ability to look through mutual funds and sort them out as we do today on an automated basis. I would say it's probably down, I would guess, probably 10 percentage points from historic levels versus the client allocations in the past. I think the world has gotten a little bit more conservative here in their investing strategies, but that's just anecdotal. I was a little surprised. I thought it'd be a little higher than 50 even now, but that's how it shook out.

Okay. And I mean, how much of a factor do you guys feel or are you getting any feedback from clients about the November elections, the fiscal cliff? Is that really playing a substantial factor in their aversion to equities? Or what do you guys think has to happen in order for there to be potential rebalance of allocations?

Hugh, I think it's just overall confidence. And all those add into it, whether it's Europe, fiscal cliff, the elections, governmental policy, direction, regulation. I mean, there's just not a high degree of confidence that we're heading somewhere, and people are risk-averse.

There's one more uncertainty that will be removed in a few weeks.

Yes. But a few to be added even when that one is removed until we see what happens so...

It may add a few more.

It's going to take a while. So we may get some euphoria after an election with one result or another. But I think people are going to settle down and say, "What does that mean until Congress convenes?" So...

We aren't having -- we aren't advocating that people make election [indiscernible] at this point.

And I know that the majority of your fee-based accounts are booked in the prior quarter. But we did see a kind of a pickup in September in average daily commissions that were -- it's a little higher than what I would have expected. Anything in particular? I assume, given the higher exposure within the PCG side, but was there any -- to those types of commissions. But anything in particular that was kind of driving that rise in September?

There's 2 general factors for us. One is, it's after summer. So September is usually better than the summer months. And secondly, it's our year-end. And I think that people work hard to close out their books and positions and -- so we'll get a lot of -- they qualify for clubs and levels and -- so they work really hard in the month to close out the year well, and they probably work harder. So I think that if you look overall, it was a -- it wasn't record month on a daily basis, but it was much better than the previous 2 months.

Okay. And last question I had was just with regards to some of the commentary you guys have made about consideration of cost structure within kind of the cash equities business, just given what you guys referred to as both cyclical and structural changes in there. Can you just delve in a little bit further about -- to what extent you would consider making an adjustment there and any types of things that you guys have talked about and what you would consider changing?

No. We're still early going. But I mean, if you just look at the market that the -- if you look at the over-the-desk commissions were down. And that's how we get paid. We're a research-based firm. So we have high costs, and it's just -- you got to rationalize either what people get paid, how much cost you structure, how you -- just how you look at that whole thing. So we're examining it, because we believe that part of it is cyclical, but part of it's structural. And we're just taking a look at it now so...

Your next question comes from the line of Alex Blostein from Goldman Sachs.

Jeff, sorry if I missed it already, but can you walk me through the comp dynamic again this quarter? So I guess your point on the comp rate being higher because of kind of slower Equity Capital Market activity. But I guess, when I look at last quarter, $736,000 and just in dollar terms, went to $745,000 this quarter. Commissions were kind of flat. Everything else out of Investment Banking were kind of flattish as well. So can you just explain, I guess, what drove the sequential increase in comp, dollar terms?

Yes. A couple of things. We had some onetime charges, as I mentioned, about $10 million of them. Most of which hit in this fourth quarter, which probably makes up your difference right there. But there are other things as well. As we continue to work on these IT projects, some of the hiring we do comes in the form of contractors, which actually gets into the comp line. The consultants don't, but contractors do. So we've actually added headcount in IT to keep some of these projects alive, that I mentioned some of the regulatory, some of the advisor desktop, et cetera. Not much, that's a small quarter-to-quarter but still an item. So it was predominantly right-sizing of all the incentive comp pools -- it happens at year-end. That's an exercise around the firm, as well as these onetime charges probably between quarter-to-quarter, probably makes the difference.

Got you, that's helpful. And then I guess, looking at the entire expense line for the quarter, 930 [ph]. You're saying you guys are already running about 20%, 25% of your targeted cost saves, kind of in the numbers. So it's sort of -- kind of in the run rate. Can you give us, I guess, an update? What's -- how much is left? But also most importantly, when you think about extra cost that the business is incurring right now, aside from Morgan Keegan, so whether it's travel, which is I guess something you guys talked about last quarter, some of these contractors, IT-related stuff. It just feels like there's more running through the total expense line right now than what's kind of implied in your ultimate savings. Is there a way to size that?

Yes. Let us address that. Let me go back to your first -- your other question real quick. One more -- one other thing that impacted quarter-to-quarter on the comp, the Morgan Keegan retention packages, which were delivered in April and May, the amortization of those started July 1. That's about $5 million a quarter.

And those aren't onetime.

Yes. Those unfortunately will be recurring or fortunately, but those will be recurring. But that was just looking quarter-to-quarter. That was the additional $5 million increase, not a onetime charge.

Okay. And just I guess on the -- on any other costs that are flowing through that will eventually go away?

It's hard for us to say. We've told you for several quarters that we're going to have higher technology spend here for some time. And we certainly lived up to that. Some of these costs [indiscernible] systems, et cetera, aside from Morgan Keegan. We'll finish some of the projects we have in process. I don't know if that means the cost will go away, because some of the capitalized projects you start -- then realize the amortization of those through your P&L. And we'll have other projects that need addressing. So I don't know that we can say that there's a lot of fat in the base level of expenses outside of the comp expense at this point in time. I don't know, Paul, maybe...

No. I think the ongoing IT is a little heavy. But I mean -- after the cost savings. But it's -- we do have an elevated IT investment that we'll be seeing really for a few years. And we've talked about that way before the Morgan Keegan acquisition that, that's up. So that run rate is up. It's just accentuated this quarter by a number of the things Jeff has talked about, some adjustments, some allocations and the consultant cost. So...

I don't see that occupancy or business development or some of the other expenses really. I think they're in the approximately the right rate for where we are, inclusive of Morgan Keegan, and obviously, have more people going on trips and things like that.

That will slow down.

Yes. But I don't see a lot of, like I said, trimming to do in the non-comp expense area beyond some of the IT.

Yes. There's a lot of costs that are honestly hard to quantify that you go through in these integrations, for example, we've had almost 60 Morgan Keegan office people here for 5 weeks being trained on all of our systems. We've had all their operations people being trained for 3 days this week and then joining our operations as managers running [ph] the new system. So you do get some elevated costs through this integration process that will go away but the...

I think there might be a little help in occupancy. We right-sized 5 or 6 Equity Capital Market offices around the country already. Now we've taken some of those charges through the non-recurring, as we have either abandoned or subleased some space or whatever. But we won't have that occupancy expense for some of those going forward. I don't know how big a lift that is, but that may be fairly minor. And I don't think there's much of that, if any, in the PCG side post integration to come. So we do have a new data center going in, in Colorado that will increase occupancy a little bit. But I think, by and large, the expenses are at about the right level outside of comp for the current level of operations.

Got it. I know it's difficult. So I guess -- throw out the number there. So I appreciate all the additional color. One more from me on the bank. Clearly, you've a good growth there. Have you guys talked at all about, I guess, how you're thinking about growth in the bank heading into next year? Should we think about the loan portfolio growing roughly at the same rate? Can you accelerate some of that? Have you seen incremental opportunities in certain parts of the market? Or is that -- should be, I guess, pretty similar to what it's been this year?

It's Steve Raney. A couple of things. Since this last fiscal year, reminding you that back earlier that year, we closed on the Canadian portfolio. We also closed in July on a $185-million purchase of the legacy Region's securities-based loans. We had a couple of non-recurring events that helped catapult our growth during fiscal '12. That said, we are being opportunistic in trying to grow the loan portfolio organically this year, kind of across the whole spectrum, our corporate lending, our mortgage banking business and securities-based lending. I would -- I think that we're -- to the extent that the market is available, we're not going off into any new businesses or any new ventures at all, so we're going to stick to our core businesses. But we'd love to be able to grow the bank high single digits, low double digits, call it 8% to 12% over the next fiscal year. So that's what we're targeting right now.

[Operator Instructions] Your next question comes from the line of Devin Ryan from Sandler O'Neill.

Just want to get your perspective on acquisition opportunities in the Private Client space, just as regulatory costs rise and in smaller firms, I think, continue to get squeezed. They just don't have the same economies of scale that you guys do. So essentially, maybe outlook and even appetite, given an outlook.

Well, right now, we're fairly busy digesting our latest venture here. I think that there'll be opportunities for small firms. We -- the -- as the regulatory burden comes up, it's going to be hard for people to be small broker dealers. They can go into the RIA space. There's lots of opportunities to change business for advisors. But there'll be -- we are interested in organic growth or in this acquisition, I think Morgan Keegan was a rare opportunity. There's a couple of mid-sized firms. We'd love their business. If they became available, either in the independent space or the employee space, we'd love to have them as part of the family. But there's smaller kind of -- maybe smaller kind of acquisitions. But right now, they're not. And -- but there aren't -- if you go through the list, there aren't a whole bunch of them. And there are a lot of firms that are also in business, just have different products in space. We're not big in variable annuities. We're not big in closed-end funds and things that firms -- some firms do. And we don't do them. So if you look at the people that do business the way we do, there's a handful we'd like. But there's not a ton of them. And if they became available, we'd love them to join us. But I think that a lot of them may stay private or stay their own way, unless the regulatory pressure or succession dictates [indiscernible].

Got you, okay. And then from a modeling perspective, how should we think about the ClariVest results? And then are you planning on consolidating that business? Or I guess, how should we think about modeling it?

That will be consolidated. So there's some additional non-controlling interests to come there. We're acquiring 45% of it as the release said and then manage about $3 billion, mainly in the large cap space.

Great. And then, I apologize if I missed this. But did you give the specifics on what drove the $10 million in onetime comp charges? And then just additionally, on comp again, just to beat the dead horse, I'm just trying to figure out the numbers here. And based on the commentary, if you're going to assume that the $60 million to $80 million of expense saved, are the majority still yet to come? Then I'm estimating that the comp expenses may be elevated by another $10 million to even up at $15 million higher, just related to that Morgan Keegan -- the elevated Morgan Keegan expenses. So I just want to make sure that I'm kind of thinking about things, maybe just in the right ballpark. And then secondly, just give us some detail on the onetime $10 million this quarter.

It wasn't all this quarter. It was over the last 2 quarters. But most of it was this quarter. We had a -- we did an internal Fair Labor Standards Act analysis around our entire firm. So we weren't subject to any penalties, et cetera, in the -- by the DOL or anyone else, when they look at that at a later date, which caused us back overtime pay off about -- over $2 million around the entire firm, most of it in the IT ops areas where most of the clerical-level employees are and some in the branches. So -- but most of it was in the PCG area. Another one was the $5 million catch-up charge for some of our deferred plans, where people had reached retirement age and aren't subject to forfeiture anymore. And that was in the fourth quarter. Those were the 2 biggest things, and there were some little true-ups around the firm. To your second point, I think, your -- I would expect that your number, hopefully, is light, that we -- like I said, I think we're probably 1/4 of the way, at least, in the September numbers. We severed 30 people at the very end of September, so that hasn't been reflected in this yet in terms of any comp savings. But probably 20% of the, what I'll call, the synergy expenses have already been incurred through the integration of ECM and the beginning of integration in Fixed Income. And like we said, when the rest of it happens, it's going to be primarily in comp.

Yes. And my numbers were on a -- I was talking on a quarterly basis, not annualized, as well.

Yes. So I mean, I would hope that -- yes, I hope comp is inflated by more than your $10 million to $15 million, post integration.

At this time, there are no further questions. I will turn it back over to management for closing remarks.

Thank you, Jodi. Thank you, all, for joining us this morning. Again, I think it was a very good quarter, given everything was going on in a tough market. And it reflects all the work we're doing and a lot of work left. So I appreciate your time this morning, and we'll talk to you again soon.

Thank you. That concludes today's Raymond James quarterly analyst call. You may now disconnect.