Good morning. My name is Felicia, 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 are 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 the raymondjames.com or 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 the transaction; the inability to sustain revenue and earnings growth; changes in the capital markets; and diversion of management time on 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 your speaker for this morning, Mr. Paul Reilly, Chief Executive Officer of Raymond James. Please go ahead, sir.

Thank you, Felicia, and good morning. As I looked at kind of some of the price targets this morning, we're reticent to ever give guidance. But we are making a prediction: Our prediction is 70 plus. And that's not the stock price, but that's the temperature here in St. Petersburg today for those of you in New York. So if anybody wanted -- wants a challenging career in great temperature, we're here in St. Petersburg, give us a call. I'd like to start the release in kind of taking a high-level view, and I think our first big accomplishment is 100 consecutive quarters of profitability, which is a big milestone. And I think it's really a testament to the management philosophy that Bob and Tom James have built here. It has been since Black Monday that we -- that quarter where we had our loss, and that loss was due to that we kept the trading desk over that -- open that day and recorded a little over an $800,000 loss, some 25 years ago. So I think that the story of Raymond James continues to be a strong, long-term ROE with a buffer to the downside because of our management philosophy, which should translate the value to our shareholders and our associates. This quarter, I believe, was a good solid quarter given the marketplace. We recorded record net revenue of $1.1 billion, up 4% from last quarter and 42% from last year. We also turned in a record net income of $85.9 million, up 3% over last quarter and 28% over last year. GAAP EPS was $0.61, up 2% from $0.60 last quarter and 15% from last year. And our non-GAAP, excluding the integration cost, of $0.69, flat with last quarter and up 30% from last year. And I…

Okay. A few comments to add to what Paul said. First, I'd like to make sure everybody is aware that we did beef up the press release this time. We've added some additional balance sheet data, including tangible book value per share. We've added ROE for each period, both GAAP and non-GAAP. And we've added a breakdown of commission and fee revenues and, similarly, a breakdown of investment banking revenues. This particular time, we put in a trailing 5 quarters. So those of you who model our earnings can update your models accordingly. Going forward, we'll probably put in the comparative periods similar to the way we present the P&L in the quarterly press release. Secondly, let me talk about the comp ratio, which we analyze as a percentage of net revenues. It was 68.73 this quarter versus almost 70 last quarter, so we actually had 123 basis point improvement. I'd say that was a couple of factors, small pieces that was results of some of the rightsizing we did toward the end of last fiscal year starting to manifest itself. But also, there was a surge in revenues, as we've talked, about particularly in Equity Capital Markets -- although that certainly has variable comp associated with it, as well as a modest amount of bonus reversals, which we have every year in that first quarter, nothing like Goldman Sachs. So -- and that we improved 122 basis points. We think there will be more to come post-conversion as long as revenues hold up at these levels. This is the area that the cost efficiencies will primarily be recognized, and so we're hopeful that, that trends lower as we go through the fiscal year. I'm very disappointed to tell you that I don't have anything to talk about with respect…

Okay. We'd like Felicia to turn it over for questions.

[Operator Instructions] And your first question comes from the line of Joel Jeffrey with KBW.

If you could just give us a little bit more color on, sort of, your expectations for pretax margins in the Private Client business going forward. I mean, I know you've done about 7.4% this quarter, and just like sort of the period right before the deal was done, is a little bit above 9. Is that the kind of level we should think about once the integration is done? Or given what you've said about getting increased productivity out of the Morgan Keegan guys once they're on the platform, should we expect kind of a higher number going forward?

I think, Joel, you're going to see a drag. The Morgan Keegan margin were slightly lower, if you really look at effective payout, it's going to take time to get them up, our payouts. We went to a kind of a new grid we announced, which was really neutral, so we're not going to really get any pickup there. So we expect them to improve, but I think being back to 9 would be very difficult short-term. We also have -- the other impact was the amortization of the retention bonuses for Morgan Keegan which impacts that line. So a lot of money being run through on the amortization of retention impacts that ratio also.

Okay. And then, I mean, thinking about the loan loss provisions, again, clearly came in a bit below what we were looking for. I mean, when you think about it going forward, are you guys targeting a specific, say, like allowance-to-loan ratio percentage? Or is this really going to kind of vary based on how many loans are paying off in the release of reserves that you have?

Hey, Joel. It's Steve Raney, good morning. Yes, it's really loan-specific, there's not really a target per se. Each loan is rated -- one of our -- each one of our corporate loans is rated individually. We've been pretty aggressive at taking actions against loans that early on we perceived to be potentially problematic. Even this quarter, we sold loans, a couple of loans, a couple of positions that closed to par when we had rather significant reserves much more so than what we were able to sell the loan at. So we're trying to be as proactive on that as possible. But -- and as we're booking loans, as we've shared with you, in general, we're adding about 150 to 160 basis points of the new loans on the corporate side, it's a lower amount on the residential, and our securities-based loans are lower than that even. So it's really constructed at the loan level, and there's not really a set target per se. We are comfortable with where we stand in terms of our total allowance to non-accrual loans, non-performing loans relative to our peer group and other institutions that we look at. So...

So the noise you're going to get every quarter is -- our reserving, is pretty consistent for grades. But as loans pay off, whatever reserves we have, we have to release them, and it's this thing that make it move around in quarters.

We actually added $0.5 million to our allowance. But on a percentage basis, it did come down 9 basis points in terms of allowance to total loans.

I guess, we had to have a target for the allowance to loans that the -- having no classified loans of any kind, and having 150 basis points of commercial and whatever we have on resi now.

Joel, that's my boss. I've got a pretty high bar to meet now. So...

5% and you're [ph] up that way. And then just lastly, I mean -- and looking at sort of the December commission fee revenues, it looks like it came in a bit above our expectations. And just wondering, could you comment on it if these kind of trends continued into January?

December was a little on the institutional side because of the syndicate. I mean, they were slightly elevated because of there's a lot of the syndicate business. In January, I don't think is -- has been a bad month so far either, but I think it got a little elevation from the Equity Capital Markets business. But you're down in the fixed income business, I think will -- it'd pick back up. So I don't see anything -- I can't -- I haven't looked close enough at the January numbers to tell you where we stand.

We have set slightly higher fee billings than we did October 1 for the quarterly stuff, despite that's down 1% S&P 500 market and the December quarter.

Which will give us a little bit of a tailwind going into January also.

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

Great. So a couple of question on expenses. Maybe as you guys kind of look through this year, I guess the first question is, what do you guys see sort of the normalized comp rate settling in, still right now, kind of like in the high 60s? So isn't it 60 still, I guess, the number we should be thinking about for comp?

We can see it coming down, but I don't know mid-60s, if you mean 65%, if that's mid, then it's no. We can get improvements, and the -- but there's only so much you're going to get out of operational and overhead synergies. If you can get improvements, it's going to be have to be in payouts, and you're not going to see reduction in the Private Client Group are really payouts overall. We're looking at a number of things, including our client net pay pricing. We're studying it right now. We're doing other things that could impact margins. We've said we're looking at the Equity Capital Markets, we're operating heavy there, and there'll be some. But with the independent contractor division being 2/3 of the PCG, you're not going to get it down that low.

Got you. That's helpful. And then, I guess, on the non-comp side, it seems like, especially in technology, there's 2 things going on, right? On the one hand, you're still converting the platforms, but also, it sounds like you guys were doing a few upgrades that feels like might be also temporary in nature at least for now. Is there a way to quantify that? And how much of a non-comp relief you guys would get once everything sort of settles down?

Yes, I think that there's 2 pieces. One, we have elevated technology for improvements, and -- but there is certainly elevated technology costs for integration. And honestly, we are pretty conservative on what we call acquisition-related. And I think until it all settles out, you can't really get a good number. We've given you $60 million to $80 million target, we think we've gotten half, although we think there's another half. A lot of that is in ops and tech. Then, we're just going to have to wait till we settle through. But our technology spend is up, it's not sustainable at the level we have out, but -- because of the integration expenses. But it is up from prior, and will continue to be, as we look to actually strategically position our technology as a leader, which I think we're getting good results so far.

Got it. Very helpful. And then, Steve, I have a quick question for you on the bank. So loan growth is obviously very good, can you give us a sense of where the organic loan growth is coming in from? And at the same time, revenues down a little bit sequentially, I'm assuming that's because net interest margin has come down. And I just want to clarify if you guys think that this is probably the run rate NIM we should think about? Or that it's more kind of an incremental compression to go? In other words, if we continue to see decent balance sheet growth, should the revenue growth be kind of going in line with that?

Yes. Alex, related to the loan growth, it was across all of our loan classifications, but the bulk of it was in our corporate area. The December quarter we enjoyed some pretty robust opportunities in the marketplace, both in the primary market and also we added some positions in the secondary market. I would say that we're seeing -- those opportunities have kind of waned a little bit this quarter. We've seen continued pressure on margins and also structure. So I would not anticipate our loan growth to meet that close to 5 -- close to -- actually it was over 5% for the quarter. I would not anticipate that for the next few quarters. Although, we're growing at a slower rate, I would anticipate over the next couple of quarters. Related to our revenue number, there was a couple of things that impacted our net revenues. Our -- we have a bank on life insurance policy that is about a $65 million investment that had about an $800,000 swing, a negative swing between the December quarter and the September quarter. And also, while the vast majority of our Canadian loans are in our Canadian enterprise that are hedged against the Canadian currency, we do have some legacy Canadian denominated loans in the bank itself that are unhedged, and that had about a $2.5 million impact negatively between the December and the September quarter. So those 2 things in combination with the slightly lower net interest margin contributed to the reduction in our net revenues for the December quarter. In terms of our NIM going forward, I know Jeff alluded to this, we are seeing some pressure. I would anticipate, although it really hung in there this last quarter, it only came down 3 basis points. I think over the next few quarters, you're going to continue to see some slight reduction, maybe over the next 12 months, a reduction by as much as 10 basis points or so on a run-rate basis.

Your next question comes from the line of Devin Ryan with Sandler O'Neill.

Just want to follow up on the strength of PCG results. And I guess, specifically in December, was that driven by year end client repositioning, just given looming tax hikes or was there something else driving that? I know that sometimes you have some onetime maybe boost related to selling in a product related to analyst top picks. Just trying to get a sense what really kind of boosted that earn improvement on that in there in December. And then, it's kind of a part 1 in the question. And then, secondly, with the equity mutual funds seeing some inflows the past couple of weeks here, are you seeing similar positioning within your client base and any signs of changes in engagement levels?

Yes. Two things. Certainly, December had packed harvesting and held positionings and yes, both.

Tax loss and tax gain selling.

Certainly, the syndicate business was a good month. So you had positive spend in December that certainly boost the business. But having said that, January appears to be a good month too. So, it's certainly, you have factors like that impacted. And so, yes, we've had -- we had some boost from those factors. And I think the business is still very solid and continues to grow very well. So we'll see. Your second question, I'm sorry?

Yes. So essentially, just -- we've had some positive flow trends, and I know it's only been a couple of weeks. But just wanted to see if you're maybe seeing some early signs of improvement in retail investor engagement now? Clearly things were, in the year end, I would say, were -- investors were less engaged. Just want to see if there's been any maybe shift in engagement levels?

No. We see -- I think that our investors' sentiment and our sentiment -- investor sentiment survey is up. We haven't seen a massive move to equities. I know a lot of the funds are showing big inflows. I think we've been more with our investors, we try to keep them engaged, maybe they've been a little more engaged in other places. So I haven't seen a big movement yet. But having said that, the commission levels in January have been pretty good so far. I'm a little bit behind in terms probably up to today. But I mean, I can't say we've seen a huge flood into equity since the beginning of the year.

Okay. Got you. And then just following up on expenses. When you say that you're halfway there on expenses, does that mean that essentially half of that $60 million to $80 million targeted cost, say, at run rate from Morgan Keegan had already been reflected in the results that we've seen? I just want to kind of clarify what that comment means.

Yes. My -- I think that's where we are. And I know that CEOs, as a breed, aren't patient and I have an expression that patience is a waste of time. And so we look at that expenses and want to get at them. But I think our strategy from the very beginning was focused on retention and to let operating expenses run at a level that support the integration. So we're committed to get them out. We can't zero on them yet because frankly, we're focused on flipping the switch in mid-February and getting the integration done and making sure that goes as smoothly as possible. All of our testing shows it's going very well. But it won't go perfect, it never does us. But we anticipate it will go well. Like any new systems, we have almost 500 advisors on a totally new system on a day. We're going to have operational support just because they're not used to the system. Doesn't matter where they came from with their own people, we would have that. So we're going to be running elevated for a while, and we think there's savings there. And I know you guys want a harder quantification. We think we've gotten half and we'll get half more, but to pinpoint it, we can't yet but we're very focused on it. And after the integration, as we get through this second quarter, I think in the third quarter, we'll be doing a lot of work to position ourselves to do that.

Yes. That's the majority debt of what we've realized has been in the Capital Markets area where we've combined the departments. As an example, on equity capital markets, hopefully your retaining most of the revenue-producing individuals. At the same time you're eliminating duplicate research analysts and financial analysts and et cetera. Some of the support level people, so both in ECM and fixed income, there's been -- that's where most of the duplicative costs have come out. So the ones that are left are primarily going to be in the PCG support and ops and IT.

Okay. Great. And just within investment banking, your underwriting revenues, clearly an improvement from last quarter. But let me just get your perspective on -- not an number but just kind of what the upside is to that business? I feel like there's improvement there, but you're probably still hitting well below your potential. And then clearly, we don't have a functioning IPO market at this time. So, well, just to get some perspective on kind of where we are relative to what you think is maybe the more normal level for you guys?

Well, that's kind of a crystal ball question. So we're either overstaffed or the markets aren't performing enough. But one or the other. So it's a measure of potential. It's very, very hard. Certainly, in a robust market, we would -- we have a lot of upside. Now the question is, "Do we really think the markets are going to turn that quickly?" So I think we've seen some improvement. Our view is December was an extremely, unusually good quarter. Almost. And that business will be better and we predict the business will be better than last year in our budgeting process. Having said that, I think we've got some cost capacity issues and we're going to have an improving market. So hopefully, over the year, will get pickups in both. But you tell me how good the market is and I can tell you how well we'll do. We're certainly impacting upside if we get a functioning equity capital markets business. But I don't see any vast improvements short-term.

Okay. And then just lastly, within your investment advisory fees, was there a meaningful performance fee within that? I know that this is a quarter where you can record performance fees or a higher number of performance fees. So I just want to get a sense of that boosted results in a little bit and how much.

There is nothing -- no unusual stuff like that.

Nothing this year. I think there was a small one last year.

I guess that's good news and bad news, right?

The next question comes from the line of Chris Harris with Wells Fargo.

Just a quick follow-up on the synergies here from Morgan Keegan, not to beat the dead horse here. But it sounds like we're pushing it out or it's going to -- start to be realized here in the fourth quarter. How should we think about the pace of those synergy realizations once we get there? Is it going to be something that we might see a lot of them accrue fairly quickly. So like in the fourth quarter and then queue on the next year? Or is it something that's going to kind of take a gradual process to actually fully realize what we have remaining? So it's more of a next fiscal year type event where we see the bulk of those kind of kick in.

No. I think there's 2 pieces. One is in our view we haven't pushed it out, so we've been on a schedule. I think people have always taught that we're being very conservative and people think we're going to be doing it quicker. We've been pretty consistent that through this integration process, we're going to run elevated. I think people thought there'd be more fallout. Maybe we even thought more people would leave on their own, they've stayed the course. And so, our view still is that through -- certainly the second quarter and into the third quarter, we'll be running on those levels. And then we will get at them the third quarter and fourth quarter, my guess is we will get a lot out by the fourth quarter. It may not be fully reflected until the first quarter of next year in the normal run rate. Maybe in the fourth quarter will be some of it will be reflected. So somewhere in there, but our commitment is to get the synergies out this fiscal year. I just can't tell you which quarter they're going to hit. Some of those are the efficiencies, what I call the synergies, you get over time. And I do believe either getting the Morgan Keegan advisors and the PCG side more productive, synergies and kind of cross-selling the business. The good news is, I think, we've gotten a lot of people in the other businesses a little more focused on the marketplace. One of the risks in any combination as you get a little internally focused and hopefully, we'll get a lot more of that when we get through the systems conversion and the last adjustment in the op and tech part of the business. But I think that will focus in the next year. So net-net, I think it's still a great a combination. It gives us great market position, a great platform. And it's just going to take us this year to get it done.

Okay. Great. That's helpful. A few questions then on Capital Markets. We've talked about M&A being very strong this quarter. A lot of folks are kind of predicting that this year will be very strong for M&A. Curious to get your thoughts as to how the margin in that business is affected by revenue mix? So in other words, if we get a very strong environment for M&A this year and maybe commissions aren't as robust, is that mix better for you guys from a margin perspective than maybe having the year shape out the other way where you get a stronger commission revenue and less on the M&A and underwriting?

They're -- the 2 assets. First, I hope they're right, and this is a record M&A year. Part of this business, too, especially when you're a research-based firm is you have a big fixed cost called research. And you are paying that whether it's over the desk commissions, whether it's underwritings or its M&A. So if you look at M&A as a pure business because it's less research-oriented or the payouts maybe a little more advantageous at some more profitable business. But if revenue goes down in one area and goes up in the other, you still have your fixed cost recover. So if you say a switching of the business from revenue, I don't think helps us a lot of. A pickup in M&A would be very, very helpful to us. So the commission payouts for salespeople are lower than M&A payouts for bankers. But we don't expect the over the desk trend of decreasing although it was up this quarter over the last year, we don't think that declining trend or over the desk commissions has been one for a while now for years. And we don't see it looming back up. But if that loomed up, our payouts are lower in that area than in some other areas. So it depends on the mix.

Okay. And then on staffing in Capital Markets. I think on the last call you guys were mentioning you were in a kind of exploratory phase of taking a look at your headcount there, and I think it was during a kind of up fairly weak period in the markets. Now that things looked to be picking up or they improved this last quarter, are you guys putting those plans on hold? Or is that something that you're still kind of monitoring at this point?

Yes. We're looking, I'd say we believe there's some structural changes in that business. If you look what's happening to over desk commissions, our people are paying you for research but we do have to make changes, whether there are a number of people or in payout. So we are still looking. Certainly, we were so busy in December, we didn't do anything but execute, and I -- and that's the better answer. But there are still some structural cost side that we have to achieve, even in -- if markets continue to be good, we've got to make some changes and we are still working on that.

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

I guess kind of a question in the line of the recruiting environment. You guys have talked about how you feel as though the opportunities are robust. I realized December quarter is always a challenge to really bring on advisors. But just want to get a sense of kind of what's driving that strength, because from what I'm hearing with brokers, production that's been improving, overall for the industry, most firms' satisfaction levels amongst those brokers has improved and is fairly high at most firms and I've always found that, that kind of -- it makes more of a challenge to get people to make a move. So what is it that you guys are seeing that gets you confident about the recruiting environment? I mean, I know that you can gauge by home office visits, but what are you seeing now that really get the advisor to make a move?

Thanks, Hugh. Though it's just a study done, I forgot who it was by, of financial advisor satisfaction and that's when Edward Jones really ranked high and if you look relatively, one of the wire houses had pretty good scores. The other 2, I believe the study said 20% or plus of their FAs yet the numbers has been expected to be there within 2 years. So I wouldn't call that high satisfaction. And a lot of that was driven by premerger and I can tell you by the visits here that the biggest question most people have is that we aren't given -- getting rid of all this front money and being in a place I like to work versus being trapped at a place where I'm at for money. I mean, so, I would not call satisfaction at number of the big firms high. In fact, the survey shows just the opposite. So we continue to get 2 strong pipelines from especially 2 other firms and brokers that are very unhappy in the environment they're in. Took checks, don't like the environment, and they're looking to make the change. So now people take their time, they don't always come when they look, but our backlog of home office visits and the high-traffic volume indicates very positive momentum for us.

Okay, yes, I'm actually looking at that survey right here in my hand. And I think it was one firm in particular that had some 50% satisfaction where all the other ones were 70% or above. So basically, the handful of or the firm or 2 that doesn't have that satisfaction that you guys are seeing those opportunities from?

Yes. I think that if you're going to look and say how many clients will be there in a few years, I think, there -- yes, there's 2 firms I think we're getting strong pipeline from. So, particularly -- so -- but we're getting -- and honestly, I think a few other things have happened for us is that the Morgan Keegan acquisition I feared would might scare people off. It's increased interest. We've rolled out some new things on our independent platforms and models and pricing that just -- which is -- got a lot of interest. And our technology news is really getting out now. We've mobilized a lot of our apps. We have advisor technology or advisor platform. And our client platform are looking at very strong reviews. And I think people will get surprised when they see us. So part of our issue is to get advisors to see what's really here. I don't think a lot of them even know what's available, and when we get them in the door, which is the test, they're very, very positively surprised. And honestly, there's only a handful of firms left that have what I call that original broker/dealer culture but the financial advisors. And I'm not saying it's good or bad, it's just different. We offer a different environment. A lot of people grew up in the environment we offer, and when they come in see that they can get paid reasonably well and competitively. They can get leading technology. They can get the culture. We get a lot of interest. So usually, we find them, we get them in the door, we get pretty good success rate. We just got to keep getting them in the door.

And you guys have commented on the new product, neutral compensation plan. It was supposed to be effective later this year. And we're just wondering if you really expected that to have a substantial influence on product mix and the comp ratio that in and of itself with comp ratio and retail segment or is it just kind of very modest?

We modeled it to be neutral. And part of it was to get the Morgan Keegan integration then we're on a different grid than we were. And though the view was just to make it simple, very transparent. And I think we have to see over time if it causes a movement in product. We can always change pricing or change the grid if there's adverse effect. We're very clear to our advisors, 2 things. That most people announced in December there's a new grid in January. We announced in January that it was effective October 1. So we give a lot of notice, we don't want to surprise advisors. And then we're very open about changes. We change it very seldomly but we tell advisors that for it to be fair -- that's to be fair to clients first, then it has to be good for them and for our shareholders. And we're very open in the communication. So -- but we modeled it to be neutral.

Okay, I agree. And then the last question, it was -- just with the -- within the capital market segment, you talked about some of those opportunities. So I was wondering if you could focus in a little bit with the addition of the Howe Barnes franchise and looking at the financial segment within capital markets. And your expectations there and how discussions are going with clients and companies you work with and the prospects we're seeing in improvement in that space in the coming year?

We -- first, we've had great retention. We've got good leadership during that Howe Barnes acquisition. It's a -- very happy with position of the client space. We're really happy as the markets stinks. I mean, bank acquisitions has not been robust. Recapitalization of prices, last year I think surprised everybody that the market just went silent. So it's picked up some. We believe there'll be consolidation will pick up so we like the people, we like the positioning. But if you look at that isolated financially since the acquisition, it wasn't the best of timing just from a pure financial standpoint. But we've got very good bankers, very good people and when that market picks up, we think we'll realize that investment.

Sure, sure. And then -- but are you getting any sense? Do you feel that now is you're going to potentially get that change in dynamics in the coming year or so? Or is it just a wait-and-see?

I think you're starting to see some movement but whether to say it's robust or not, I can't tell you. It's going to come, I don't know when.

Your next question comes from the line of Douglas Sipkin with Susquehanna.

So a question for Steve and then a retail question. With respect to the bank, obviously, I know the firm's philosophy is not to release reserves. But I mean, is it possible you would find yourself in a position where the loan growth does slow down and it sounds like that at least going to happen in the near term, but the credit quality continues to improve? I mean, how do you avoid the situation where you may have to release reserves? I mean, is that a possibility over the next couple of quarters if credit quality continues to improve?

Good morning, Doug. Yes, that's absolutely a possibility. We can have a situation where you have no loan growth at all and we can -- we do have and then we disclose what our criticized asset levels are and then have higher reserves. Obviously than our pass-rated loans. You could have continued improvement in credit that would cause us to release reserves. And you can have a situation where, for whatever reason, in that quarter your charge-offs also exceeded your provisioning. So that can happen.

I think that the key thing to remember is that the reserves are loans specific. You would say it's bad news when you get the criticized loan to pay off, it's good news, too. But the problem is you have to release that reserve and there's no choice. So we don't do general reserve releases when loans pay off. You have to release that specific reserve.

Yes. Okay. Because I mean effectively it looks like that took place this quarter, right? Because you did have pretty nice loan growth and as you indicated, it was more on the C&I side, so that has a higher upfront provision. So if that didn't happen, obviously it did, but if didn't happen, you probably would have had a negative number.

That -- no, that is correct. That's right. I would say probably -- just if you isolated just the loan growth itself, our provision expense is probably $2.5 million or virtually all of what -- a big chunk of what our actual provisioning was related to loan growth. Now behind that, there was a lot of noise, upgrades, downgrades, sales of criticized loans and the likes. So...

Sixth or seventh. Maybe it's seventh and 1.5. Yes. Wait a minute.

1.5 and 406 to go.

Well, we had $2.5 million in all categories of just loan growth. I mean, it was not just incorporated. So...

But that sounds a lot. I agree with that.

Okay. That's helpful. And then second question as it relates to the private client. Obviously, you guys have been tremendously successful, early adopters of managed products, fee-based models. I mean, as you bring on the Morgan Keegan advisors to one platform I'm just trying to get a sense, whole company, how much more room is there obviously at the broker advisors discretion to move to a greater population of your retail franchise to those managed account fee-based models versus the historic traditional commission based model?

They are if you look at their productivity, it's about 15%, 14% lower than our employee productivity. And a lot of that is the percentage of fee-based models. And we think over time, they will move there. Now we don't tell advisors they have to use our product or they have to use the platform. So we go through both education which they are already attending on the products and on management of portfolio. And yes, over time, we think that my guess is they will move up there, because they'll see it's good for them or it's good for their clients. And so, we believe we'll get the room on those advisors, that they will catch up. But that's not overnight, that's over a year or 2, we think they'll -- we all get there.

And just a follow-up on that, have you guys had internal studies to sort of show how much more profitable over a cycle, over some measurement period that type of account is for Raymond James versus the traditional?

Actually in some cases, it's less profitable. If you get somebody that has a new issue oriented or pretty heavy trading volume, that's probably the most profitable, especially when you add margin to the overall complexion of the analysis. The philosophy behind fee-based for us early on is to put the advisor in the same basis as the client as their comp and their success went up and down with the client. So it wasn't really driven by profit. And we're a short over a cycle, which relates much more philosophy in putting the client first. Having said that, the steady markets means a steady income for the advisor. But as Tom pointed out, that as someone is the -- you have a client that would like to trade a lot you have a lot of activity that can generate a lot of commission revenue. So, and we wanted to avoid that kind of mindset, too, where people are focused on trading versus advising. So a lot of that drive in the early adoption with the philosophical adoption.

Got you so it's really...

Assets that you can actually handle. And you can find a lot of our financial advisors with $0.25 billion assets now with a small team of support. And that's happened because of the asset management services platform that we have, and you were quite what correct in pointing out that over time, because of the support we give people not in putting individual investments, but in teaching them how to use professional management has a levering capability to build their annuity business. You will see over extended period of time that they will adopt it just because it's easier for them and better for the client as Paul said.

Okay. Great. And then just one final, I know you guys provided a lot of detail on interest-rate sensitivity. I'm assuming no change in sort of the pro forma impact, obviously rates would have to go up for that to happen. But you guys still comfortable with sort of the interest rate guidance that you provided in the past in the rising rate scenario?

Yes.

Yes. Haven't changed much in the last quarter.

That's correct. We're just waiting for them to go up. But we're so -- and as the government get to the interest rate management business, we think we will see some benefit.

[Operator Instructions] And your next question comes from the line of Bill Katz with Citi.

This is actually Neil filling in for Bill. My first question is you earlier mentioned record productivity for the advisors. Is there a particular metric you focus on here?

Their trailing 12 productions. What they were producing over the last 12 months.

You'll find if you try to compare that across, everybody calculates it's just a little bit differently. They include or exclude trainees or people that have only been with them in a short time, et cetera, et cetera. We don't count people until they've been with us for a year so we can hire some significant producers and they won't factor into that number for a year. But that just shows a manifestation of the people that we hired in the past.

We measure it consistently, and it is a record and this will continue to go up. So I think it is a reflection of more productivity for advisors.

And my final question, can you provide any color on the other revenue line? It saw a nice sequential pick up this quarter?

Again, it would have to do with that proprietary capital where were we consolidate. That's also why you saw a net deduct from earnings related to noncontrolling interest. It had to do with the consolidation of our merchant banking fund, which had a significant valuation adjustment in the quarter, and some -- the majority of which does not belong to us. Which is why it came out to noncontrolling interest.

So it's the net.

And there are no further audio questions at this time.

Great. Well, we appreciate everyone joining the call. Again, we're still committed to the integration. I know people are really trying to focus on the synergies to get the numbers are. We're focus on the conversion, retaining advisors. And the synergies, the cost efficiencies will come. But again, I would tell you that they will be late in the year which is probably our target unless we have a perfect conversion. But I haven't seen one of those yet. But we're -- we feel like it'll go very, very well. So thank you for your time, and we'll talk to you next quarter.

Thank you. This concludes today's conference call. You may now disconnect.