Good morning and welcome to the Earnings Call for Raymond James Financial Fiscal Fourth 2017. My name is Darla, and will be your conference facilitator today. This call is being recorded and will be available on the company's website. Now I'll turn it over to Paul Shoukry, Head of Investor Relations at Raymond James Financial.

Thank you, Darla. Good morning and thank you all for joining us on this call. We appreciate your time and interest in Raymond James Financial. After I read the following disclosure, I will turn the call over to Paul Reilly, our Chairman and Chief Executive Officer; and Jeff Julien, our Chief Financial Officer. Following the prepared remarks, they will ask the operator to open the line for questions. Certain statements made during this call may constitute forward-looking statements. Forward-looking statements include, but are not limited to, information concerning future strategic objectives, business prospects, financial results, acquisitions, our ability to successfully recruit and integrate financial advisers, anticipated results of litigation and regulatory developments or general economic conditions. In addition, words such as believes, expects, plans and future conditional verbs such as will, could and would, as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements. Please note that forward-looking statements are subject to risk and 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 risks described in our most recent Form 10-K and subsequent forms 10-Q, which is available on our website. During today's call, we will also use certain non-GAAP financial measures to provide information pertinent to our management's view of ongoing business performance. A reconciliation of these non-GAAP measures to the most comparable GAAP measures may be found in the schedule accompanying our press release. With that, I'll turn the call over to Paul Reilly, Chairman and CEO of Raymond James Financial. Paul?

Thanks, Paul, and thanks for that inspiring opening, and we appreciate you all joining the call. We know there are a lot of releases out today both in our industry and certainly the biggest company. So I wanted to spend a second reflecting. If you had told me a year ago this September that Trump would be President, the market is up 25%; deposit betas would be at an all-time low; of course, I’m not sure to known what deposit beta was a year ago; then we would have these financial results and the Cubs would win the world series. I don’t know what I would to believe more. If you really look back, it’s been really an outstanding year certainly due to the work of our advisers and our associates with our clients and honestly the help from the markets and the interest rate environment. We had record net revenue at $6.3 billion, up 18% over the previous year; record net income of $636 million, up 20% over the previous year; and an adjusted record net income of $768 million, up 35% over the previous year. Even in more impressively images all four of our core operating segments record net revenues and record pretax income for the year. We finished the year with a 12.2% ROE and an adjusted ROE of 14.5%, which is really pretty amazing giving our conservative leverage and capital ratios. More importantly, we made huge investments due to the, I guess, a new word that everyone is using in our advisor technology. We had robust recruiting and still great momentum. We integrated Alex. Brown, 3Macs and Mummert, which is ongoing, and with the DOL and other regulatory initiatives, we still got all these things done. So I really want to thank our associates really for…

Thanks, Paul. As usual, I try to compare our actual to the consensus model just to see where we didn't achieve the results expected by the Street. In this case, most of our line items were fairly close. So I only have a few to talk about today. Commission fee revenues on absolute dollar amount, we actually came in slightly under expectations. But it's really is attributable to the decline in the institutional commissions as you can see in the press release detailed. PCG was pretty much right and there is 1% under, so not a huge miss. The biggest beat would be in the investment banking line, and you can see in the press release the detail of particularly the strength of M&A fees, up 34% from the preceding quarter and up 54% year-over-year. And a lot of that happened kind of late in the quarter, so we weren't able to give you a lot of color on that throughout the quarter. Except for those two items, all the rest are within $2 million to $3 million of expectations 4 or 5 ahead of consensus. The only other thing I'll point out in the revenues side is that net interest income was actually a several million ahead of expectations and accountant service fees is the one that came in below. I think that combined basis they’re very, very close and that really has to do with us moving more of their client cash balances on to our balance sheet out of the external banks as we continue to fund the bank’s growth on a combined base. So it’s very close. Several items to talk about on the expense side, first I will talk about communication and information processing. It took a little bit of a jump from the preceding…

And I agree with Jeff. I thought it was an exceptionally good fourth quarter and I’m sticking to the story because I just look at how the operations and the growth and the fundamentals that I think it was very, very good. So I know people have high expectations of us, we have high expectations also. That’s okay. There are several tailwinds as we enter 2018. If look at the Private Client Group, our advisor headcount and recruiting pipeline continue to grow. I think we have about $80 million in commits already for this next year and most of those will show up and we’re continuing to recruit. So in terms of the fundamentals and what’s really been driving our Private Client Group business is retained our great advisors and bringing more in. Our start of fee-based accounts billings will be up 6% starting this quarter versus last quarter. So again, a positive. We’ll some decrease in advisory payout. Now we have told you before and we had cut our grids 100 basis points, but some of that was eaten up in two ways, one is a progressive grid in our employee division and the markets keep going up at each to that 100 basis points. So it’s a smaller number and then the independent division some of that grid change was phased in. We had to make the product neutral grid to comply with DOL. So we make it half of that or less this year, depending if markets continue decline. So we’ll get some, but we certainly won’t get all the pickup. And it’s not all bad news because it’s a higher market. The capital markets area is a little tougher. ECM is coming off a record kind of M&A and it have good backlog, but we’re setting…

[Operator Instructions] We have a question from Steven Chubak with Numora.

Hi, good morning. So I wanted to start up with a question on the AFS book and may you guys have spend some time highlighting the opportunity there and the fact that it is accretive to NII regardless of the adapting NIM effect, so certainly appreciate that dynamic. But we did see the patient growth slow a little bit this quarter. And I'm sorry if I missed this. I jumped on a little late in the prepared remarks. So I'm just wondering if there is any change in terms of your strategy and long term growth targets for the securities book. I think you have talked about $6 billion in the past, and I am wondering giving the case of capital build that we’ve seen whether you would be inclined to actually growth beyond that target?

Steve, I think that’s still our target and may think that’s a little longer to get there than we had originally forecast. The reason is that pace of growth slowed down, if you remember, we had a pretty good size decline in cash balances from the end of March to the end of June. We talked about that last quarter, about $2.5 billion decline in cash balances, client cash balances, and we’ve got -- so we had a hard time or it would have been a little awkward with some of our bank relationships to ship that much dollars out of some of the other banks over to our own bank quickly. So we chose to do it on a more possible basis and we slowed the growth for securities portfolio intentionally in the quarter coupled with the fact that it became a higher and higher probability of yet another rate hike, which by given other short term and buying some of these fixed rate securities in the phase of rate hikes is something that you can be cautious about and base with the next rate hike is now all priced in. So we sort of resumed and also as you can see on the cash balances by the end of the quarter we have sort of fixed that. So the second half of the quarter we had a significant amount of cash balances on the bank’s balance sheet, but it started out the quarter very slow. But we are also being – we have very pretty tight parameters on what we’ll buy. Now at our core meeting yesterday, there is a fairly narrow band of the securities that really fill of our parameters in terms of extension risk and yield and being in the agency back where also you are taking any credit risk and the back to duration and things like that. So it’s kind of business starts a little bit on that. It’s not to going to I think to invest a fixed dollar amount every week or something like that. But the reason that it was slow was really because of at the beginning of the quarter the cash balances were – have not recovered until later in the quarter.

So there has been no change in the strategy, it’s just look to kind of little delay this quarter were still on course.

Got it. And as you think about the risk reward potential from steepening more into the bank, there has been some speculation that where the said balance sheet online, you could in fact see term premier arise. If you do in fact see some steepening as a curve, and that will penetrate your fixed trading businesses certainly, but as we start to think about tire and deploy some of that excess cash, could we see you guys exceed that $6 billion target in an effort to drive some higher returns.

I think for now right now that’s our goal where we get closer, but no, these securities turn over too. So as rates rise, they will turn. We have made $400 million a year in run off right now.

Yeah, they’ve amortized about 25% a year, so it’s pretty quick turnover. I actually think that steepening yield curve may actually help banks loan spreads throughout it, but that remains to be seen.

Right. And just one last question from me on how we should be thinking about the pretax margin outlook for our 2018? You guys certainly gave some very helpful color thinking about the comp dynamics, some incremental non-comps as relates for communication expense. But just giving some of the tailwinds exiting the year both in terms of asset growth that we seen as well as growth of the bank, what's the reason why expectation for margin expansion if we continue to have relatively healthy market and maybe even some helps and that’s having in the form of the rate hikes?

Hey guys, it’s not just the rate hikes through the spreads that make a difference to us. I mean, if we could repeat a 17%-plus margin for next year, I think on an expanded revenue base, we would be pretty contemned with that in light of the expense growth that we have talked about that we have planned.

Understood. That’s it from me, and congrats on a strong quarter.

Thank you.

Your next question is from Chris Harris with Wells Fargo.

Thanks, guys. I wanted to ask you about the outlook for the comp ratio. If we think about 2018, you got a couple things growing on. You’ve got a full year benefit of the rate hikes that have happened. There is a PCG payout grid change that you talked about. You’ve got Scott coming on. And so all those things, I think, are tailwinds to the comp ratio. So I guess where am I missing as to why it shouldn’t be much better than the 66.5% that we’re talking about this morning.

So there is an awful lot of that’s mixed. So right now if you looked at our balance is growing of the PCG segments, it’s been the independent segment which has a much higher payout. So if that continues, I mean, they both are doing well and they come and go, but that’s going to skew payouts up. If this quarter we’re held by really big M&A volume, which is lower than our average payout, so that brought them down. There is so much delta in the mix that it’s really hard to come out with any other number. And we do have increasing comps with compliance and other things we continue to grow overhead…

And we also had a full of all the compliance AML, risk management people that we have brought up for this year and we’re going to continue into that in terms of compliance of supervision staff.

So in a really constructive market we do better absolutely, but we’re not planning on -- I didn’t plan on a 25% increase market this year. We’re not planning on it next year. But if it happens, we’ll certainly get the benefit of it.

Okay, guys. Thanks for clearing.

[Operator Instructions] The next question is from Devin Ryan, JMP Securities.

Good morning, guys. How are you?

Hi, Devin

Maybe just one on the outlook for some of the fixed income businesses and a lot of moving parts in there between what’s going on with municipalities and taxes relative to yield curve. And we saw marginal uptick in kind of the yield curve kind of towards the end of the quarter. So I’m just curious kind of that you’ve kind of put it all together, if it feels like we kind of how had low bar year for the fixed income trading, underwriting tax credits kind of all in aggregate heading into fiscal ’18?

That’s correct. I think the question is certainly, yes, it is raised, caused some trading increases. But how long did they lap. I think the curve is still flat if they raise short-term rates while the tenure follow, I mean there is just a lot of questions. I think that business has done really well with double digit margins in a really tough environment. It’s down less than its competitors. It’s a great agency business, a big segment of the fixed income business as well as other financial institutions. And so, certainly that has its own dynamics of their own securities buying. So I don’t see an enough moment in the market to say that’s going to really bounce back, on the other hand when their down equities usually stay constructive. So if you had a really volatile fixed income market, I'm not sure the equity markets wouldn't be any give it back so for us. So that's the challenge, Devin.

Got it, okay. That's helpful. And then just a follow up here around the outlook for some of the fees from product manufacturers and sponsorship revenues, et cetera. Some firms are removing manufacturers that are not willing pay for distribution. And then I'm just curious if there is obviously a lot of moving parts in here with the DOL and I think renegotiations there but also I think -- on wind up people on the platform with the free launching. So I'm just curious kind of where you guys are in that conversation with your third party manufacturers and kind a what the outlook is more broadly if you see maybe some firms being removed because of that dynamic?

So for our mutual fund partners we've taken two steps. The first step is to make sure review all compliant. So we've renegotiated across the platform to make sure that we are complaint with DOL and I think we'll do that pretty much under revenue-neutral basis. So as we close them on the end of the year. And what we hold on the Step 2 that we would strategically look next year at what we're doing with the overall platform. I know it’s coming from the jump right into it. We feel that wasn’t fair to our partners and it really didn’t give us adequate time for advisors to do their planning. So we are finishing up with the negotiations with the contract to make sure we're compliant by year end during the transition period. Even if it's delayed we'll be in good shape. And which we expect the DOL to be delayed, but we will still be in compliant. And then step two, as we're looking to the overall who is paying what's their requirements and how we price it. That's going to be something we're looking at next year and the focus of our executive committee and board off sight actually.

Got it, okay. Maybe there’s a last quick one here. Paul, this has been addressed, but in some of the conversation around that the tax tap on 401k contributions and hopefully that doesn't happen but not sure how we should think about the considerations for Raymond James if that were to happen and I believe in your administrator. But if we can think about what the implication of that could be just on the business?

Yeah. So my philosophical answer is it's not good policy that we need more savings. And they even they means cluster or whatever, I think eliminate the 401k deduction is not good policy. From a firm standpoint, it’s not a big part of our business.

We're an advisor much more than administrator.

So it doesn't have the impact that it does over the big terms that really do an awful lot of that.

Yeah, okay. Great, thanks a lot.

[Operator Instructions]

Well, great. If there is no other questions, I know it's a busy day for all of you. We appreciate you're jumping in on this call. We had a big crowd. And I know there is a lot of other calls and releases that you're working on. So thanks for joining us again, and we look forward to talking to you soon.

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