Raymond James Financial, Inc. (RJF) Earnings Call Transcript & Summary

All right, good afternoon, everybody. I'm Kristie Waugh. Senior Vice President of Investor Relations here at Raymond James. Welcome to our 2022 Analyst and Investor Day, taking place here in our home office in St. Petersburg, Florida. Whether you're joining here in person or virtually, we really do appreciate you dedicating the next few hours to hearing from our executives and learning more about our long-term strategy and our areas of focus. We do have a lot planned, so we'll just go ahead and jump right in. First, I'll call your attention to the safe harbor statement shown on the screen. Certain statements made during this presentation may constitute forward-looking statements. Those statements include, but are not limited to, information concerning future strategic objectives, business prospects, financial results, anticipated timing and benefits of our acquisitions, anticipated results of litigation and regulatory developments or general economic conditions. In addition, words such as believes, expects, plans, will, could or would as well as any other statements that necessarily depends on future events are intended to identify forward-looking statements. Please note that there can be no assurance that actual results will not differ materially from those expressed in these statements. We urge you to consider the risks described in our most recent Form 10-K and subsequent Forms 10-Q, which are available on our Investor website. We'll 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 maybe found in the appendix of the presentation. Now to turn and review the agenda. In a minute, Paul Reilly, Chair and CEO, will kick things off and provide a strategic overview. Following Paul, we'll get a few updates from -- some of our core businesses. We'll start off with Scott Curtis, reviewing Private Client Group; Jeff Dowdle, reviewing Asset Management segment and also Bob Kendall with Carillon Tower Advisers. We'll then take a short 15-minute break, and then resume with Steve Raney to review the Raymond James Bank. And last, our final presenter for the day will be Paul Shoukry, our CFO, with a financial review. Each presenter will leave time for Q&A, so we can address that. We do ask those in the room to wait for a microphone to ask your questions, so it can be heard on the webcast. The presentation today has been made available on our Investor Relations website, and that includes biographies of our speakers as well as a non-GAAP reconciliation. With that, now I'm happy to welcome our first presenter, Chair and CEO, Paul Reilly. Paul joined Raymond James in 2009 and became CEO in May of 2010. He has served on Raymond James' Board of Directors since 2006 and became Board Chair in 2017. With that, please welcome Paul Reilly.

Great. Well, thank you, everybody. We're really -- it's really great to see you live again. So -- many of you have been following us for a long time. We've been here a number of times. You can see that not only the building is still here, we actually have a few more since our last one across the street. So we certainly have plenty of real estate on campus. And as we return to office, maybe we have a lot of extra space, maybe not, but a return to office has gone pretty well over 50% here in the campus are coming in on a daily average, but most people back 2 to 3 days a week, some totally remote and some flex, but it's really worked out really well. And I've read some of the initial notes and some people have accused us maybe of being conservative. And I guess we've earned that over time, starting with Tom, who's been doing that for a long time, and I can't even blame Tom anymore because I think we've been pretty conservative when I've been here also. And hopefully, what we want to do is, as we look at the business, we try to run it on a conservative basis and hopefully, as we give guidance or forecast or targets, I hope they are conservative, but we don't know. There's a very uncertain market, as you all know. And we don't want to try to overpromise and with certain corrections, things could be worse. So as we go through that today and a lot of the focus, just we try to really give you a good view of what we think is possible and that the good news is I think we're extremely well set for this market cycle. We performed, I think, pretty well in this long up cycle, we've tended historically to perform very, very well in the down cycles because of our flexibility, our liquidity, our capital position, which has been always has appreciated in the other markets as it is a in the down markets. And it's just our guiding principles. So from the beginning, Tom's dad Bob, from Tom to us as we go clients first, we mean it's in every one of our investments, every one products. We always tell advisers, we treat them like clients. We're here to help them be better. All of our dollars, all of our investments or how do we help advisers help clients. So it's a big tenant of ours. And it's I think why we've been so successful at retention and recruiting is that focus. Straightforward and honestly, I hope you find that both in the information we give you and the numbers we report, we look long-term. And we value our independence as a firm and the success we've had is our advisers value their independence. So it really is part of these core values that drive all of our decisions. You're all familiar with us and the size of the company I didn't expect when I came in, in '09 to ever be talking about trillions. So we've had certainly great growth over this period of time, over 8,700 advisers closing $10 billion in revenue as we look at the March numbers. Maybe as impressive for us is not only we've had great growth. But the recognition by Fitch, Moody's and S&P of our financial stability. We've always told our advisers that we think we are a great place for them to be because of our conservative capital structure and our liquidity. But it's nice to see the outside rating agencies also do that, as Paul will talk about. Ten years ago, we kind of set a journey. And that journey was we said internally, we didn't put it as an outside tagline, how do we become the premier alternative to Wall Street. And it wasn't a slam on Wall Street. It's how do we stay like -- feeling like a regional firm that's people-caring and focused like we grew up, yet have the size, the capability, the technologies to compete with any of the major wirehouses. And I think for the most part, I think we've achieved that over 10 years. We're seen as a place for people from smaller firms to come to because they like us culturally. And for advisers, some bigger firms that feel like the culture is great. It's a great place to be and come every day, yet they have those capabilities that they can get it to the bigger firms. And I think from an adviser's desktop, probably the place to go to, to serve their clients. Now I know a lot of you are going to be focused on our short-term results, but it's always great to remind that over the last 10 years, we've done pretty well. And as a lot of firms including us, have done well last 3 years, but we've done really well over the last 10 years. And what we don't have in here is really the '09 period, it's out of the 10-year period. But as I remind people, our worst year ever was '09. We made money every quarter. And we had a 7.9% return on equity. And again, I attribute that to not management genius, Tom, you're running the firms like should attributed to management genius in '09. But it's a conservative nature, and we were able to have liquidity. We had record recruiting until last 2 years in '09 in a market where you think people wouldn't leave, and it took us another 8 years to break those recruiting records, which we are doing now. But it's that long-term performance that really from those core values that help us performed well. And certainly, the first half of this year has been great. So you know the numbers, I'm not going to go over them. We've had great year-over-year changes. But we're in a different market. We all know that, both with the equity markets, rising interest rates, the accounting, the prevailing wins. You can talk to economists that believe that we're not in a recession, we're going to grow. You have a lot of people that think we're already in a recession. So even though we haven't had a technical correction as a down market here. But whatever, I think that flexibility is really going to pay off. And part of that is our business model that people have often will sometimes say, well, why do you have a bank? Or why do you have an asset management? What do you do with equity capital markets? And the truth is they're very, very synergistic. Our Private Client Group funds are banks. Our bank does SVL loans and mortgages. Our equity Capital Markets offers research. It's monetized a lot of clients' businesses this year in M&A. They help us with products. They help the bank and market segments. What are safe places to lend and in companies and the Asset Management manages a lot of money internally for advisers that want us to manage in the accounts. So it's been a very synergistic business. And you can see, as a percent of revenue that the diversification is percent of profit contribution here has paid off. And big interest rate cycle, the bank has been a big contributor. And it's down now but certainly, with interest rates rising, almost certainly going to rise, the bank will be a bigger contributor to the overall puzzle. Probably the 1 different thing over the 10 years, has been our growth in equity Capital Markets, the investment in M&A has really paid off and expanded. So it's been bigger percentage of the business and probably just added to growth. So again, with staying short term on our duration on the interest on the balance sheet, if rates go up, I think we're very, very well positioned, and you'll see the bank being a larger contributor as well client group as a percent of contribution. So looking ahead, we're really focused on the same things is to drive organic growth. It's been really the history of the firm as our big growth engine is driving organic growth, and that's really retaining people first and then adding to the network. We're expanding our investments in technology. A lot of people say, well, you're spending $400 million -- almost $400 million now in this $500 million. Why? I thought you made your investment because the investments never end. We probably have about 1.5 billion of requests every year. We're doing a really good job of saying what will really make a difference and move the needle. In the last few years, you've seen the difference in the adviser's desktop, which I'm convinced is industry-leading today, that's something you have it forever. So you got to reinvest and make it better, but really looking at the client desktop applications, which I'll talk about in a minute. And strategic M&A. We've done a much better job. I know for a number of years, people said, you're ever going to use capital, you're ever going to acquire stuff. And we're just very disciplined. We don't buy things to be bigger. It has to fit our culture. It has to have the strategic reason. It had to have the right price. And a lot of those just came together in the last year, which I'll talk about in a minute. Private Client Group, the number 1 focus we have inside is the best service in the industry that advisers come here feel like that we are better at providing them support whether it's in operational support, whether it's in tools, whether it's in marketing and branding of their practices, that's the number 1 thing that people love about the firm. And we just had an adviser conference with 3,500 people attend. And I've been conferences in my life. I've never been at such an upbeat experience partly that everybody was getting together, but partly very thankful for the investments we've made and how we handled COVID and getting people back to the office and their service levels going through that. And then again, as I talked about recruiting, recruiting is great, but it's the losing game unless you're retaining people. And our regretted attrition has remained less than 1% a year, really for the whole time I've been CEO and well before that. So keeping people here is a key part of our business. Capital Markets. We're still focusing on expanding the M&A platform, not as much in the underwriting. So it's a great capital-light way of growing the Capital Markets business. We've been expanding in new markets in Europe and continuing to expand in M&A only, really more across the globe, and then attract to and develop key professionals as we firms. So Jim just walked in, but he's done an outstanding job of recruiting individual and firms that have joined us that have made a really big difference in that business. Asset Management. We're still doing the same thing internally, both in tools and in products, making more flexible tools for advisers to use Asset Management Group using both technologies and our universal M&A, UMA equivalent and other things that make it easier for them to do business. And then expanding the Carillon Tower Advisers offerings, now that Bob Kendall who's here that today has joined us now just over -- barely over 1 year, right? So -- and I think looking forward to getting a better growth trajectory in that business. The Bank, the biggest shift over the last few years is the balance sheet in the bank. It's become #1 now a Private Client Group balance sheet with mortgages and SBL loans, continuing high growth. We've stayed in the corporate loan business, but between kind of run off, we've been growing it slowly, but really selectively and I think has had great returns and stability. We proved during COVID that it was a liquid portfolio. We sold down loans. People question even in stressed markets, we're able to lighten up on COVID exposures with very little losses. And so we've always said that C&I quarter because of the types of loans we had were liquid, and we showed it during that period of time. And even though we felt at the time we probably longer term economically would enter off if we held them through COVID. We knew if there was -- COVID was a real downturn that the derisking of the balance sheet would be a big positive. And so we do it again. And so again, we'll continue to stay in that business. And of course, their number 1 job is managing credit risk. The worst thing you can do in a bank is not, right? And you're better off not to grow than didn't have bad credit what feel very good about that portfolio. I talked about the focus on technology that we made a conscious decision 10 years ago to focus on the adviser's desktop, that we felt it would be a differentiator in the industry. We are now using that equal robust investment technology and process with our advisers of doing that with our client app. And that client app is going to be focused not on how do we connect the client around the adviser to Raymond James, but the experience of the client with the adviser. So not only will they get all the access information, self-service you'd expect on a client app, but it's even is going as far as digital assistants helping with meetings, helping scheduling, helping with that whole communication between client and adviser, not between client and home office. So again, one of our differentiators with clients with our advisers here as they feel like we're trying to grow their business, not trying to compete with them directly. So we could talk a lot about that, but we'll move on. A lot of people have said robo, going direct. It's the future. We've really down on the adviser and how do we give them the technology, the tools and services to become more efficient, service their clients better and grow their business. And so this last 2 years, I think, has proven to us that we're on the right track for us as a competitor, we'll continue down that road. Our investments in technology go from the mundane, everyday service and how do we become more efficient to the Board in this room just a few months ago, we've got to put on some Oculus glasses and have an avatar take them through a financial plan to someone through a hologram that appeared right over there, who looks like they could have walked right out a box, they were in New York to show the power of technologies that are coming in the Metaverse. And these are not that far off. In fact, probably the hologram technology is probably closer than even the assisted or augment reality world that we've shown people. So those are all in our research and what we do in technology is to make sure that when we look that we're looking at the upcoming technologies as well as our clients, our advisers really want to know what they can do today. I think they're all really impressed with looking to incorporate into our client app and to the adviser. So M&A has been kind of slow and steady for Raymond James until maybe this year, but a lot of these have been going on time. So Charles Stanley, after 7 years of talking to them, joined us when we closed in January. The firm that match our culture. They have -- we're in the U.K. now with the only firm that has an independent and employee channel and a platform channel, which I call like the RAA channel. Again, like us in Canada and the U.S., we have this multi-platform and a culture. It's really just like ours. They're fanatical on client and client service. They've been in the industry a long time. They bring us a back office is self-clearing and a lot of capabilities as a smaller firm in the U.K. We don't have put us near the top 10 where we're really in a position now to grow like we are in Canada. We're just creeping up on the smallest of the large banks. So we believe strategically that helps us. TriState with having a second charter for our clients, the SBL technology that they use to service their clients, it's going to stay an independent bank. And that flexibility to use our cash and capital to grow in a great market. And again, great people that feel like the Raymond James people when you meet with them. So we're hopefully, we'll close that in the next month or so, just tying up the final approvals. Hopefully, they'll join us. The last but not least, which was a little less intuitive for probably most of you was SumRidge. SumRidge was kind of leader in the corporate bond trading area. And we, as our fixed income practice, even though it's been kind of the big firms, it was where we were weakest. But more importantly is the technology. The trader-assisted technology was very, very powerful, and we want to use that as a base to expand across all of our platforms. So in the equity space, we were kind of watching as it electronified. We want to be right in there in the fixed income space as that happens and believe we can be kind of an early leader, as certainly with our peers in that space. So again, waiting FINRA approval on that. So these are things that go on for a long time and all of a sudden, all happen at once. So it's not going to be our pace of M&A. I don't think, unless there's a downturn and we get opportunities we never thought we'd have. But again, very disciplined and I think very good for the firm. So with that, you've also seen our second annual CSR report. As you know, it's the topic that everyone has to deal with, very proud. I think we learned stuff in our own CSR. We've always been great with people in our relationship with our associates. If you compare us to our peers, we know our turnover has been much less. Turnover is up for everyone, but ours is up -- our numbers are still substantially better, which I think talked about we treated each other. Our investment in community has always been strong. Our governance is always been strong. I do think that our terms of sustainability, we learned. Yes, our industry is a big carbon emitter, but there are things we can do. So we've learned from publishing those reports and giving ourselves goals that make us even better at everything. And it's important to a lot of our advisers clients and certainly to associates as we hire them. Diversity and inclusion has been a big part of Raymond James. But again, through all the movements in the social justice movements over the last few years, we've learned we could do better. In our workforce, we're 45% women and 20% people of color, which really, for a firm our size in our industry isn't bad at all, but it's not enough. And we're looking to make sure that we can continue to grow that population. To do that, we have to invest. We have to train more and attract people into our industry, which has been a problem really for our industry is getting enough people and especially the financial advisers to get them interested into the industry and train them. So it's been a big push for them as all of our networks out here. In the community, Raymond James Cares, we're just entering the Raymond James Cares month or around the globe. It's always great to see what associates do for people. It's -- corporate office has always been generous, but our associates are really involved in their communities and make a difference. So we've always been proud of this. Again, going back to Bob James and it's certainly a big part of our culture. And then sustainability, we've learned that our Board has always been pretty diverse. But certainly, today, it's 44% of women, 1/3 people of color. But our Executive Committee doesn't follow the statistics. We have 2 females, no one of color so we're going to have -- so we say how do we grow people and to get them into those positions. Our operating committee is much more diverse. So through our own CSR report, we've learned that we need to focus and to continue to grow responsibly as it's I think, everyone's job. So with that, again, everything to us is centered in the values. If you saw the 3,500 people in Nashville, you can -- they know -- they believe that we believe it, and I think that's why we've been successful at recruiting and retention as well as all the business tools. So with that, you guys all know Raymond James. So I always go pretty quickly through these parts. You really want to hear Paul and the rationale behind all the targets. And I hope the targets are conservative. I really do. I can't tell you whether they will be or not. It depends on the outcome, but I hope they're conservative and we're able to beat them all. But Devin, you're first hand? Back here. [ No to anger he ] always gets to go first. That's kind of a -- you know.

Yes. I appreciate that deal, Paul. Devin Ryan, JMP Securities. First question, just on technology, kind of thematically, I mean the firm for a long time. Technology has always been an area of focus and a big investment, but we're kind of moving into new areas of technology opportunity, I think, for the firm. And so I guess what I want to focus on is technology, where we are today? And then opportunity is? And when I think about artificial intelligence as an example, it seems like there's a big opportunity to better optimize the advice that's been given to customers. And you have a couple of hundred clients as an adviser, you're never fully productive or fully efficient. And so maybe help us think about kind of where we are today that journey? And then how important it actually can be? You're going to try to get some framework of like how important this can be to be more efficient, more productive, how much it can help customers, but also how much it could maybe push adviser productivity higher as your using some of these technology aspects like AI, as an example, to help give advice?

So almost 10 years ago, I had a breakfast meeting arranged by a friend in New York City to a person that gave this vision of how we're going to use artificial intelligence to drive what we call the opportunities and make it a difference to our business. I thought I was just having a fun breakfast and nothing would happen, but Bella joined us after that breakfast. And opportunities using artificial intelligence back then, even that long ago, was centered on what you wanted to do. And once she arrived, she realized that first, we had some data that we had to get clean to be used across all our platforms. And then also, every time she was ready to roll out opportunities. We had some regulatory things like going from T3 to T2 or DOL, and I know it's frustrated the heck out of her because her whole goal was to come up with opportunities, which we're rolling out now. So our artificial intelligence, we have been using, we're using a lot in the compliance area in AML. Compliance, really, how do you sort through data with a false negative -- false positive, so you're not bothering advisers and branch managers. But now we're getting close to -- and I don't know if you're touching on that Bella today opportunities, we're getting ready to finally roll it out. She would have liked to have started doing a 5 years later. But again, the priority of budgets, it got pushed back, but it is important. It is centered to what we're doing, and we believe it can do a lot. So we'll be rolling out the first part of it to our advisers this year. So the biggest goal, I think, for a lot of financial services is that unless your data is clean across the whole organization, you really can't use artificial intelligence well. So we spent a good 5 years of making sure that when you have big data, it's great to have a lot of data, but it's got to be right, exact and be able to really data mine it. So that's been a great accomplishment. And it helps us now as we develop technology, it's more plug and play because the data source is clean and readable across the business.

And I guess just to try to get any quantification around how much room there is to provide more advice to customers. Again, you're -- if it's manual process 20 years ago without technology, you're picking up the phone now, stuff is being done digitally. But we move into this next iteration where there's advice and optimization being created kind of before the adviser is even in the office, right?

Our goal, obviously, is every minute an adviser spends filling out paper or reports is a waste of time really they should be -- to the extent we can shrink that in to as little time as we can, and there are times with clients, their existing clients first and then new clients, that's a win-win for us. So we've always thought it was huge. Practices are migrated from selling securities, one by one to building portfolios one by one, to advisers now either outsourcing it to asset managers or having their own portfolios. So when they have their own portfolios, that they'll put clients in different sleeves is they want our technology, want to put that together to rebalance to [indiscernible] the drift and those tools are on place. So the next part is actually going and reminding them too, from the data what can happen both from our internal data and scrape data socially when they're -- when they can see things about their advice to their clients, their clients family and the media. So that's a big push for us. Everything, we think in the future it will be fewer advisers per asset, right? So they've got to be more efficient, and we've got to help them find things so they're not manually trying to find everything. And so they can spend time with their clients. So we think it's a huge opportunity. Yes, [indiscernible]

Yes. Thanks for hosting the day as well. So I wanted to ask you, Paul, around M&A opportunities in case we do prolonged period of market downturn. In the past, we've seen you obviously do some of the larger deals in those kind of periods. Who knows if we add anything or something like that now. But maybe help us frame what you would like to achieve and big opportunities that sort of present themselves in your M&A framework in a more choppy market backdrop?

Yes. So as we look at our M&A framework, again, I do believe that our organic growth is our best growth because when we recruit person by person. They know what they're joining. We know who we're getting. We you buy a firm, you think you know, but you might have met 50 of the 500 advisers, right? And so -- but we do know the firms in our space. So there would be a number of firms that are today private or not private and mostly private, not for sale that -- and I think we're doing well. And I have good capital positions. The question is whether it was Charles Stanley or 3Macs in Canada, I think they came to the realization they have capital, they are okay, but they couldn't invest in the technology and systems to really grow their business and then to monitor the back office, whether it's supervision compliance that it was just taking too much time. And is there -- when they found that they couldn't compete is when they think they finally capitulated. I always said that 3Macs was 7 years. I didn't count the 10 years before that Tom was calling on them. And they've been a great addition to our firm. And I think actually have virtually 5 years later, 100% of the advisers outside of a group that really doesn't do what we do still here that haven't retired. So we try to stay close to those firms that culturally fit. I don't know if they're ever going to be for sale, right? Can they outsource enough of the technology? Or can they stay in a band of advisers who have sizes the practices that aren't so dependent on technology, a couple of hundred million dollar asset practice, you could probably do more manually. If you're in the billions, you really can't. So we stay close. We always let them know what we have. I think we're seen as a friendly industry competitor. And if those opportunities come, we'd love it. The other opportunities we -- I think, have expanded in the last few years. We love the core business things like SumRidge as we look at saying, how can we get the people not just to expand our business, but technologically put us at an edge. And so I think if you look over the last 5 years, just valuations of those kind of firms or you look a them, does it really make sense? And a lot of them, even if it's a great technology, it's so expensive you got to have as an clients on it to really justify the price. And we're not in the software selling and maintenance and development business for other people. So I do think in a downturn, some of those areas may become open to us. So -- and we look across the board. And I would say the newest expansion of development has been a little bit more technology-enabled types of businesses. I can see, Paul you're really going away to a [indiscernible] question. I'm okay? All right. I try to follow the rules, too. You know that.

Maybe on a related note, as go through the next 6 to 9 hikes, you're going to have another high-class problem like you had in the last cycle, which is you're going to drop more of your earnings to the bottom line and that's going to drive higher capital. Is there -- should we expect the same strategy as last time where you would accumulate that capital and use it opportunistically for M&A? Or is there a difference this time around given the focus on organic growth of the bank and also the acquisition of TriState Capital, does more of your incremental capital go there versus towards M&A?

Yes. I think that the most profitable growth is always organic. I mean, to the extent that the bank and Private Client Group and ECM and they all grow on the same dollars of the capital, you're not investing in all the intangibles and everything. You get an M&A deal, right? So you're paying more for M&A than you are almost always for organic growth. So supporting the businesses that are doing well and supporting businesses to support our advisers and professionals is important. So that's always been first for us. Secondly, we look at -- we'd rather grow the business. So if we can find strategic reasons to invest, we'd rather do that. If we can't, we'll buy back stocks. So -- and a market downturn sometimes give you opportunities to do that, really high ROIs, too. But our number 1 focus is how do we continue to support and grow the business organically because it's less of a bet. And then secondly, if there is really a unique opportunity that may go right up there. But I would say that if we can't deploy the capital, which I know because we kept saying we would and we didn't for years, it wasn't the willingness that was finding the right opportunities. We thought -- I thought we would done acquisitions way before we did these series. The pricing just never worked out and they did here. So on think the capital deployment strategy has changed. I think we've recognized as we got bigger, we could bring the capital targets down because just with size alone, we have flexibility. But I think the primary long-term focus and direction won't change. Just a downturn may give us an opportunity. Got tired of waiting for that downturn. But it's okay. It's more fun not to have downturns. Any other questions before we move on to the next section? Yes?

Gerry O'Hara, Jefferies. I think there's, I guess, been some questions inbound from me or from my side with respect to the promotional packages, I guess, that are being put forth. I think there was a level setting of it, if -- 1 year, 1.5 years ago, if memory serves. Just kind of curious if the current environment has impacted that at all? Or if it's just kind of steady as it goes?

Yes. In terms of transition assistance, you will see what happens. I think that -- our experience is that those packages tend to go down for 2 reasons that they're based on assets or trailing 12, so tend to go down. And also I think some of the third-party aggregators have done that off at chief interest rates and capital. That dynamic changes, the price goes down. So I don't -- that usually lags a little bit, too. So we've been steady as we've gone. We've had -- we know from surveys like McLaughlin and others that our average TA is below, pretty substantially below the median. So we know we're not a market leader and anyone could go like I heard this one deal or that one deal, which usually is a circumstance, but we know that we've had to raise at the top end as we compete for $10 million teams, which we do routine by now. We didn't few years ago. And in the independent channel, we have a couple of competitors that we see the offers, and we lag, but we're pretty disciplined on the economic side. But with that, we're on a record pace in the employee channel and maybe not a record, but a really good pace at the independent channel. And those go up and down, depending. So we really like the position we think recruiting will go well we remind people to say what the market really sinks can you recruit '09 was our top recruit year until a couple of years ago. So every cycle is different and every reason is different, you can't just say what happened and it will happen again. But I think we've -- we actually thought that these kind of markets were the hardest to recruit in before the cycle and yet we've done a good job. And again, I think we used to sell our safety. And now we sell our safety and soundness and the technology and the tools, they have both. And I think that's been why we've been successful in the culture. I think people -- the great thing had 85 advisers at our independent conference from competitors viewing it as they get to not just hear us say the words, they randomly talked to people. And we had a first that Scott would say, if someone committed at the microphone in front of the 3,000 people, probably going to join now with the words kind of out. But so -- anyway, I think again, the packages, we haven't been market leaders. And so If they come down, it probably makes it better for all of us. But we'll see, so far it's steady. But I'm sure it will adjust. If the market continues to stay down it will adjust. Okay. Great. Thanks again, and we'll see you tonight.

Thank you, Paul. Next up is Scott Curtis. Scott is President of our Private Client Group. This is a role he's held since 2018. And prior to that, he joined Raymond James in 2003, and he served as President of Raymond James Financial Services, our independent adviser business. Scott?

Thanks. Thanks Kristie. Good afternoon, everybody. Great to be here with you. I'm going to move through a couple of slides here really fast because they're not mine. Here we go. Some of this will be repetitive to what Paul already talked about, and I'll try to go deeper in some areas that perhaps are different than what we already talked about. So a quick summary for all of you. Had roughly $1.2 trillion in assets and a little over 8,700 advisers. We're the #6 wealth manager in the United States. Not something necessarily that we aspire to, but it's certainly something that we pay attention to. I would say, what does that signify? What does it mean? It means that we're large enough to control our own destiny. Assets in fee-based accounts now closing in on $700 billion, which is just amazing, and I'll get to the pace of that growth and just bit. More than 80% of the revenues are asset-based, which includes interest income, includes trails, includes clearly advisory fees. We continue to offer flexible affiliation options, multiple affiliation options, probably the most of any firm in the business. We have the traditional employee model, Raymond James and Associates Alex Brown, independent contractor division, the financial institutions division for advisers who are typically employees of a bank, a small-medium sized bank or a credit union, but a register with Raymond James Financial Services. And then we also have our custody businesses for third-party broker dealers, their advisers can affiliate with that broker-dealer, custody assets with us correspondent firm. And clearly, the independent RIA business or independent RIA is not registered with Raymond James Financial Services or Raymond James and Associates can affiliate with us in a way that they custody assets with us. So it's remaining third-party firms, but they custody and clear transactions with us. As Paul mentioned, we do have a full service, full suite of technology resources, support resources. I think about us as a service firm. And then finally, one of the things that we're most proud of and pay close attention to consistently, we've had less than 1% regrettable attrition. And what does that mean -- those are advisers who choose to exit Raymond James and join a competitor firm. And that's what we count as regrettable attrition. And that number has consistently been some of the -- one of the lowest numbers that we've seen across the industry. So a little history here going back. Assets under administration. You can see how those assets have grown since 2016. So over the last 5 years with a little bit of a tailwind from the equity markets. Interest rates, mostly going sideways, 14% per year compound annual growth, a little slower growth to date where we are now, pullback in the equity markets. We've seen increases in interest rates depressing bond prices. But at the same time, we're still seeing nice organic growth, same-store sales, as Paul talked about it. If we look at the fee-based accounts, fee-based assets, those have been growing fairly consistently about 50% faster than assets overall, as we've continued to see a migration toward advisory accounts. As well as the adviser who we recruit from the larger firms, they tend to be largely fee-based anyway. So also adding to that significant growth. You can see 22% compound annual growth there. And our expectation is that, that trend will certainly continue going forward. Now interestingly, when you compare the asset growth, the advisory assets growth to the total growth in terms of number of advisers. The number of advisers growth is around 3.5% per year compounded over the last 5 years. And in speaking with some advisers last week, who've been with the firm for a while, I know Paul received the same comments that I did, boy the firm is growing so fast. And I said, well hold on, let's talk about 3% per year growth in terms of number of advisers. And if that's what you're referring to in terms of fast growth, I would challenge you that that's not fast growth. I think that's very steady growth and certainly growth that we can manage. And we continue to be very selective regarding the advisers we choose to affiliate with the firm, whether they're employee advisers or they're independent advisers. We want to make sure that these are advisers and these are teams that we would be proud to say are affiliated with the firm and that they share our client-first focus. They're not simply just focused on generating as much revenue or as production as possible. So -- as that number continues to climb, and we expect that it will. We want to be careful about how many advisers and which advisers we affiliate to the firm. And today, we've had great success doing that. This slide a look at how do we compare relative to the peer group median in terms of growth of assets, whether it's a 1-year, 3-year, 5-year or 10-year period, you can see that we have outperformed or outpaced the median pretty handily over every single one of those periods. Again, this is one that we measure. It's not one that we necessarily get up in the morning and say, how much faster can we grow than the peer firms. This just happens to be the result of the success that we've had over the last 10 years, and we're proud of it. Transitioning a little bit to revenues and net income. No surprise with the growth that we've seen in assets, that consist we've seen in assets. The revenue growth was followed very closely at 13% compound annual growth. And then when you look at -- you look at this year, the net revenue growth, it's been faster than it's been in prior years. We're starting to see a little bit of the benefit from interest income, which we had not seen in prior years. And that's starting to show up as we in the pretax income numbers, although we've had only a little bit of it so far this fiscal year, we're expecting that we'll see more of that in the remainder of the fiscal year, 17% over the last 5 years in terms of pretax income. And when you look at pretax income last year versus this year same period, we're up 23%, and we expect that, that number will continue to grow. I know Paul Shoukry will talk a little bit more about that during his presentation. So we clearly had success. We've been successful over each of the 1-year, 3-year, 5-year, 10-year periods, no matter really how you measure it. So as a PCG Private Client Group senior leadership team, we took the opportunity to step back and say, okay, as we look forward to 2030, what do we want to be, what we want to be known for within the industry? Where are we really going to put our stake in the ground? And what will be different going forward if anything, versus how we built the firm to date? We're at our 60th year in existence, 1962 to 2022. What will the next 10 years and beyond represent? So we said, we really want to become known as the most adviser-centric firm that helps advisers deliver for their clients, helping their clients live their best lives. Now that may sound a little bit like apple pie. But at the end of the day, having a good -- having a strong purpose that employees, associates, advisers, their teams can buy into and understand that as an organization, as a Private Client Group leadership team that this is also our guiding principle. I think it's important for them to understand. This is really what guides us every day. Our business is about people and helping them live their best lives. So to achieve that purpose, we have to have a vision. And that vision really starts with continuing to attract support and digitally empower advisers and their clients across multiple affiliation options, so not stepping away from the multiple affiliation options going forward and helping them leverage the entire firm's resources and our service-first culture, as Paul talked about, we're going to continue to focus on delivering world-class service to the advisers and to their clients. And if we're effective in doing that, we will indeed help clients to live their best lives. So that is our guiding light for the next few years. To deliver on that is going to require delivering on 2 strategic imperatives that we divided into the 2 circles that you see before you on the screen. The first is digitally empowering advice -- digitally empowering advisers and their clients. And then the second is helping them leverage the entire firm's resources, and I'll dive into each one of these briefly. So you have a sense of what we're talking about. So the first with digital empowerment. There's a large focus around efficiency here. Paul mentioned that we're expecting going forward that there probably will be fewer -- continue to be fewer advisers entering our business than retiring from our business, which is going to require that the advisers likely will be managing larger books of business on average, and therefore, they're going to need to be more efficient in providing a high level of service to each one of those client relationships and for them to be more efficient, deliver more efficient experience for their clients that will also that naturally for us caused us to be more efficient and whether they're utilizing electronic signatures, I'll get into in a minute how we're going to leverage data. Paul talked about opportunities, but helping them be more efficient in how they're operating their practice. You can see here moving more towards mobile and work-from-anywhere. Our expectation is going forward, what we've experienced here in the pandemic is likely going to persist in the years ahead. People prefer to be able to work from anywhere, and they want to be able to connect to Raymond James from anywhere using a laptop, using a mobile device to manage their business. Now we're not expecting that we're going to do away with offices. We clearly will still have offices. We'll have places where advisers and clients can get together and meet, but more and more at interacting with advisers. We're hearing that many of them don't meet with clients in their office. They meet with the clients where clients want to meet, which may not be in their office, but they still need an anchor facility where most of what I'm going to call, the processing occurs. If there is paperwork, if there are checks that those get sent to that address or they get sent directly to Raymond James. Hopefully, we're going to do away with hard copy checks. Today, we process over 1 million hard copy checks in any given year. And our desire is to reduce that number dramatically and move much more towards digital payments and get away from those hard copy checks. So the second that you see here which is really more about leveraging the entire firm's resources. Paul stole a little of my thunder talking about opportunities, which has been a tremendous for us over the last 18 months to 2 years, getting to the point where we are now. We're working closely with advisers, including our Technology Advisory Council. We're actually going to surface up opportunities advisers that they can have conversations with their clients. And at the same time, they're surfacing up to clients through our client access or our client-facing site, surfacing up for those clients, a potential opportunity to talk to their adviser about something that perhaps given the data that we have available Raymond James. Maybe that conversation has not already occurred, but I'm going to say doing that in a very Raymond James way, Raymond James-Centric way, which is not clubbing people over the head. It's not tying people's payouts. It's not creating recognition trip eligibility to what percent of the firm's resources are they leveraging or are they using. Are they the trust company? Does the client have a donor-advised fund or have they established a foundation? Has the client utilized Raymond James Bank? Do they have a securities-based loan? Do they have a mortgage to Raymond James Bank? Certainly, we're going to measure all those, and we will make those opportunities available to the advisers so that perhaps the client doesn't utilize. But given their profile, it looks like maybe that would benefit the client, but doing that in a way that's consistent with respecting the adviser and the client relationship. Not doing it in the way that some of our competitor firms have done, which is causing advisers to say, okay, wait a minute maybe enough is enough. I want to talk to Raymond James because I know they respect my independence and they're going to allow me to run my business the way I want to. But they have all the resources available in case one of those opportunities makes itself -- presents itself and makes itself available to me and to my client. This gamification that you see on here, we've talked about that a little bit, and we don't want to go too far with that on that client-facing website, but making clients aware of what they haven't utilized or what they haven't taken advantage of and doing that in a way that perhaps compels them. Do we have their e-mail address? Do we have their cell phone number? And if we don't, if the adviser has not collected that, prompting client to send that to us, now clearly, on an adviser-facing website. We have to have their e-mail address, but there may be other information that's not yet completed. Maybe it's a beneficiary form. Maybe it's that trusted contact. There's still a lot of clients out there that have not provided us with a trusted contact, which is FINRA's expectation. And when the new account is established or the new relationship is established, the adviser does ask for it, but not every client is willing to provide it. So we could provide in a friendly way a reminder to that client, hey, according to our records, we don't yet have a trusted contact for you, and we invite you to provide one to us. So things like that will be included ultimately in this opportunities framework that we're talking about. It won't just be about developing more business. It will be creating a more holistic and comprehensive relationship with those clients for the advisers, but doing it in a way, leveraging technology. We talked about artificial intelligence. I'm not even sure we're at the point yet where we need to exercise artificial intelligence, we're just going to, first, focus on, let's utilize the data that we already have and surface up these opportunities before we even take that next step. So how have our results been so far in terms of transitioning clients more toward digital empowerment and the advisers as well? What you see on this page, we've had great success. The COVID work-from-home environment certainly has helped us. But we expect that this will persist the move away from paper and the move much more toward paper suppression, not receiving those statements at home in the mailbox, instead accessing that information online through the client-facing website. You can see the usage of e-signature or DocuSign is up over 71%. We want to see that number continue to grow higher by providing reporting to our management teams and to the advisers who are perhaps not leveraging that as much as they should be. And you can see client access our client-facing website. Utilization of that is up 50% over that same amount of time. But interesting to me, those clients who are the smallest client relationships, where perhaps economically, we'd like to see the smallest number or smallest percent of paper statements being mailed to those folks. They are actually the lowest in terms of the utilization of the client-facing website. And when we look at correlations, the highest correlation of users of the client-facing website are those clients with the most assets. So we're well north of 80% for clients who have over 2 million in assets at Raymond James. But when we get down below 100,000, that number drops down below 50%. And we want to see that number continue to inch higher and we have a lot of programs underway to do that. Those clients get to deposit checks remotely. They get to access their information from their phone, from their iPad, from their desktop if they have access to that. And we know, based on client satisfaction ratings, those with client access as part of that relationship, they have a slightly higher overall satisfaction rating than those clients who do not. So we're using that to continue to encourage advisers to move in that direction. Shifting gears a little bit. One of the things Paul talked about, and I mentioned leveraging the entire resources of the firm. A few months ago, you may have seen that we hired Kevin Ruth to lead our private wealth initiative. We actually have 50 advisers here this week. The first cohort of those advisers moving through a private wealth designation at Raymond James. They are here this week. They volunteered, signed up for this program, and this is really to help them be better prepared, more confident, more capable with those clients that are the higher net worth clients. And most of these advisers are already servicing those clients, but making them aware of all the resources and capabilities that we have here at the firm, not just those institutional level investments, could be an interest rate swap opportunity, could be an opportunity and investment banking opportunity for a referral if their client is a business owner, which those tend to be. So when you look geographically on this map, where you see we have the lowest share of overall wealth in the United States. Our overall share is around 2.5%. The states where we have the lowest are those same states where the highest percent of high net worth and ultra-high net worth clients tend to reside. Now they're all over the United States as we know. But if we look specifically in the Northeast and we look out West, that's where the greatest percentage of those clients reside. And we know in that private wealth space, our market share is less than 2%, whereas the overall share, we're at about 2.5%. So with our focus on private wealth now, if we simply move that up toward our overall share, that's a significant revenue opportunity for us as an organization and a significant building -- business building opportunity for the adviser. So not only are we geographically focused, we're also laser-focused on continuing to enhance our capabilities to serve those private wealth, high net work, ultra-high net worth clients. With the change that I've talked about, one of the things that's not going to change is who we are as an organization. Our value is our philosophy. These statements are what I call proof points. We've shared this with advisers, with associates in the organization. These are the things that won't change. So Raymond James staying true to who it is, what has gotten us to where we are today and what causes that adviser retention to be as high as it is or that regrettable attrition to consistently be below 1%. So getting us back on time. Thank you, Devin. I'm going to hit the pause button. And why don't we move to Q&A. I think, Devin was the first.

Okay. Devin Ryan, JMP Securities. I guess thematically, the notion of -- in this industry, everyone's doing more for the same amount of money or sometimes even less. And I appreciate the pie is growing. So overall, the fees go up. But like the yields on fees aren't necessarily going up or what you're charging your clients. Are there areas where Raymond James can actually -- as you're providing more service and more platform to either the adviser or the end customer monetize that in additional ways? So meaning like business solutions at LPL are there other ways where you can actually deliver more service and really value add, but actually create new revenue lines to the firm or new revenue lines from what you're delivering to your customers in addition to kind of that network effect that you get?

Yes. Great question, and thanks for asking it. This week, at the Elevate the National Conference for the Independent Advisers, we announced admin extension, which we've actually had in place for a number of months. We had pilot users of it. And the advisers pay for access to administrative support. Somebody goes on vacation, somebody suddenly exits, somebody has a health issue. We now can provide administrative assistance remotely for the office. And those -- the folks are professionally trained, very capable. And what they won't do though is affect trades, but everything short of that, they're capable of doing. And the reviews that I received anecdotally from the advisers who have been leveraging this admin extension program, raved about it. So we're now expanding that program. We started with the independent side of the business. We're now starting to move toward the employee side of the business, Raymond James & Associates and Alex Brown. That's one example. The business solutions that you talked about, we're moving in the same direction with business solutions as well. We have a business consulting group, call it a virtual CFP marketing assistance, moving toward packaging that better and discretely pricing for it and charging extra for it, which is what we're doing with the admin extension as well. So we're moving down that path. As I think about it, in my mind, I think about it as non-compensable revenue and the need to continue to increase our non-compensable revenue streams, while at the same time, the advisers are growing their businesses, and that compensable revenue is continuing to grow as well. But that's key to margins in the future. Yes, Alexander, why don't we come to you.

So just building on that last point you mean around efficiency, it feels like you spend more of your slides talking about efficiency this time around than in the past, maybe wishful thinking. But I wanted to zone in on that a little bit. So you've got adviser books that are getting larger. So arguably profitability for those advisers should go up over time. You guys are doing all sorts of things with mobile and digital, which should also improve efficiency for adviser and to Raymond James. So when we think about PCG margins over time, markets aside, right, like equity market rates, just kind of keeping that aside for a second, how accretive do you think these initiatives could be to PCG margins over time. However you guys want to frame it would be helpful just to put some meat around the bones.

Yes, it's a great question and one that I would love to be able to give you a specific answer on, but I don't have a specific answer for you today that would come down to specific numbers. We need to go through that to identify if we're more efficient if we don't need as much headcount to process something as we formally did or as we currently do. Ultimately, what will that save us as the revenue increases as the pie increases. And where do we think if we project forward on the revenue stream that I was just talking about with Devin that he asked about, how large do we think that could potentially come? We're at the point where we are -- proof of design, we think, is complete, and now we're at the point where how do we grow that? And if we do grow it how material do we think it could be and how incremental do we think it could be. So why don't we model that, spend time with it, and then we can come back to you with a more specific answer. Yes, Jim? Microphone is right there.

We've been talking about the Northeast and the West Coast as a growth opportunity for a while. And what does it take to really move the needle? Do you need acquisitions? And if you look at the timeline and acquisitions, you guys haven't done a U.S. financial adviser acquisitions since '16 is -- so maybe there's 2 questions there. But just how do you kind of jump start the growth? Is it organic? Or is there opportunities in acquisitions? And what is holding back acquisitions in the U.S.?

Yes. We are, as Paul indicated, we are continuing to look at acquisitions. And I think part of it is it the right fit? We actually did look at a firm in the Northeast, went pretty well down the path and decided ultimately, it was not a great fit for us. But geographically, it would have been a great fit, but the profile of the advisers just was not a great fit for us. I will say we've now consolidated in Midtown Manhattan, consolidated into 320 Park Avenue and if you happen to be walking along Park Avenue now, you will see Raymond James right there at eye-level on that building -- on the entryway of that building, which is, for us, I think, an interesting milestone in the firm's history. And as we think about the other offices that we have in Midtown, continuing to consolidate into that space, the advisers who have -- the prospective advisers who have come to that space and visited is very impressive. And it's not over the top at all, but it's contemporary. It's modern. Wonderful space to meet with clients. So we will host more events there, working with Mike White, our Head of Marketing, to identify what are those opportunities, particularly in New York Metro area, the Northeast, what are those opportunities out West, where we can sponsor, whether it's a museum, whether it's a performing arts, whether it's a charity event to really get the Raymond James name more visible in those markets, and we'll keep that. It's a marathon. I wish it was a sprint and there was a silver bullet, but there isn't. We just have to keep at it. And we continue to measure our brand recognition in those spaces, and it's continuing to improve. Yes, Gerry, I think you had one, too.

Actually, just as a follow-up to that point, are there any sort of identifiable structural hurdles or challenges to penetrate those regions? Or is it really just more a function of presence and boots on the ground. It seems like that's obviously been an area of focus for quite some time now. And just curious what you found has worked versus perhaps what has not?

Yes. Number one, you have to have the right people on the ground. So not only does the brand need to have greater recognition perhaps than it does today. But the key, and I would say what's even more important is who is the local -- who are the local leaders? And if those local leaders are known, well respected, well regarded, the opportunity to recruit more advisers into those offices that you have, whether it's out West or it's in the Northeast, that opportunity goes up. And we've seen greater interest in the Northeast in the last couple of years, given the leadership teams that we have in place there now. I think we still have a little bit of work to do out West, but we're certainly on a tosh walked out, but we have some good opportunities in the queue, and I think those will make a difference. Once you get the right people in the chair, people tend to sit up and notice that we're serious about doing business there. So all those things together. Yes, Manan, maybe the last one before I get the hook.

Scott, you spoke about the investments you're making on the tech side and the benefits to advisers and as well as clients. All of these are benefits of scale. It's a fairly fragmented industry. It's been that way for some time. And now we're going into a period of more market volatility, higher rates. I guess what do you think moves -- what do you think meaningfully changes that fragmentation of the industry and moves more consolidation? Or is that maybe the wrong way to think about it? Is it going to be a continuous growth in the number of advisers just moving from other firms?

Yes. The -- as we think about the market generally, I go back 15, 20 years, lots of conversations about consolidation. And I think in the pure broker-dealer space, there are fewer broker-dealers. There are a few registered representatives under FINRA today than there were 15, 20 years ago. So we've seen consolidation there or we've seen a shrinkage in the numbers. But now you turn on the RIA, the independent RIA space and the PE-backed firms and the independent RIAs are growing, I would say, pretty dramatically. So with the decline in the broker-dealers, we've seen a similar increase if not a faster increase in the number of RIAs. So the fragmentation, I think, will continue depending on what your focus is. You can have a smaller shop and run a successful business depending on the size that you want to grow your business. There are opportunities to leverage technology. And clearly, today, there's access to private equity, there's access to capital to invest in your business. So boy, wouldn't it be great if we did see some sort of shrinkage? But my expectation is this business will continue to be fragmented going forward. There'll be more self-directed players. There'll be self-directed players that come into the business that get acquired, they will be self-directed that come in and go out because they can't make money. And regulations will determine too. If we do away with payment for order flow, there are some businesses today that aren't going to survive without that because that's key to their profitability. So it will clearly continue to evolve. But if I were a betting man, I would say the fragmentation is going to continue. I just don't know how it vanishes. I'll be at dinner tonight. So thank you. I know we're over. So I'll hand it back to Kristie. Thank you.

Thank you, Scott. All right. Up next, we'll hear from two of our leaders from the Asset Management segment, Jeff Dowdle and Bob Kendall. Jeff is our Chief Operating Officer of Raymond James Financial, and he's also the President of the Asset Management Group. And Bob Kendall, as Paul mentioned earlier, recently joined the firm about a year ago, and he is President of Carillon Tower Advisers. So welcome, Jeff and Bob.

Thank you, Kristie. I appreciate it, and I appreciate everybody coming down today. It's great to see everybody in-person and have a live audience for the first time in a couple of years. So great to be doing this event live again. I'm especially excited to be introducing Bob Kendall, our new President of Carillon Tower Advisers. As Paul mentioned, Bob is celebrating his 1 year anniversary this week. So very excited to have him here, and he'll be giving Carillon specific update after I do a brief overview of the Asset Management segment overall. So when you look at the asset management segment at Raymond James it's made up of 3 different business units, the largest of which is asset management services, which is the platform we provide all of the managed accounts and fee-based solutions that our advisers use within PCG to service their clients. We have about $140 billion in assets under management, which is defined as assets that we manage within AMS and the home office through our RCS freedom and UMA platform. So there's a home office managed assets. And then we have a bigger pool of assets $372 billion of assets that are under advisement, which means the advisers are serving their clients on those assets either on discretionary or non-discretionary basis, but it's not managed by us at the home office. The second business unit is Carillon Tower Advisers, which is our proprietary asset management business, serving both institutional and retail clients with mutual funds, SMAs, uses all sorts of vehicle types. And that business is a multi-boutique business with 5 separate investment affiliates rolling up under the Carillon umbrella. We have a total $64 billion of assets under management with another roughly $8 billion of assets under advisement for a total of $72 billion in that business unit. And these assets are all as of the end of March, so slightly down since the market decline post-March. And last not least, we have Raymond James Trust, which serves our retail clients with Trust products. And they have about $8.5 billion in assets to the trust company. That business unit for us was up under Steve Hills, if you have any questions. So ask Steve Hill. Steve Raney, a backroom passed. So if you any questions about the Trust company, Steve can answer those over dinner. So when you look at the growth rate similar to what you saw with Paul's presentation and Scott's, we've had nice, steady, strong growth in asset management segment over the last 5 years, and has some margin expansion along the way. So assets were -- revenues have grown about 17% over the 5-year period and pretax income growing at 24% annualized over the same period. So some good margin expansion, certainly helped by the market. Appreciation over the last few years. When you look at the year-over-year basis, we still have good comparisons there, 16% revenue growth from first half of last year to first half of this year with a 24% increase in pretax income. That year-over-year comparison is going to get a lot more difficult in the second half of the year based on the decline and will stay through the end of March and then going into the third fiscal quarter. So last 2 quarter comparisons are going to be more challenging year-over-year. When you look at the asset growth, same thing you've seen on the PCG slides and on Paul's slides, we've had roughly 20% annualized growth rate of fee-based assets over the last -- or asset management over the last 5 years, which is slightly ahead of the 17% revenue growth rate I've showed on the prior slide because we've had a mixed -- an asset shift mix, a little more fixed income on the Carillon side, a little bit of a shift to the advisement on the AMS side. So there's been some fee compression along with some asset shifting going along in there, which is why revenues have grown slightly slower than the asset base. And when you look again at the asset growth in the last 6 months, it's only up about 1%. And again, this is as of March and assets are down since then. So you'll see a more difficult comparison in the second half of the year. Now before I turn it over to Bob to talk about Carillon in more detail. I'm just going to give you some of the growth strategies we're working on right now within asset management services. The first is to continue to build on our platform, bring out new products and solutions that advisers need to not only recruit new advisers to the firm, but also to increase the market share and use of fee-based business within Raymond James same-store sales. So Scott focused on that as we're seeing -- generally seeing a trend in that direction. So we not need to continue to execute and support that trend. And the latest thing we introduced about a year ago as our product select UMA platform, which is a more flexible UMA solution where advisers can adjust the allocation and can select their managers. It's not a home office managed solution. They have the control of it in the branch, so we rolled that out. About a year ago, I think we have roughly $2.6 billion in it over 12 months. So it's been a successful rollout looking to continue that growth. And on the product development side, one area we're focused on specifically is ESG solutions. We started rolling out some ESG-managed products about 5 years ago, our Freedom ESG models, and we have some SMA managers that have ESG solutions. So that's been a growing part of our business over the last 5 years. We're now roughly $3 billion. So that represents roughly 2% of our total assets under management. So certainly, a lot of growth potential there at only 2%. So we think we're going to see continued growth in that area. We just rolled out a hybrid Freedom ESG model, which includes both ETFs and mutual funds based on adviser demand. So we expect to see that continue to pick up traction. And then last, similar to what Scott mentioned, we're focused on implementing technology to increase efficiency, focusing on efficiencies in the branches, but certainly efficiency within the home office to generate better productivity from our associates, increase margins, but most importantly, increase the productivity in the branches and make our FAs provide more and have more time to provide value-added services to their clients. The thing we're looking at rolling out right now is called the Master Advisory Agreement, which is an agreement that will cover our clients advisory relationship overall. So when they sign up under that agreement and open up, to say, an SMA account that down the road if the client wants to open up a freedom account or an ambassador account they can do that without having fill out new paperwork. They can do it based on verbal instructions with their advisers. So they will make the advisers life a lot more efficient. Right now if they want to open up a mixture of fee-based accounts, they have to have separate contracts for each one it's very labor-intensive. So that will hopefully help increase the use of those platforms and make the FAs a lot more efficient going forward. So there I'll save questions to the end and turn it to Bob to go with the CTA update, and then we can answer questions at the end.

Thanks. Appreciate it. All right. I'm the new guy and right before the break with 10 minutes here. So we'll move pretty quickly. It's great to see everybody, and thanks for being here. I thought we'd try to do 3 things with the time that I have with you, I just give you a little bit on what our business model looks like, talk to you a little bit about most recent results. And then we'll spend the bulk of the time really talking about key trends in the asset management industry and strategically how we think we can take advantage of those trends moving forward. So in terms of the business model, as Jeff mentioned, it's multi-boutique, set up 5 affiliates currently, sixth one on the way. Eagle is really the heritage and base of our business, based here in St. Petersburg, equity and fixed income asset manager, mostly into the intermediated space, some institutional. Cougar is an ETF strategist based up in Canada, acquired about 5 or 6 years ago. I think kind of like Rivers front, same time of idea of the strategy. ClariVest Equity Manager out in San Diego, primarily institutional, solely bringing them into the retail and intermediated space as well. And the Reams institutional fixed income manager around for the better part of 40 years, bringing them from being a primarily institutional manager into the wealth and intermediated space. And then Scout, in Kansas City, mostly equity and mostly, again, in the intermediated space. So you get the view pretty quickly that we are primarily a mutual fund manager. We're an SMA manager. We're very style box-oriented and we'll talk about that in a minute. But the top you see what the business model is. So we dedicate a little over 100 people to distribution and marketing. The strategy is for each of our boutique managers to obviously keep portfolio management, keep research, keep proprietary technology, anything else really should be and will be handled by Carillon Tower Advisers. This gives you a little bit of a look at our business overall by asset class, by segment, by affiliate. A couple of notes to keep here. By asset class, it's a good mix. You see the places where we're light. We'll talk about that on a go-forward strategy in terms of multi-asset and alternatives. By client segment, I think this is probably one of the most promising things about where the business sits right now. We are not a pure institutional shop. We're not a pure intermediated shop. Pretty domestic, as you can see. So the opportunities for us to work with very institutionally-based managers and bring them into wealth and/or the opposite is great for our potential in terms of acquisition strategy. And then by affiliate, lion's share really between Reams, our Fixed Income Manager and Eagle, our manager based here in St. Petersburg. In terms of -- moving on to kind of second part here of results. You see the net flow trend across the top. You see the overall assets. Similar story to what you've heard previously, big equity book, great tailwinds for the past years. You see the rise in assets. I'll point you to the top though, and take a look at net new assets. Obviously, as an asset manager, NNA is one of the most critical metrics that we measure. A couple of rough years, 2019, 2020, very strategy-dependent. An improved year in 2021, a little less than $900 million of outflows on the $75 billion base. Right now, we come through the halfway point of the year. It has definitely been a little bit of a challenge during the last quarter before the end of the second fiscal quarter. We need to be growing at 1.5% organically per year. The steps that we're taking to do that with the current organic business is very much based on client segmentation. It's very much based on product or wrapper extension, which I'll talk about in a few minutes. And then finally, it's very much based on looking at those asset classes that have longer hold times than what we traditionally offer. So you get that churn of a book, and you've got a 30-some-odd percent churn. It just makes that gross number that you got to be bringing in every year so much larger. We've got to focus on asset classes or product strategies that are going to have at least a 3- to 5-year life. Looking at in terms of revenue and pretax income, you can look over at the pretax side and see the margin expansion from both a little bit of decreased business development costs, phenomenal markets, a very good run on where we were in terms of pretax and the same on revenues. There were two -- should have mentioned prior, there were 2 acquisitions done during this period of time. So both Reams and Scout were added during the time period that we're looking at. So I'd spend just a few minutes on industry trends. These are the ones that we think are most important for our business and where we need to be concentrated. So Jeff talked a little bit about the proliferation of ESG, of impact investing. It's a cautious space. I mean we saw what happen with BNY Mellon earlier this week. We're waiting for the SEC to provide a little bit of guidance on at least as to what they're looking for. But the opportunities with institutional clients more an impact probably than ESG and then with high net worth and wealth clients is continuing. We'll look to be a little bit more of ESG aware than ESG specific and the types of strategies that we bring to the market. Institutionalization of intermediary clients, I think this is a trend that we've seen -- we saw back in kind of 2010, it died out a little bit as advisers are really choosing to make their own portfolios. We see this market downtrend stick for a little bit. You'll see the proliferation of platforms, again, from what we saw about a decade ago. We think that's a huge opportunity for the strategies that we offer. Increasing market share of passive. Passive will probably be 25% of all North American assets by the end of 2023. It will be about 5% of overall revenues to the asset management industry by the end of 2023. It's a space where we'll look at active. We won't look at passive ETFs. We may look at thematic, but you won't see us trying to compete with Barclays and iShares and others. Growth of alternatives, talked a little bit about this kind of same numbers, 12% of assets are in alternatives in North America, but it generates 40% of all asset management revenues. As you saw before, when I mentioned, we're a very traditional shop. We need to step into alternatives on behalf of institutional clients, and we believe there's opportunities in ultra-high and high net worth as well. Continued pressure on our fee rates, nothing new to any of you. We will look to be in areas where we feel like there's much more of a moat around fees. We have a lot of large cap assets currently. Very tough area to hold fee. Fortunately, the biggest preponderance of our equity assets are in small and mid-caps, been able to hold fee much better in those than we have in large cap. Rationalization of partners at broker-dealers, and this really extends to institutional clients as well. Clients want to use less and less asset management partners. They want the due diligence on less and less partners. What that means for us? We need to be able to offer a pretty wide spectrum of not only strategies and asset classes. We have to do it in pretty much every wrapper that our structure that a client would want to be in. They want to be in a fund, they want to be in an SMA. They want to be in UCIT, they want to be in a CIP. That's a way for us to increase our business in a dramatic way, but not have to bring in additional strategies to do such. And then finally, consolidation of asset managers through M&A. It's the longest talk trend that didn't happen for quite some time, and we've seen a massive acceleration over the past few years. I'll spend down just 2 minutes talking about how these really impact our strategy going forward. These are really the 5 pillars of our growth strategy for Carillon and for our business overall. First of all, in terms of leveling relationships and capabilities throughout all of Raymond James. We need to embed ourselves in Raymond James more than we have historically. Our ability to grow inside of PCG, not as a proprietary manager, but as offering custom solutions through advisers by providing the best service possible, we think there's a massive opportunity for us to grow alongside the organization. Second, align and strengthening core lines of business. When you're in the boutique asset management business, you've got to make sure that each of those which are there, all 5 are wholly-owned. You got to make sure that you are keeping portfolio management, research and proprietary technology in there, and everything else has to come to the center so that you can strengthen distribution, you can strengthen digital, you can strengthen marketing, you can strengthen product. So we will spend a lot of time on making sure that our model is completely efficient inside of each of our portfolio management teams and then allowing us to reinvest in the broader client organization as well. Enhanced investment resources. This is really around alternative data sets for our portfolio managers to utilize, making sure that we have that next wave of investors and then we have all of the plans if and when we see any of our portfolio managers move on and retire from the organization. Expansion of capabilities. We talked about. One of the areas that you will see us get in likely the beginning of next year will be direct indexing. Direct indexing as an SMA manager is both defensive, but also, we believe, if you believe in passive, if you believe in indexing, if you believe in ESG, we believe that direct indexing will be the recipient of a lot of assets. The fees are probably more in the 20s to mid-20 to 30, but we think it's a huge opportunity for asset growth and for customization. And then finally, in terms of acquisition. There's really 3 core areas that you'll see us look for acquisitions in the years ahead. I mentioned alternatives. And when we think about that, it would really be in private credit. It might be in real estate, it could be an infrastructure. We think about expansion into non-U.S. As you saw on that first slide, a very small percentage of our business is non-U.S. at this point. Both ClariVest and Reams, we believe, have capabilities that could be very much utilized in Europe, in Australia, a little bit in Asia. If we can find a partner that we also have the capability to import their strategies to the U.S. and they have both distribution and manufacturing that are based in Europe. That would be extremely accretive to our business, both our current lineup and our ability to import strategies. And then finally, would be around thematic or impact. I talked a little bit about that previously. And I mentioned that we will be getting into direct indexing. So hopefully, it gives you a little bit of a baseline of who we are now, a little bit of what our results have been and where we tend to go. And then finally, a bit of our strategy going forward. So I think Jeff and I would be happy to answer any questions.

Gerry O'Hara, Jefferies. Can you maybe speak just a little bit to the demand from either the advisers or clients with respect to alts? And alternative solutions within the portfolios. And also maybe if you could add any context or color around the ability to provide access and the solution set that's actually out there. But obviously, it's a priority of yours, but I think that would be helpful to hear as well.

Yes. So in terms of our alternative capabilities right now, as you kind of saw on that slide, they're minimal. Now for Private Client Group, they obviously utilize alternative providers kind of across the gamut. Demand-wise, we don't go into an RFP in the institutional space in fixed income anymore without there being the possibility that it moves from list from a listed securities to private credit every single time. So the demand is absolutely there. And if you transition it kind of from the institutional side into wealth, you've seen the need for yield across pretty much from intermediate or retail clients all the way up through high net worth, ultra-high net worth, and there's been a starvation of that for quite some time. We think there's opportunities for people that are willing to give up a little bit of liquidity to be able to get a little bit more yield. The growth of that, I can speak to it exactly at PCG, but the growth across the entire industry has been double digits for the last 3 years. Now a lot of that has been in real estate, in listed real estate and kind of the B REIT type product. But that opportunity is still there. And that will either be in, could be a real estate, could be in infrastructure, could be in secondary private equity. There's a lot of opportunity for a manager like us because the client book that we already have advisers internally, advisers of Morgan Stanley and Merrill Lynch and all the places we serve. And then the institutional market, there is without question demand.

So I want talk about alternative products here. We're talking about alternative asset classes in Carillon, at the firm overall. We have the alternative area under Global Wealth Solutions, where they have hedged funds and structured products and things like that, but there's definitely retail demand for that. There will be more demand in the ultra high worth space, but that's on our Global Wealth Solutions, which is different than the alternative asset classes that Carillon is focused on.

Devin Ryan, JMP Securities. Just following up on the point you made about just broadening out the wrappers for products. How much of that is actually new because I know that's something that I believe Raymond James has been somewhat focused on for some period of time. So I guess, what is new there in terms of the opportunity set? And then is there any way to frame out like how big incremental demand could in fact be if you really push hard on that without even adding one incremental product?

Yes. So again, it may be a difference as to when Raymond James started and when Carillon started. I'll give you the 3 that are probably going to be the most important for us. UCITs for use in Europe and use in offshore. CIPs for use inside of retirement plans and 401(k) and then direct indexing. If I try to put a growth on direct indexing, we believe that direct indexing can grow at somewhere between 2. I'm looking at Matt Johnson, my Head of Product in the back of the room, right around $2 billion per annum, and that would be us having a very small market share. In terms of UCITs and CITs, I probably couldn't give you an exact number off the top of my head of what that growth is. What I love about it is that the advisers that would use CITs and UCITs from us, they already do business with us. They like the strategies that we offer. But if we don't have it wrapped in a way that's going to be then the best for a 401(k) plan or the best for an offshore plan. I don't have to resell them any idea of the investment strategy or the manager I just have to package it differently. So those are probably the 3 that I think will be the most growth oriented for us.

Great. I was curious about your point around enhancing footprint within PCG. It sounded, again, maybe a little bit more pronounced or kind of top of mind priority for management than we've seen in the past. So maybe one, how large is PCG as a percentage of total AUM that you guys manage today at Carillon. And if we think about pieces that are missing? Are they product-specific and capability-specific or just kind of like a focus, right? So to get larger and when you look at peers, whether it's Morgan Stanley, Schwab, Ameriprise, they all have a much larger footprint within their own channels. So is that the goalpost? And what do you need to do to get there?

I'll make a couple of comments to it. First of all, what makes Raymond James PCG so great is that their advisers have complete independence as to what they choose. So we don't envision being maybe the same way as an Emerson is. When you look at maybe Columbia and Ameriprise, that might be a decent idea. If I talk about the capabilities that we're missing. So we have a really strong book of SMA business inside of the organization, particularly around fixed income. The opportunity to expand ourselves there in equity and also do that through direct indexing. I think there's a massive opportunity. The growth of alternatives inside of PCG. And as Scott mentioned, you're going to see people -- advisers in terms of high net worth and ultra-high net worth as the firm goes after this. I think we can be an important part of the growth of that business, whether that be custom portfolios, whether that be around alternatives. Again, we will not be -- I think Scott said it well, it's not forcing people to do anything, but I do believe we have the exact same values as the broader firm does. I believe that we can solve solutions quicker for advisers. So I think the best point you make or the best question is it will be -- it's a higher level of focus for me. I think there's just a massive opportunity to grow there. And background-wise, I spent 13 years in my career at Morgan Stanley and have seen kind of how that can work. I've seen the bad of it, but have also seen a really good of it. Is that helpful?

Then we have an example of that kind of in a microcosm, James Camp, one of our fixed income managers at Eagle has a great relationship with Private Client Group is one of the thought leaders on our Investment Committee Strategy Committee doing presentations at the Elevate Conference last week. So based on that relationship and that value add that he provides to the adviser. He has a pretty high market share of our fixed income SMA platform might be as high as 30%. But again, it's not because we're forcing the FAs to want to use equal-fixed income, it's because James is adding value to the advisers that's generating that business coming into him. He'll review portfolios for clients that whether he wins them or not, he'll review and give feedback and help the FAs kind of grow their practice. So is that type of win-win relationship that we're looking to achieve more broadly across the organization.

Okay. Thank you, guys.

All right. Thank you very much.

Thank you, both. All right. Well, next up, we are going to take just a quick break. So we will resume back here at 2:45. So about a 10-minute break or so. Thank you. [Break]

All right. We'll go ahead and get started. Next up, we have Steven Raney with Raymond James Bank. Steve is our Chairman and CEO of the bank, and he's also the Chairman of Raymond James Trust Company, and he joined the firm in 2006. Go ahead, Steve. Thank you.

Yes, thanks, Kristie. Good afternoon, everybody. It's so good to see you here in-person and it's been a little while, and we appreciate your interest and followership of Raymond James. Look forward to giving you a little bit of an update of RJ Bank and the things that we're focused on right now. So I know you're aware that we're getting close to $40 billion in assets as of the end of March and continue to fund ourselves with the client cash portion of our client investment accounts. So right now about $76 billion of client cash balances sitting in those accounts. And in addition to that, I know we'll talk a little bit about TriState Capital Bank. We're excited about that pending combination. And the fact that we'll be able to diversify our funding for both their institution and ours going forward, should we need additional sources of deposits. Have access to the capital that RJ has, but we're also generating sufficient earnings. We've really been, for the past several years, dividending back to the parent company as our earnings have exceeded the capital requirements that we've had to fund the growth of Raymond James Bank. So the thing that we're maybe most proud of or one of the things that we're most proud of these days is the continued integration with our Private Client Group business and serving the clients of Raymond James now 8,700 financial advisers in the households that we serve. So we've been growing our private client banking, residential mortgage business, securities-based lending as well as structured lending business here more aggressively over the last few years. I know we shared last night the operating results. We're now at $28.5 billion of total loans across all of our categories, we've seen nice growth, and we'll talk a little bit about the breakdown of that, but we've seen nice growth across all of our loan categories, and it's resulted in 22% loan growth year-over-year, ending March. So -- and we've been able to do that. And I think as Kristie mentioned, I've been here going on 17 years, we benefited from having a very strong and stable management team with a very similar outlook in terms of how we ought to run the business and making credit decisions. And we've been able to navigate the financial crisis in '08, '09. We had a lot of challenges with COVID that we can talk a bit about. And now we'll have a whole new set of challenges, higher inflation, supply chain, potential recession, all of those things. So -- but I'm confident that our team will continue to manage and have great stewardship of our capital as well as the risk in the loan portfolio. Our net revenues have grown nicely. You see here 16% year-over-year for the first 6 months of fiscal 2022. And with the most recent rate increases, we're, right now, running net interest income on a run rate basis of over $900 million. So approaching $1 billion in run rate revenue with once again with the most recent rate increases that have -- that we've experienced. We've had nice profitability during this whole period. We're going to benefit, and I know we'll talk later, Paul Shoukry will share with you kind of the impact of what we expect rates to do in terms of our profitability firm-wide and a big portion of that will be at the bank regarding -- relative to our spreads. As I mentioned, loans have grown 22% year-over-year ending March. Our net interest margins, we obviously -- in the lower rate environment, we saw quite a bit of compression that you see as recently as fiscal 2029 -- 2019, excuse me, we were over 3.3%. We reported net interest margin in the March quarter for that 1 quarter only was 2.01%, so just barely over 2%. The month of April incidentally was 2.29%. So just even in that 1 month, we're seeing the impact of that rate really coming through in terms of our net interest margin and our spreads in our asset categories. We've really been focused, over the last 5 or 6 years, into the continued diversification in the bank's assets. If you remember back, I know several of you have been following this for quite some time. We were much more heavily weighted in our commercial and industrial corporate lending business, C&I as well as commercial real estate. And while those assets have grown, we've really grown our private client banking assets even more rapidly. And we've also picked up certain subsectors over the years that have further diversified our business. We do have a relatively small portfolio of municipal finance or tax-exempt loans, that's about 3% of our asset mix now. We've also, as we've discussed on many occasions, being more aggressive with deploying client cash as well as firm capital to grow the bank securities portfolio that's now a little over $9 billion. So we really have benefited greatly from having a lot of different high-powered businesses that can counterbalance each other from time to time because not all the businesses are always firing on all cylinders. So it's good to have this diversification from a risk management as well as new opportunity standpoint. As I've mentioned, we've been growing our Private Client Banking business even more rapidly. Our SBLs have grown 27%. You see here, 41% on a CAGR basis, 27% year-over-year in SBLs and residential loans as well with a great growth plan. Corporate loans continue to grow. We manage that portfolio. I think in a very proper fashion, it continues to grow but at a slower rate. Going back, we wanted to provide quite a bit of history here, if you look back at our credit trends in terms of provision expense as well as percentage of criticized loans, non-performing loans and as well as our bank allowance. I think we've done a really good job of managing through these various cycles. So you see this as recently as the beginning of the pandemic in fiscal 2020, we had really got out in front of it and really took a lot of provision expense in preparation for possible losses. Our actual losses have been far less than what we had provisioned for that period. And then we turned around last year and based on some of the improving conditions had an actual provision credit for the year. And then this year, we've actually had a relatively small provision expense of $10 million through the first 6 months of this year. And that kind of corresponds with kind of a rise in the criticized loans back in the 2020 time frame, but it's actually come down. It's been stable the last couple of quarters. We feel like it's very manageable. I would mention some of the categories that were maybe most impacted, for example, our hospitality loans, we had some loans to individual hotels as well as some of the REITs that are focused in the hospitality sector. That sector, in particular, has really rebounded nicely. We're seeing great improvement and great trends kind of month-over-month. But then there are clearly other areas that we're going to be concerned about going forward. I mentioned some of the supply chain. Not every client is going to be able to pass along all of their cost to their customers. So we're watching all of those other categories very closely as well. So our non-performing assets as a percentage of total assets continues to be very low. And then this last quarter, I know a lot of you follow banks and I would say, in general, the vast majority of banks had a pretty large reduction in their allowance to total loans. There were a few exceptions to that, but we actually kept our allowance to total loans flat quarter-over-quarter, which was a little bit of an outlier on a relative basis. But I would tell you that we were only a month into the Ukraine situation, higher rates, higher inflation, supply chain, we just felt that it was appropriate and prudent for us to keep our allowance to total loans flat quarter-over-quarter. I wanted to just quickly touch on -- we continue to be very poised very well for rising rates. But we do over the last few years, particularly as it relates to the securities portfolio. We've added a little bit of duration to the bank's asset mix. So you see there the available-for-sale securities at 23%. Incidentally, the duration of that portfolio has been pretty stable. It's a little under 4 years. It's around 3.8 years. Our residential mortgage portfolio, just as a reminder, continues to be predominantly loans to clients of Raymond James. The duration in that portfolio was around 4 years. And obviously, with rates increasing, we expect the runoff in that portfolio to slow down, so the refinance dynamic will slow, and therefore, we'll have those loans for a little bit longer. And then you see this one little small sliver that says long duration. That's the tax exempt municipal portfolio and the duration of that portfolio is about 6.5 years. So the rest of the bank's balance sheet is really positioned for rising rates and will benefit greatly from that. And I know, Paul will share with you our thoughts on the impact of rates, deposit betas and all that. So the bank will enjoy -- and we're already -- as I mentioned, we're already seeing the impact of the rising rates, impacting positively our net interest margin. We're going to continue on this path to grow the securities-based loans, residential mortgages to the Private Client Business. I'm sure everybody is aware that clearly, the mortgage business is very correlated to what rates are doing. We're really benefiting there, because we're recruiting financial advisers. We have a lot more advisers that are using the bank. We're continuing to have very strong pipeline and application on a day-by-day basis in our mortgage business as well as once again, growth in our adviser count and new clients driving our SBL growth. We're going to continue to selectively look to ways to grow our corporate loan portfolio. We've had some nice growth for the first 6 months of this year. Incidentally, I mean, we're -- that business in our C&I portfolio is very correlated to the M&A market. We've probably done less in C&I and a little bit more in commercial real estate as a result of that. But that business is very episodic and we're poised to be able to grow the C&I portfolio prudently once that business in terms of new issue kind of picks back up again. And we're going to continue to manage the portfolio to our conservative underwriting standards. And we've got, once again, a stable team. I know we've mentioned this before, but we have -- every loan goes through the same approval channel, the Head of Credit, the Head of Corporate Banking as well as our Executive Loan Committee, which is 3 of the Board members from Raymond James. So there's no decentralization. I mean no decentralization of credit. It's all centralized into one approval process that served us very well. We're going to be involved in working alongside TriState here very soon. We're going to learn from them. They're going to learn from us. As you know, it's going to be run as a separate and sister institution to RJ Bank, but I know that there's going to be a lot over time that we can learn from them and things that they're involved in, things we're involved in that will be synergistic with one another. So with that, why don't I open it up to any questions? Yes, Alex.

So my first question is around kind of the addressable market you see within PCG for kind of continued loan growth success that we've seen more recently. So again, thinking through some of the other peers that have been focused on that for a while, whether, again, it's the bigger banks like Morgan Stanley or some of the others, what do you think is the runway for SBLs and mortgages within this channel for you guys? And I guess, secondly, with lower markets, higher rates, how big -- how sensitive do you think SBL growth could be to that for RayJay, weighing in, obviously, organic growth because you guys are underpenetrated, but obviously, these are negative kind of macro headwinds for that business?

Yes, good question. And our penetration rates, particularly in mortgage, continue to be relatively low. Only about 25% of our financial advisers this year will do at least one client mortgage with us. That trend continues to improve every year. As a reminder, one of the limitations, our independent advisers don't receive any compensation for that mortgage referral. The employee advisers do get a referral payment for that loan. That's one limitation. But I can -- it's really kind of, Alex, I think kind of almost hand-to-hand introductions with every adviser. So there's a lot of opportunity, I think, for us to continue to grow our mortgage business. The SBL business, with this choppiness in the market, that may give some pause to some clients wanting to get any leverage against their portfolio. We haven't seen it manifest itself yet. We've seen application volume continue to be very strong. As a reminder, when a client, through their adviser, is establishing one of these lines of credit, there's no cost associated with setting it up. There's no fees. There's no closing cost. And the advisers typically are educating our clients on setting it up as kind of a liquidity backup, rainy day fund. And they're setting it up, a lot of times when the account is being opened, a lot of these -- 25% of our new SBLs are transitioning advisers in their new clients. So a pretty good chunk of our volume is us repapering or doing a new loan to replace an existing loan. So I think that, that recruitment will continue to generate a lot of volume for us. Clearly, that -- it could be a headwind with this choppiness in the market where a client is just like, "I don't want to expose myself to having any type of margin call." But I think that's going to be somewhat muted in maybe short term. So I think we're poised long term to have more households at Raymond James, more advisers. And the SBL product is a pretty -- we've gotten it down where it's pretty efficient. It's a good client experience. The advisers like using it with their clients, and I think we do a good job of delivering that product offering. So I continue to think that we'll be able to grow our private client assets, I would say, at least 10% per annum out the next couple of years. That would be my best guess. Manan, yes.

Steve, any thoughts on what you're seeing on the credit side? You're obviously seeing strong loan growth here. A lot of it is from SBL, but C&I and CRE are growing sizably as well. So have you changed your underwriting standards at all in this current environment? And I know you typically underwrite to the full cycle, but anything you're doing at the margin right now?

Yes, good question. We've really not changed anything at all in terms of our credit standards, loan to values, loan to real estate or cap rates that we're using. Periodically, there will be some subsector, if you will, that we will evaluate and consider going into. So here more recently, and this is pretty prevalent in many other banks, we've not done a lot of capital call or subscription line lending where you're lending to private equity firms, where you're secured with the capital commitments of the institutional investors, capital commitments to that fund. So pension funds, sovereign wealth, it could be some high net worth folks, but it's usually institutional. And you're getting detailed list of who the capital is being committed by, and we're lending against that. We've done that on a few occasions. Once again, it's pretty prevalent asset class. I use that as an example of something that would be kind of a newer little sector that we're focused on. There's really been no changes in our underwriting standards. As a matter of fact, once again, there's been a little bit of a shortage of new issue in our primary sweet spot in credit just given kind of the macroeconomic M&A environment, public offering market. So it's caused us, in some sectors, to just be on the sidelines, which is fine. There are other areas where we can grow. And when that comes back, that's -- once again, on a risk-adjusted basis in our sweet spot, we'll reengage on it. Devin?

Steve, I guess kind of a follow-up to that question. So we're obviously starting to get some questions from investors around outlook in the credit environment and where we see things going and where risks might be. And you guys have always done a great job managing through and have a very diverse book. But I think your second largest industry sector is consumer where with supply chain and potentially softening economy, that is an area that people may look at. So I guess first off, how do you feel about that part of the book, just specifically the loans in there? To the extent we do go into kind of a softer economy, how do you think the book overall would perform, and I'm talking the entire loan book, into a recession? And then kind of the last piece of the question is just around you got early -- or got aggressive early in terms of selling loans as the pandemic started. Is that specific to the pandemic and what was happening then? Or would you maybe employ that strategy again to the extent the economy softens more?

Yes, Devin, on the portfolio in general, I feel good about the way it's constructed. There will always be -- when you have something like 575 borrowers, you're going to have a few clients that will have some challenges. The diversified consumer products companies are probably going to be fine. But if there's some single product where they've really got only one product that could be impacted, that's where, I think, the industry could experience some issue and particularly, if there's something that's specific to that company in terms of supply chain or maybe oversupply and not enough demand for that one particular product. So we may see some of that. It's very, very isolated, I would say, on a relative basis. So we have some other consumer product companies that are highly diversified with multiple product offerings that, I think, will be fine. So Devin, you're referencing the proactive sale of some loans that we put in place really, once again, I think with a great risk management tool. It kind of bore out our business model. We have something like $6 billion of loans that are "liquid" that have some secondary market. And we did choose during the beginning of the pandemic to lighten up on some industries that we thought were particularly susceptible: entertainment, hospitality, airlines, travel and leisure, things like that. So -- and we'll continue, even this quarter or the last couple of quarters. It's not -- we've not done anything en masse. It's been very isolated. But there've been a name or 2 that we wanted to lighten up on. So I think as this plays out, there will be other names that we'll want to lighten up on, and we will be very proactive about doing it. I don't think you're going to see anything like we experienced in 2020 where we were doing it kind of en masse. When you're running really draconian scenarios, when you were thinking, "Could we have a 25% unemployment for 2 years?" when you start running those scenarios, we thought it was appropriate to really derisk the portfolio. So I think it will be isolated, but we will take advantage. We actually just sold part of a loan last week just because it was criticized. We're very sensitive to the optics around our criticized loans to capital, for obvious reasons, and we also don't want to incur bigger losses. So sometimes, selling a loan at a 5-point loss, selling it at 95, that's the best outcome sometimes. So we have to make those judgment calls on a loan-by-loan basis. Yes, Jim.

Just on the NIM, you've had a pretty big change in the mix on your balance sheet, particularly the growth in securities portfolio. Do you think -- as you look -- as rates move higher, can you get back to the 18, 19x north of 3% kind of NIM? Or is there maybe a structurally lower NIM? How do we think about that projection?

Jim, I think a 3% -- I mean, depending on what -- if rates materialize like we think they're going to based on fed funds futures, I think 3% NIM is a reasonable number for us to get to in the next couple of quarters. It is driven by our asset mix, though. So the securities portfolio is the lower-yielding asset class. And incidentally, we've made a little bit of a minor shift here. It's not a huge shift, but as we're growing the securities portfolio here in the last couple of months, we've been buying shorter duration U.S. treasuries kind of in the 18- to 30-month duration maturities. And we've been forgoing some yield that we typically would buy in our mortgage-backed securities. Incidentally, those -- that, call it, 2-year treasury right now is yielding [ 2 45 ]. The like of mortgage-backed security would probably be 50 basis points wider than that. We like to have that thing a little bit shorter because we want to be poised to have more liquidity, more cash coming in. But I think all that being said, I think us getting to a 3% NIM is very reasonable with what we think rates are going to do out for the next few rate hikes. So I know Paul is going to talk about deposit betas and expected rate increases in that, but I think that's kind of the trend we're on. I don't think we'll get much past that. So...

Do you think you can get there in a few quarters, which...

I think that could happen depending on what, obviously, the Fed -- the path that the Fed's on will drive a lot of that. So any other questions? Well, I will be with everybody at dinner tonight. I'm sure we'll get a chance to catch up and answer any other questions you may have. Thanks again.

Thank you, Steve. All right. Thank you. And next up, we have our CFO, Paul Shoukry, to give a financial overview. Thank you.

Hopefully everyone can hear me. All right. Well, thanks for coming to Florida in late May for this Analyst Investor Day. It's really good to see everyone in person. I've been so used to seeing all of you in t-shirts and sweaters over the last 2 years, I forgot how dapper you look dressed in business casual. And I actually threw on a tie for you today. I knew it was going to be my lucky day because I got it just perfectly on the first try. So unfortunately, I don't have time to answer any questions today. So -- I'm just kidding. So Alex was about to run out. But if we do finish on time, Bella will -- has offered -- Bella runs technology and operations for us. She's offered to give us a quick tour of the cyber and command center in one of our other towers here. So we can do that before you go to the hotel for dinner tonight. Starting off with our financial priorities. They really remained unchanged. But if there's 4 things that I would ask for you to take with you from -- today from the finance section at least, it would be these 4 financial priorities. The first is we have consistent capital priorities that's focused primarily on growth. And we'll talk about that on the next slide, but that's really critical that we really are a growth-oriented firm. And when we think about deploying capital, we focus, first and foremost, on growth. The second is we have a track record of generating operating leverage. Year after year after year, we consistently try to grow revenues faster than we grow expenses to expand margins. I know we talk a lot about expense growth from year-to-year because, again, as a growth company, we're constantly investing in our business, investing in technology, investing in people. But we're always focused every year as we plan on generating that operating leverage, and we have a consistent track record of doing so. Three, we're very well positioned for higher short-term interest rates. Again, a lot of times, we get criticism for not taking on more duration, taking on more fixed rate exposure, et cetera. And our response has always been we're making long-term decisions for the next 5 to 10 years. We're not trying to time the interest rate cycle. And I think that long-term approach, while not always appreciated, is certainly appreciated right now as we have a very flexible balance sheet and we're really well positioned for the rising rate environment. And then finally, having a strong balance sheet, a very liquid balance sheet, high-quality balance sheet with plenty of capital to give us flexibility in any type of market environment. Starting with the consistent capital priorities focused on growth. First and foremost, the highest -- as Paul Reilly said this morning, the highest returns on our capital deployment, we believe, are from organic growth. And organic growth really starts with retaining our existing financial advisers and our producers, and we measure that by looking at our regrettable attrition, which, as Paul said, is consistently less than 1%, by far the best in the industry as we track it. And then on that base of having good and solid retention, because the most expensive thing you could do in our industry is constantly try to replace producers that you're losing, so having that foundation of strong retention, we can grow organically by bringing on new financial advisers and new producers across all of our businesses. Acquisitions, to the extent that they're good cultural and strategic fits, we've shown certainly over the last year that we would pursue acquisitions. Again, we're very patient and opportunistic. So I know there's 3- or 4-year stretch where you guys think that we're -- we've given up on trying to do acquisitions. But as we've shown over the last 12 months, we -- when there's good cultural and strategic fit, sometimes they take 7 years, as Paul said. The first meeting with Charles Stanley was in 2014. So we did have a cluster of acquisitions that just happened to be announced over the last 12 months. But that is our second priority behind organic growth in terms of deploying our capital to grow through acquisitions. We have a long history of paying an ongoing dividend. We increased it a few years ago from 15% to 25% of earnings to a target range of 20% to 30% of earnings with the goal of not having to decrease dividends in downturns, which we didn't have to do during the financial crisis. And again, that was because we're able to remain profitable throughout the financial crisis. We didn't need government support going to what I'll talk about next, which is having a strong balance sheet. And in share repurchases, I'll show you on the next slide how we've been more consistent with buying back shares to offset compensation-related dilution. We started that really in earnest in 2017 and '18. But we've also been more opportunistic when we feel like the price of the stock is at opportunistic levels, and we've built up enough capital where we don't feel like over the next 12 to 24 months, we'll be able to deploy it in the organic growth or in acquisitions. And this is the history of our capital return here over the last few years. Since 2016, we've deployed $2.4 billion of capital and returned it back to shareholders through dividends and repurchases. You could see that consistent dividend growth over this period commensurate with the growth in earnings. And then the repurchases, again, seeing us starting to be more consistent with offsetting that share-based compensation dilution, which is about $150 million to $200 million a year, but also being opportunistic. In fiscal 2019, you see we bought over $750 million of stock back at an average price split adjusted of $51 per share. Again, we had built up capital. We didn't see major acquisitions on the horizon, and so we were opportunistic in buying back shares, again, showing our willingness to be opportunistic. Again, we didn't do any share repurchases since we announced the TriState Capital acquisition. For regulatory reasons, we weren't allowed to. But we have announced the intent and have the authorization today of $1 billion to repurchase shares to offset the share issuance associated with the acquisition, which is about 7.8 million shares. Second point here is just having a track record of strong financial performance and strong revenue and earnings growth. You see here consolidated revenues over the last 5-year period grew at 13% per year, with 19% year-over-year growth. A couple of highlights on this slide. Last year, we generated record net revenues of $9.8 billion. I think it was up 22% year-over-year. And that's despite near 0 interest rates, which is really remarkable when you think about it. And that was driven by record results in 3 of our 4 segments and particularly strong results in the Capital Markets segment, which had records for both the equity side and the fixed income side of the business, which is pretty unusual in our business, but both of those to be hitting on all cylinders at the same time. The other note -- item of note here is that about 70% of our revenues are considered asset-based in nature, giving us a high level and high degree of predictability when you look at our revenue base relative to firms who have more exposure to volatile revenue sources. So this gives us a nice recurring stream of revenues going forward. So far this year, we're -- for the first 6 months of the year, we've grown revenues 19% year-over-year. And again, that's off the record levels of last year of $9.8 billion. Now we've got some puts and takes we'll talk about for the next 6 months of the year. So it's not as easy as multiplying by 2, but we'll talk about that in more detail. Again, I said a track record of generating operating leverage. So you saw on the last slide, we're growing revenues at 13% over this period. We're growing earnings at 18% roughly. So again, since 2016 -- even with the heavy level of investment we made from '16 to '19, which a lot of you remember because we did have to make pretty significant investments in our control infrastructure, risk supervision, compliance during that period as interest rates were rising, even with those heavy investments, we still grew earnings much more rapidly than revenues during this period. And remember, the end point of this period doesn't have the benefit of high rates. We're at near 0 rates at the end point of this period. So we were able to generate that operating leverage even without the benefit of rates in the last year of this analysis. And then year-over-year, we've grown earnings from the last year's record. We've grown earnings for the first 6 months by 19% on an adjusted basis, 17% on a GAAP basis. And again, EPS growth with the buybacks we talked about earlier, 22% over this period for both on a GAAP and a non-GAAP basis. So very strong earnings growth over this period. Pretax margins here. You could see that we -- a little volatility in 2020 largely due to the onset of the pandemic. As Steve Raney said, we were front-footed in adding and building to our allowances, which have come down since then as the economy has recovered and as markets have reopened. But again, very stable pretax margins over this period even though a lot of different dynamics were occurring throughout -- year-to-year. Some years, we have the benefit of rates with lower investment banking revenues. Last year, it was just the opposite. We didn't have the benefit of rates with higher investment banking revenues. But again, a testament to recurring revenue sources we have across the firm and then the diversification that Paul Reilly talked about earlier where when some businesses aren't hitting on all cylinders, other businesses pick up the slack. That's really the financial benefit of diversification that we have as an organization. The return on equity, I had to triple check these numbers because last year, the return on equity of 19.5% and 18.4% happened to be exactly the same as our pretax margin last year. So that was a little bit of a double take. I wanted to make sure there wasn't any typos, but it actually was accurate. Again, 19.5% return on equity last year with near 0 interest rates in our business and almost 2.5x the capital we need from -- to be well capitalized. Truly phenomenal results, again, helped by the record results in the fixed income and global equities and investment banking and really record results in the Private Client Group and Asset Management segments as well. In addition to the recurring revenues, the other major component or driver of our consistent earnings growth and profile is having a large portion of variable expenses. And so you see on this slide, 80% of our expenses are either financial adviser payouts or incentive compensation, which go up and down with the corresponding revenue. So that gives us a lot of financial flexibility. Again, the payouts to advisers, that's on the grid. That goes up and down automatically with their compensable revenue. So it gives us a lot of financial flexibility, and that's really a key to our consistent earnings history that we have at Raymond James. The next point is we're well positioned for higher short-term interest rates. We have $76 billion of cash at this point. Last night, we reported that we had $73.9 billion of cash at the end of last month. Well, that's increased back up to $76 billion as of this morning. So really recovered largely due to that market volatility that we've seen over the past few weeks. So roughly $76 billion of cash. Again, all of this represents what we would consider floating rate funding. And so that's where we have the interest rate sensitivity, which represents roughly $600 million of pretax earnings upside or 30% to 35% accretion with the first 100 basis points [ of rates ], of which we already received 75 basis points of that. So a lot of upside potential with higher short-term rates. Again, I know a lot of you have criticized us for maybe not being more aggressive in taking term and taking duration, taking on more leverage on the balance sheet. But where we sit today, we have a lot of upside and tons of flexibility with the balance sheet. So I think that's being fully appreciated in the environment that we're in today. A little -- just for the newer investors that are on the webcast. The way we fund our balance sheet with the $76 billion, we have at this point about $60 billion in what's called the Raymond James Bank Deposit Program, which provides FDIC insurance. We try to maximize the amount of FDIC insurance that clients can get in our industry by sweeping to multiple banks. Raymond James Bank is one of them. TriState Capital will hopefully be another soon. And then we have a whole list of third-party banks that we sweep to as well. And then the client interest program is really a broker-dealer program. Most of the growth over the last year has really flown into this program, and that's because that's an overflow. When we have -- when the bank gets all the cash it needs and third-party bank capacity is constrained, which it has been over the last year, starting it a little bit better but still constrained, at least attractive rates, still constrained, it goes on to the balance sheet and we accommodate client cash balances on the balance sheet pursuant to SEC 15c3-3 regulations, where most of this is invested in very short-term treasuries, 30-, 60-day type treasuries. Strong balance sheet. Again, this is something we always strive to be able to tell you in front of this room, not just in good times but even through cycles where we always want to have a strong balance sheet with plenty of capital, plenty of cash at the parent company, which I'll talk about shortly. But if you look at the regulatory capital on the bottom left there, 25% total capital ratio. It's 2.5x the 10% requirement to be well capitalized; and 11.1% Tier 1 leverage ratio, which is over 2x the 5% requirement to be well capitalized. And really, that's come down quite a bit because of what I've said on the prior slide where we have a lot of the cash being accommodated for clients on our balance sheet. As I said on the last earnings calls, we don't really think about that usage of capital the same way as we think about the other parts of our balance sheet. So if you think about it, probably $10 billion of those cash balances on the prior page of the $17 billion today is what I would call overflow balances that's artificially depressing our Tier 1 leverage ratio. And so we think about that $10 billion, roughly 150 to 200 basis point impact to this ratio, as sort of temporal in nature. And that cash will be deployed otherwise to third-party banks when the demand resumes or to Raymond James Bank as they [ need ] growth. And then funding source. I take a lot of pride in this slide. I would venture to say it's one of the cleanest funding sources in the industry, at least for diversified financial services firm, where we have bank deposits; the CIP, which I talked about earlier; again, the client cash balances from the Private Client Group business; shareholders equity. Right now, we don't have any preferred equity or subordinated debt. We will, after TriState, have a nominal amount, a couple of hundred millions in total. But again, a very straightforward, clean balance sheet. Even the senior debt is 22 years of average maturity. I mean, so we pushed that out, fortunately, when rates were really low. We extended those things out 30 years. So really high-quality balance sheet and funding sources. You see where we are with our capital ratios. Strongest in the industry, not surprising to all of you who follow us closely. But again, I think these periods that we've seen over the last 3 years where maybe different things that we wouldn't expect to happen -- would happen, happened, really reinforces the value of always managing your capital base and your balance sheet for the tail risk on both sides. And so we have ample flexibility going into the next cycle, and it helps me and Paul Reilly sleep at night to see where we are on this slide. In terms of our long-term targets for some of the key balance sheet metrics, we talked about the Tier 1 leverage ratio target. I remember when I presented this almost exactly a year ago today, a lot of you wouldn't believe that we'd be able to get to 10% over the next 3 to 4 years. And I said, no, we are committed to it. And when we put out a target, we like to hit those targets. And so with the TriState Capital acquisition and some of the other activities, we are confident that we'll be able to get to 10%. And again, that 10% is sort of adjusted for that $10 billion of cash that I was talking about earlier, which is artificially deflating that Tier 1 leverage ratio at 11% there. The corporate cash, last time I showed this to you, it was a $1 billion target. Given all the growth that we've had as a firm, the acquisitions that we closed and that are pending, we've increased that target to $1.2 billion. We thought that, that was prudent. We'll have more business activity and complexity. And so that leaves us with about $1 billion of excess cash at the parent as we sit here today. And then total debt to book capitalization, just showing we have ample debt capacity if we were to need it. As far as financial targets, I know that's why you all made the flight down, so I'll spend some time on the financial targets. This is just a history. I thought it was important to have some context before we get into the financial targets that I'll speak to on the next slide. But in 2019 when the fed funds target was all the way up at 2.5%, we showed adjusted pretax margin of over 18% as our target and a comp ratio of over 66.5% as a target. Again, as Paul said, we always like to be conservative with our targets. We did beat these targets in that rate environment. And even after rates went down, we beat that target. But that was because we had really strong results in the Capital Markets business. But I think the context is important as you -- as we get into the next slide, which shows our current financial targets. Now I present these financial targets this year, in particular, with a lot of humility because other than us not knowing what's going to happen with interest rates, inflation, the equity markets, pending acquisitions, there's a lot of uncertainty out there. And so giving financial targets in this environment is particularly challenging. As you all know, we always like to be somewhat conservative when we give targets. And admittedly, I'd like to be even more conservative when there's this much uncertainty. Can we -- could it be better than this? Absolutely. Could it be worse than this if the markets keep falling apart? Absolutely. So this is our best sort of conservative range of targets for these various metrics. Compensation ratio of less than 66%. Again, last time we're in a high rate environment, that was less than 66.5%. So this is about 50 basis points better than the last target when we were in a higher short-term rate environment. Adjusted pretax margin of 19% to 20% plus. Again, last time we're in a high rate environment, that was 18% as a target, so higher. And that's based on the assumptions on the right side of the slide here, the current equity markets, which change daily. So it's probably -- I think there is a date in the footnote somewhere, but you get the point. Current equity markets, the business volumes comparable to last quarter, I think that's key particularly for the Capital Markets business. Capital Markets in the second fiscal quarter, they were down from the first fiscal quarter, which was a record. But that was still pretty strong results in the second quarter when you look at capital markets in the aggregate. And so I think that was just north of $400 million of revenues for the segment. That's what this is based off of. If it's much higher than that, then I think we can exceed these targets, all else being equal. If it's much lower than that, then it would be hard to achieve these targets, all else being equal. Adjusted return on equity of 16% to 17% and adjusted return on tangible common equity of 19% to 20%. So those are the targets that I humbly submit to all of you today given the uncertainty in the market environment, but I'm sure you have a lot of questions on those as well, which I'll be happy to answer now. Questions? Manan?

Paul, can I clarify on the pretax margin target? If we just do the math on the $600 million benefit from higher rates, we would get to a much higher target than the 20% plus that you have up there. So maybe wanted to get a sense or more color on what you're factoring into your targets there. If we get the additional [ 9 ] rate hikes that's in the forward curve, what would it take for you to get to the lower end of that range? And then what would it take for you to get to the 20% plus end of that range?

I would tell you, all of these targets are really based off of last quarter as a baseline. And last quarter as a baseline, I think we generated on an adjusted basis about a 16.5% pretax margin. Now asset levels and billings are down since last quarter. So all else being equal, that would be a modest headwind to your pretax margin. So the $600 million generates roughly 300 to 400 basis points uplift to that margin, which is where it kind of gets us to that 19% to 20% range. So overly simplistic, a lot more inputs that will go into that, but that's how we think about it. And this accounts for that forward rate curve, the short-term curve over the next 12 months. And these targets -- I try to give you these targets every 12 months. So these are my best guess on what sort of the run rate go-forward target is going to be until we meet next Analyst Investor Day. The challenge with looking beyond the next few rate -- or the next rate increase is how -- what's the deposit beta going to be. We -- our deposit beta has lagged historical deposit betas for the first 75 basis points of rate increases. Conservatively, I would assume that it may not lag it for the next 4 rate increases. So at least for setting target purposes, we try to be somewhat conservative with those assumptions. Did I answer all your questions or...

Yes. And maybe just a follow-up on the pretax margins in the Capital Markets segment. I think last year was a record year for both revenues as well as pretax margins. But historically, I think you've run that segment at around low teens pretax margin. But clearly, you've gained scale over the last couple of years. So how should we think about where that pretax margin goes over the next couple of years?

Yes, I think last -- in fiscal '21, I think the Capital Markets segment generated roughly $1.9 billion of revenues, and I think the pretax margin was 28%. So obviously, that lifted up the margin for the firm overall. As you point out, 15%-ish range pre-pandemic was sort of a normal run rate for Capital Markets, one that we would have been happy with. And that's a big range obviously. You're talking about a 15 percentage point range between what's normal and their historical peak -- at least near -- recent history peak last year. Again, last quarter is probably what I'm basing these off of, which is roughly $400 million of revenue. So that's $1.6 billion annually, which would still be a pretty strong Capital Markets result overall. So that's sort of how we're thinking about setting these targets. Devin?

Paul, I guess two-parter just on the overflow balances. Obviously, that's been building. That's a huge number today. What are you guys seeing with third-party banks? Like what is the typical lag in terms of demand? How should we think about kind of the optimization opportunity there, so when that demand shifts, what the upside is? Is it that in the margin target? Because that is a real number, it would seem, based on our estimates. Maybe -- that's just the first part. The other part is related, but I'll let you answer that first.

Yes. I mean what we're seeing with bank demand now is it's certainly improving. Maybe a year ago, it would be hard to get a call back. Now they're calling us and asking. But they're asking -- they're trying to get a hook in the fish. They're not trying to give us a great rate today. They're calling us to plant a seed for deposit relationship that they're anticipating that they'll need a year to 2 from now, right? And so -- but they're not willing to pay for that necessarily right now. So at the peak, we were earning fed funds target plus 10 basis points. We're not expecting in our modeling, in our targets to get back to that over the next 12 months. Now that would, to your point, be upside to these targets, all else being equal. Right now, you're earning less in fed funds target on a new contract. So while the demand has increased in terms of the banks wanting sort of to plant the seed for their funding needs a year to 2 from now, they're really not paying for it, which is why we're bringing it -- we prefer to bring it on balance sheet in the client interest program because we're able to earn more on 30- to 60-month -- 30- to 60-day treasuries on the balance sheet. And it does use up some of the leverage ratio. But again, that's why I sort of mentally adjust for that when we look at our 10% target.

Okay. Got it. And then the follow-up just on expenses and the rate of growth. So clearly, you guys are -- already have been leaning in on expenses and, I think, feeding the business as needed. But as you think about the benefit -- the material benefit of higher interest rates, like philosophically, how are you guys thinking about spending a portion of that? Are you back into kind of here's the appropriate margin level for the firm? Is that at all in the thought process? You hear all the presentations today. Paul talked about the tech demand, and there's kind of this continual upward pressure where people want more money. And the same thing you hear, all the other presentations, everybody wants to grow their business. So there's always more room for spending. How are you guys managing that, particularly into an upward revenue environment from higher rates?

Yes, I would tell you, I mean, the way Paul Reilly really -- the starting point is we're a growth-oriented firm, and we make decisions for the next 5 to 10 years, not the next 5 to 10 months. So we really don't make investment decisions based on where we think we are in the cycle. We make investment decisions based on what we think we need to do to be competitive for financial advisers, their clients to comply with the regulations, et cetera. And right now -- and you saw that even in a near 0 rate environment, we grew technology investment, for example, pretty substantially. We didn't say we're going to try to reduce technology investment because we're in a low rate environment. Again, we don't make those type of short-term decisions. So right now as we look at the next rate cycle, it doesn't really impact our near-term or long-term investment decisions. There'd still be way more demand for technology and other investments than we have supply. But the point is, is we don't really see a huge step-up need like we did from 2016 to 2019 where we had that regulatory build-out that we needed to do. And really, that was more coincidental and fortunate with the interest rate increases than what -- it was sort of timed with the rate increases. That just happened to be when we're really focused and the regulators were really focused on building out that infrastructure. Alex?

Thanks for clarifying that time frame. We waited 6 hours for that [ MTA ], so I appreciate it. So a couple of quick clarifications...

6 hours is just a [ snip of ] time when you think about it. You guys [indiscernible] [ 14 ] years?

So, a, I just wanted to clarify something you said around deposit betas. I think you mentioned that you assume no lag beyond 100 basis points. So you guys, in your projections, [ you mean ] effectively 100% deposit beta beyond 100? Or did I mishear that?

No, no, not 100%. It's just -- we've had -- for the first 75 basis point increase, we probably blended 9% to 10% average deposit beta. The last 50 basis point increase is closer to 15% to get to that because we had hardly any deposit beta with the first 25 basis points. I would say that I expect that to be meaningfully higher going forward, not 100%. In the tail end of the last rate cycle, we were at 50% deposit beta. So I could see it being at least that going forward.

Got it. Okay. So my real question was around TriState. We're obviously maybe within a month of closing. It would be helpful just to get your latest perspective on accretion from the deal, how you're thinking about deposit synergies with that franchise. I think initially, you guys were targeting $3 billion of sort of deposit swap, and then 75% of their growth will be funded with RayJay's deposits. Obviously, you guys have a much lower deposit cost structure than they do. So how are you thinking about that? How are you thinking about that in light of, of course, higher rate backdrop? And obviously, their business has gotten much bigger as well.

Right. Yes. I think where I would start with the TriState discussion is they are going to be a separately chartered bank. They're going to have separate clients and a separate business to serve their clients, both on the asset side and on the funding side. And so -- and again, the reason we first met with them in 2019, we love the asset side of the business. But we really love their diversified funding as well, and they have a very strong client franchise on the deposit side and the treasury management business that they built out and invested a lot in. And so when -- again, when we think about can we accelerate near-term synergy and perhaps -- on the deposit side and perhaps destroy some of their deposit franchise long term, probably, but we're not going to do that. We're going to want them to continue investing in their deposit franchise because, again, over the next several years, we're going to want the diversified funding sources that they bring to the table. So in terms of the synergy updates and estimates, a lot -- almost every factor has changed since we originally put those out. It was 8% over a 3-year period, 12% if you assume the buyback of the associated stock issuance. Rates have increased a lot faster than we thought, and they are expected to continue increasing a lot faster than we thought. Their loan growth, again, that business will continue to be separate. Their client base will be totally separate from Raymond James, and that will stay that way. That has continued to be much stronger than we had originally modeled in our original estimates. So I would think all else being equal, again, a lot can happen between now and the end of the next 3 years. But all else being equal, we would accelerate some of those assumptions and think that it would be more accretive than we originally thought. Kyle? Or Gerry, you good? Kyle?

Maybe 2 questions. The first is just on the margin trajectory. You mentioned last quarter you're just under 17% pretax margin. Obviously, the guidance for the next 12 months at 19% to 20% plus. Is it fair to kind of infer from those comments that we're going to be, as an exit run rate 12 months from now, kind of firmly into the low 20% kind of range for a pretax margin given that trajectory over the next 12 months with rate hikes coming through?

Yes, I'm almost trying to give you an exit trajectory. I mean it bounces around from quarter-to-quarter, so it's really not that precise. But 12 months from now, we were generating roughly a 20% margin. Again, it could be higher than that depending on market conditions. It certainly could be lower than that as well. But I think given what I know today, I would be pleased with a 20% margin. And certainly, compared to the margins we've generated historically, that would be a very strong margin as well.

And then a second question just on the Tier 1 leverage ratio of 10%. Just even considering TSC, you're still going to be generating significant capital. If we say -- if we stay in this uncertain macroenvironment, can you just clarify whether you're still committed to buying back that 7.8 million shares kind of like immediately post deal close? And then beyond that, I think historically you've referred to kind of a 1.8x book multiple as an attractive area where you'd like to repurchase your stock opportunistically. Is that still in play? Or should we think about more kind of programmatic buybacks moving forward?

Yes, and really, the 1.8x opportunistic repurchase level really doesn't have the same impact on what we want to do to offset the issuance related to TriState. That's independent of the opportunistic target we've had in the past, which we're still committed to buying back the issuance associated with TriState, the 7.8 million shares. We haven't changed our plans since we announced the deal in terms of doing that. I think I may have created a little confusion on the last earnings call when I said I'm sort of indifferent than doing it in 2 months versus 4 months -- I mean, 2 quarters versus 4 quarters. In the grand scheme of things, that 2-quarter difference is just a very short period of time to get us to the same place a year from now or 2 years from now. And so if it makes more sense to be a little bit more defensive and wait a quarter, I'd be indifferent to that. So -- but with all that being said, we're committed to buying back and offsetting the dilution associated with the transaction.

I think a lot of -- just a follow-up, I think, on the TriState conversation. A lot of the comment -- a lot of the questions that I get inbound would suggest that, that deal isn't fully understood. I don't know if that's something that resonates with you. But what do you think the client base or the market is missing? And is it a function of the growth opportunity or perhaps even a fundamental understanding of SBLs? Is there something along that line that maybe is maybe a bit misunderstood with respect to this deal?

No, I mean, in fairness, it is a much more complicated transaction than if we were to buy a financial advisory business that expanded our presence geographically, as an example. Because it impacts almost all aspects of the balance sheet that we're talking about. One, we definitely love the asset class, the securities-based loan asset class, and they are leaders in serving unaffiliated RIAs and advisers in that business. And that's why we're keeping that business separate, separately branded, separately chartered. They're going to continue using their separate technology, which is really geared towards working with unaffiliated advisers versus our technology, which is really more of a captive technology and an integrated technology in that regard. So that's a major benefit. That's the highest risk-adjusted returns in our -- we believe that's the highest risk-adjusted return asset that we can have on the balance sheet, and they've had 40% plus year-over-year growth there and they have a leadership position there. And we can learn a lot from their technology, frankly, on the SBL side, just like they can learn a lot from our technology. Now it's going to be separate, but we can learn different things on the technology. It offers more internal FDIC insurance to our clients. So 2019, if we had another internal bank charter, we would be able to release or free up $7 billion, provide our clients -- our advisers' clients $7 billion of incremental FDIC insurance that we're giving to third-party banks. That's hugely valuable to us. If you recall, just a few years ago, the ability to be able to fund growth and offer clients more FDIC insurance internally -- again, those things are pretty complicated to understand unless you're following us closely. It's hard to understand even the asset uses a Tier 1 leverage ratio and that's why it generates a much higher return than the risk-based ratio. So there's some complexity in it, the diversified funding sources that we were trying to build out in 2019 when we needed funding beyond the Private Client Group business. But we are looking at the technology and the people need and it would take 5 to 10 years to build it. They've been working on it since 2007. So again, I fully appreciate why it's more complicated to understand. I think the folks that follow us very closely, after the first 2 or 3 months of sort of digesting it, fully appreciate the value that it's going to bring to Raymond James and the value that we'll bring to TriState because the 2 things that they didn't have ample supply of was capital, a relatively low-cost capital base to fuel their strong growth, and relatively low cost and stable funding. So it's synergistic from that regard as well. So it's really a win-win. But most importantly, as Paul says, we wouldn't even spend our time modeling an opportunity unless we knew that they had a very strong and similar culture to us. And the more time we spend with their people, the more we realize that they think like us, they put clients first like us, they think long term like us, and that's what really makes us most excited about the opportunity. Devin?

I have a follow-up here. I mean you guys haven't really talked about this at all, so maybe it's a stretch. But thinking about TriState and their position with RIAs and kind of being boots on the ground, is there any other strategic opportunities maybe longer term thinking about their relationships and their penetration into that critical market as you're thinking about Raymond James growth, either bringing in advisers or finding other ways to serve maybe even external advisers with other types of products that they don't have access to through their own network, whatever it may be? Is there any other strategic kind of bigger picture here beyond just what's obvious to execute on in the intermediate term?

Yes, I mean, I would say they know their clients best. And they have identified opportunities, as you can imagine, to continue expanding products and services to their clients. Again, that would be totally separate from the Raymond James offering. Again, they'll be completely independent. But an example of that is they could offer mortgage capabilities through their financial adviser clients to the advisers' clients. That's something that they just haven't had the capital, the funding, the time to do given the explosive growth of their SBL business, but that's something that they certainly could do. And we know a thing or 2 about mortgages, so we could share notes in terms of how best to position those products. So those type of things. But again, that's going to be driven by their clients' demand and what they see the opportunity is, just like we don't force product on our own financial advisers and their clients. We're certainly not going to try to overly influence their clients.

Yes. It would just seem like a natural extension.

Yes. Any other questions? Good deal. Well, really, thanks -- Jim, go ahead. Don't be shy.

Yes, just to push back on the pretax margin question a little bit. If your $600 million is a 100 basis point move, right, in terms of that gets you to sort of that 20% plus range, we're talking about much more than 100 basis points of...

Well, I -- in fairness, I did start from last quarter where Capital Markets revenues were much lower, and I said the business volumes are based on that level of revenues and that got us to about a 16.5% margin. So to get to the 20%, that's 300 to 400 basis points of upside from the rate increases.

Well, I think if you take the $600 million pretax, you get there, right?

That's right. Yes, roughly. I mean that's where most of the benefit is. There's other puts and takes, right? So we also, in our modeling, assume that business development expenses ramp up. You certainly will see that this quarter because we've had a lot of conferences and people are starting -- there's a lot of pent-up travel, as we talked about during lunch. So we have other factors in there that go in the opposite direction. So that's where we get to in the margin range.

Good deal. Well, listen, we -- Bella has offered to give us a tour of the command and cyber center. I know Kristie has some remarks that she wants to share with you as well before we break up. But to all of you in the room, to all of the folks listening on the webcast, hello. Thanks so much for your time today. We really appreciate it, and we don't take it for granted. So thank you.