Good morning and welcome to the Earnings Call for Raymond James Financial Fiscal Fourth Quarter and Fiscal Year 2015. My name is Challis and I’ll be your conference facilitator today. This call is being recorded and will be available on the company’s website.

Now, I will turn the conference over to Paul Shoukry, Head of Investor Relations at Raymond James Financial..

Thanks [Terese]. Good morning and thank you for taking your time out of your busy schedule to join us this morning. We certainly do not take your time or interest in Raymond James Financial for granted.

After I read the following disclosure I will turn the call over the Paul Reilly, our Chief Executive Officer; and Jeff Julien, our Chief Financial Officer. Following their prepared remarks, they will ask the operator to open the line for questions. Certain statements made during this call may constitute forward-looking statements.

Forward-looking statements include information concerning future strategic objectives, business prospects, anticipated savings, financial results, industry or market conditions, demands for our products, acquisitions, anticipated results of litigation and regulatory developments or general economic conditions.

In addition, words such as believes, expects, anticipates, intends, plans, projects, forecasts and future conditional verbs such as will, may, could, should and would as well as any other statements necessary depends on future events are intended to identify forward-looking statements.

There can be no assurance that actual results will not differ materially from those expressed in the forward-looking statements. We urge you to carefully consider the risks described in our most recent form 10-K and subsequent Forms 10-Q which are available on the SEC’s website at sec.gov.

So with that, I will turn the call over to Paul Reilly, our CEO of Raymond James Financial, Paul?.

Thanks Paul and thanks for that rousing opening to get us all awake and going here. I want to make a few comments over the year and quarter and then I am going to turn it over to Jeff who will go into details and then talk a little bit about looking forward after Jeff’s finished.

So let me start with the year, lot of records, record net revenue of 5.2 billion, record net pretax of 798 million, record net income of 502 million or $3.43 per diluted share.

Record net revenue for each one of our core segments and record pretax earnings for all of our core segments except Capital Markets which had its second best year ever behind 2014. So if you look at the year in kind of summary, net revenue is up 7%, pretax up 7% in really a difficult market.

As one of our directors said on the conference call just another Raymond James year as I believe continue to perform in difficult times.

By segment, the private client group segment which ended up with a record number of financial advisors of 6,596 which were also -- is our record net increase excluding acquisitions of 331 advisors over the prior year. That results in almost 225 million of trailing 12 production while keeping our [gradable] attrition less than 1%.

And as you know advisor count and growth is a driver of our business, not only does it impact PCG but our Asset Management and Bank segments as well. The strong recruiting results enable us to grow client assets both in the private client group and asset management and despite a 2% to 3% decline in the equity markets; we were up 1% in assets.

And as you know from other firms reporting we’re a very small group that was able to grow assets, I think one other so for. Just proves that we continue to gain share by offering a robust platform and keeping this great Raymond James culture. In Capital Markets, little more mixed.

On the positive side, record M&A revenues for the year, record tax credit funds syndication fees and a record year on our public finance business.

And this is despite the challenging markets that everyone has talked about in fixed income, our institutional fixed income commissions actually increased 15% in 2015 and our trading profits remained resilient especially compared to what we've heard from other firms. On the other hand the equity underwriting was challenging.

Industry volumes was down, particularly for us with very strong energy in real estate sectors that which were even harder hit, the weakness caused underwriting revenues to be down 26% compared to last year.

And you have to remember as you know that equity underwritings also negatively impacts our institutional commissions which were down 5% despite an increase in over-the-desk commissions. Furthermore decrease in equity underwritings negatively impacts private client group as new issued sales credits in the segment were down 15% compared to 2014.

If you add those impacts that underwriting impact was nearly $15 million negative to our comparison in fiscal '14. At the Bank, record net loans just under $13 billion which represented growth of 18.5%, in fact just in the September quarter we grew by almost 8% which should help future results.

But as you know in the accounting conundrum of banks as you put on loans you put on loan loss reserves and that 13.3 million impacted short-term results although the credit quality continues to improve. Non-performing assets declined nearly a third now representing 39 basis points of total bank assets versus 46 last September.

So overall we were able to grow both net revenues and pretax by 7% and hit almost all of our financial targets. Pretax margin was 15.3% better than our 15% target. Our compensation ratio to net revenues was 67.8% better than our 68% target.

And the only target we missed was ROE of 11.5% short of our 12% target and this was driven by our high capital levels which I know we’ll discuss later whether I discuss them or not because you will ask but in the environment we think 11.5% ROE is attractive return for our shareholders particularly on a relative basis and believe overtime putting this capital to work can even elevate that return.

Let we touch on the fourth quarter, record net revenues were 1.34 billion, net income of a 129.2 million or $0.88 per diluted share.

Record net revenues for private client group asset management and RJ Bank segments and the second best net revenue year for the Capital Markets segment which missed a record by only 537,000 behind the quarter set a year ago September.

Pretax margins 15.4% with all segments showing sequential increase in pretax except the bank which again was due to the large loan loss provision.

So overall our revenues exceeded expectations in the quarter and we are able to keep our comp ratio below 68% although our expenses did grow faster and that was really driven by two items, to sound like a broken record once again a loan loss provision in the bank and the other is our communication information processing expense of 70.4 million and that was up year-over-year and sequential.

And that's attributable really to two factors, as we're continuing to invest in our technology systems which we think has really been paid off in our recruiting and we have increased some of our regulatory systems and [our early] streamline that process as well. In the private client group, recruiting remains very vibrant.

We had an 89 net financial advisors which really enforced our investments are paying off. Despite the strong accreting results client assets were down 5% on a sequential basis due to a decline in the equity markets.

Before we've seen some recoveries this month but as you know our fee based accounts are built in advanced and the balances are getting in the quarter in those fee based assets such were down 4% which should provide some starting headwinds starting next quarter.

In capital market segments all of our businesses performed well except equity underwriting again, in fact M&A and tax credits had record quarters.

Asset management, financial assets under management declined by 7%, this was a decline in the market and the market declines particularly were punitive to small in midcap products where we have a focus on equals and we had some outflows in the quarter accentuated by a large loss in the last week of a quarter of an institutional account.

Once again this will impact the December quarter to approximately two thirds of managed assets are built in advance based on the balances. So and then at the bank again very solid quarter of growth. I want to remind that we have a very disciplined and opportunistic loan growth.

I know it's not growing in straight line and while the production was good this quarter, really the payoffs were significantly down which drove a lot of net growth in the quarter. So I believe a very good evening quarter to a very good fiscal year. And now I'd turn it over to Jeff to provide a little more detail on some P&L items.

Jeff?.

Thank you, Paul. We appreciate those of you who share your models with us it enables us to put together kind of a consensus model for the quarter which helps us determine which things we need to focus on this call so please continue to do so for those of you haven’t, please adopt the practice because it's help us to know what you're thinking.

I'll talk about some of the significant deviations from the consensus expectation model for the quarter and I'm [calling] significant things that are 5% or more away from expectations.

Within the revenue section virtually all the revenue items were ahead of expectations with the exception of our largest which is securities, commissions and fees which really showed no growth from the preceding quarter, whereas some growth was anticipated. Again not a 5% deviation but as our biggest line item worthy of mention.

That was kind of a result of a mixed bag of items, equity secondary market commissions were up institutionally given the volatility in the equity markets towards the end of the quarter.

Fees in the private client group were up as the billing dates was about 2% higher than it was in the June quarter when we built it in the beginning of the September quarter.

And then on the negative side fixed income institutional commissions were lower, mutual fund trails which are based on average assets for the quarter and adjusted downward and underwriting which impacted both institutional and private client group was weaker. All in all came at about flat with the preceding quarter.

Investment banking came in well above expectations, you can see in some of the detail provided in the press release it was really driven by the strong M&A and record tax credit fund quarter at $20 million, somewhere offset by the client in equity underwriting fees.

But very strong in terms of M&A and tax credit fund enough to overcome the underwriting weakness.

[indiscernible] profits came in kind of consistent with prior quarters, recent quarters at least, although for some reason perhaps based on others results was projected down or came in pretty much in line with where it had been at little $5 million or $6 million per month and so our fixed income trading has been fairly consistent throughout this market and these market cycles, so nothing spectacular there to talk about, just its continued its current trend.

And then in other revenues, again we had some private equity valuation gains that were not projected, this is a little less than the preceding quarter and obviously the preceding quarter had pretty good sized gain from some ARS redemptions that did not recur in this current quarter but nonetheless still a reasonable quarter in the other revenues section.

In the expense side most of those unfortunately were also higher than expectations, first I'll talk about -- Paul talked about comp, came in pretty much right on expectations and under our target comp ratio for the quarter and year.

Communication info processing came in a little higher than we had thought as well, we continue to incur some consulting fees on numerous projects, some developmental and some regulatory related, we're starting to see the amortization of some of the previously completed projects start to hit the books and when those come online [technically] for purchase software and things like that we end up starting with the maintenance fees as well, so we would -- I mean as Paul talked about going forward we would certainly probably steer modeling towards the current run rate versus where we were in the prior year.

On average we were between 66 million, 67 million a quarter last year, with this probably the most recent quarter is more indicative of a run rate going forward for the present time. We talked about the bank loan loss provision.

I know we put out the monthly statistics and you saw $300 million in bank loan growth through two months of the quarter and we ended up with $935 million for the quarter. So obviously we had a very big month of September and that caught everybody by surprise in terms of the provision expense related to that growth.

But in our way of thinking that's a not bad way, not a bad expense to miss as long as its growth related and not credit related.

And we had several other expense categories that were 3% to 4% higher occupancy business development and other expenses and things like that and again we might steer the occupancy is going to creep up as we open new locations as we continue to spread into the west and the northeast.

Business development is indicative of the high levels of recruiting that we are continuing to experience and others kind of a mixed bag of a lot of things but again most of those categories we might steer you toward the current run rate as seems somewhat indicative going forward. Couple of other points I would like to mention.

We mentioned the comp ratio that was very pleasing to see that under -- well under 68 for the quarter and for the year. Paul mentioned the pretax margins above our targets 15.4 for the quarter 15.3 for the year.

Tax rate in this quarter, as you know we had an equity market decline towards the [Audio Gap] Gains are non-taxable and losses are non-deductible in that portfolio.

So with the equity losses that elevated the tax rate slightly for the quarter but for the year 37.1% was pretty much in line with the 37% guidance I think we gave at the beginning of the year.

ROE Paul mentioned also I think 11.5% for the quarter and for the year the one target we didn’t really achieve and I would certainly add that it was not an R problem it was more of accumulation of E for the year that gave rise to that, as you know we had very good earnings for the year.

Our capital ratios which are set forth in the press release remain very strong. Shareholders' equity has now surpassed $4.5 billion for the first time. So that's both indicative of our capital and our liquidity position also remains very strong.

I would be remiss not to mention that interest, it didn’t really deviate much from expectations but at a 113.5 million for the quarter, another record for the firm, that's indicative of the past bank growth and going forward we will have additional bank growth of course plus because of the equity market declined toward the end of the quarter we had a lot of customer cash flow in as some people exited the market and reallocated their portfolios to more to cash, cash went up about $3 billion in the last five weeks of the year to a $35 billion number for the firm overall, still just about 8% of private client group assets and that’s indicative of stress times in any way.

But that certainly will boost interest earnings going forward even if we don’t get rate increases.

And then lastly I think everyone is aware the repurchase of 1.1 million shares late in the fourth quarter which had very little impact on this past reporting period but I have big impact going forward either but we did opportunistically exercise the repurchase committee and that $56 million were the shares at these capital.

So with that I have got a list of things, talk about looking forward but I am going to let Paul do that and I will jump if he doesn’t cover everything on my list..

Alright. Good Jeff. You are correct, if I don’t get everything on..

Addition..

Correct me if I am wrong. So little bit kind of outlook into the future. If you look at where we are today first the private client group segment as you guys noticed rides a lot of our business not just that segment but certainly impacts asset management and the bank.

Our retention really remains best-in-class and we think our advisors are choosing to stay with us and really keeping this great culture alive. The activity in recruiting remains vibrant.

So we came off of our second best year ever in terms of number of advisors best year and net advisors and we see a lot of high quality teams still in the pipeline and I think both our platform is growing across all channels both the employee, independent, our financial institutions divisions and RA divisions, from what we see right now that growth should be very good this year.

Approximately 75% of our revenues of this segment are recurring in nature. It's a greater model for advisors and clients but are also dependent on market levels, about 50% of those client assets are exposed to the equity markets and about 50% of PCG security commissions and fees are derived from assets and fee-based accounts.

So with the quarter being off 4% in assets December will be a little handicap starting out. Assets grow should recover both from recruiting and hopefully the market but then I will see where that goes. In Capital Markets, M&A and public finance, still very robust, in fact most of one month isn’t a greater indicator but we are off to a good start.

We are hopeful that significant additions to our investment banking platform made during the year will start to bear fruit this year also. Our fixed income business continues to generate I think what is exceptionally good results given the market.

Of course the big question is what happens to markets in 2016? If anyone can provide us a chart on market volatility, market direction, commodity prices and interest rates, we can be pretty precise on what will happen next year. So given that I think our model is very flexible and we seem to do well in those [tall] markets.

Asset management should continue to benefit from our strong recruiting and recruiting momentum and even past recruiting if assets continue to move over from people who have recently joined.

Our gross sales have been healthy but net flows were challenged by the cancelation especially of a large account at the end of the year, hopefully that's not recurring. The market decline in September is going to give us some headwinds.

Our financial assets under management started the December quarter 7% lower, so that will certainly impact the start of the quarter.

Raymond James Bank we believe is well positioned for growth, I think any quarter we try to give you what loan growth is going to be we are on but balances grew 18.5% over last year, portfolio remains strong, credit remains strong, our net interest margins we think are resilient around 3%.

And for planning purposes we're looking at low -- I am sorry high single-digit or low double-digit growth say 10% but that will depend on what's available in the marketplace in terms of good quality credits.

A lot of people are going to ask about regulatory deal well and despite how active we are and I have to say kind I don’t know the good news on this is we have had almost 400,000 comments as an industry received by Department of Labor as Secretary Perez has openly said last week that he is going to considerably revise the proposal but frankly this is one or two provisions that have the most impact on us and those are changed.

They won't have much impact on us, my guess is they will not all change and there will be some impact I just can't tell you what that is until we see the final draft of the re-proposal in January and February.

Good news we are seeing to have congressional support on both sides to modify the rule but I think that rule is going to pass in the way it's written no matter what we do from a political standpoint I think Congress will be focused on other bigger fish to fry. On capital, I talked about capital deployment.

You know that, that being, we have excess regulatory capital. We have also acknowledged we want to use it to grow our business. We have been active looking for things that have first a good cultural fit; second, a good strategic fit. But we will only pull the trigger if it's also good economics for shareholder.

Our goal isn’t to be bigger; it's to have to invest our capital wisely for good shareholder returns.

We have also said we would be prudent in the use of excess capital and you could see this quarter we did our first opportunistically purchase of about 56 million of common shares which is basically our first opportunistic purchase after financial crisis.

Our management team and our Board specifically proactively manages and we discuss in our point cases. So kind of in rollup I am kind of proud of what our advisors and associates did for the quarter.

I think it was a good result and we know that there may be challenging markets ahead of us but while as we focus on the clients and their wellbeing which has been the history of Raymond James it ultimately that will be payoff for our clients, our associates, advisors and our shareholders.

So Jeff I don’t know if you have any other corrections or additions before I turn it over to questions?.

A couple other additions, thanks. Was looking forward, we had another very, very good year in private equity gains; we had about $48 million. Certainly I don’t think we should expect those levels to continue going forward, so I counsel people to be cautious on what they project there.

We really think the growth going forward is going to come from our core business segments.

We added a lot of headcount in ECM and certainly in private client group that we think will become productive here this coming year as well as the bank loan growth kicking into interest earnings and coupled with the bank loan growth with these elevated cash balances which if the market recovers may moderate somewhat but should be -- should average the year quite a bit higher than they did in the preceding year.

So even with -- gain without boost in short-term interest rates we should continue to see improvement in the net interest income lines..

Thanks [Jonathan]. Terese let's turn it over to you for questions..

Yes, thank you. [Operator Instructions] Our first question comes from Steven Chubak with Nomura..

So, I wanted to spend a little bit of time to talking about the excess capital question which I know comes up on every single call, but Paul I know in the last update or one of the more recent updates that you've given, you talked about really liquidity being the constraint on capital return and you noted about that you retained excess of above 400 million or so.

I just wanted to understand is that a regulatory constraint or is that a self-imposed constraint that you're managing to?.

Well, a little of both, I mean our self-imposed into that the extent that we don't go to the regulatory minimums, we've always tapped the excess capital to save above regulatory minimums, but that's the number that we feel we can freely invest without any strain on our liquidity or operated model..

Okay, so in the context of some of the ratios that we found on liquidity side that the banks are managing too and I recognize you guys are in a CCAR bank specifically, but I know liquidity coverage ratio is something that many banks refer to, I didn't know if you guys knew where you stood on a metric like that, given your balance sheet composition to that..

Hey Steve, its Paul Shoukry, yes we are, as you said are not required to disclose it publicly but as you know some of the rating agencies look at that so we do look at that internally.

We're not going to disclose it publicly, I don't think it's still a requirement but as you can imagine we are well above the 100% kind of requirement that the big banks are held to. So, I guess that's all I'll say on that..

And let me add to this, when you look at capital, I mean if we're purely a bank, we wouldn't be operating at these capital levels, so I think that you have to recognize the broker dealers have significantly more capital fluctuation, I mean liquidity fluctuation than banks typically do in stress periods, whether -- on banks.

So, you got to be careful applying pure bank ratios to a broker-dealer from..

I understand, and well Paul one of the things you have referred to also in the past is that the management team itself is also tied to ROE target. So, are you sure you that your intentions are properly aligned with the shareholders.

I don't know if you guys have -- if you can remind us what those ROE hurdles are today?.

Yes, we've talked about them before, our long term one has always been 15% in these markets, they've been 12% and so this year, our ROE, our restricted stock will be unhinged by 11.5% versus 12%, it's an index scale, so we are aligned but again I think this management team looks long-term and view is still we can put the capital [rework] and we'll see if we can otherwise we'll have to figure out a way to return it to shareholders, but that our 12% target has been the target the board has set the last couple of years given the environment and I doubt they'll reduce it..

When interest rates are what we call a more normal level that target will increase probably back to the 15% level..

And then just one more final one from me and apologies if I missed this in the prepared remarks, but I did see as a financial service fees, I know that there's a seasonality component there and if they come in, if it's stronger than expected.

I didn’t know if you could speak to what drove some of the strengths in the quarter and how we should be thinking about that heading into your next fiscal first quarter?.

That bounces around from quarter-to-quarter as you know, just depending on accruals of fees from mutual fund companies and other type of fees, for example client transaction fees and fee based accounts were up this quarter just given the market volatility, so that, that bumped up that line item for the quarter.

So, there are a lot of different items in that line item, so it's hard to kind of isolate any one single item but we do know for example client transaction fees were up this quarter just given the heightened market volatility..

So, some are asset based, some are account based like [IRAC's] and things like that, just based on having an account or small account fees, we actually have to fee for accounts that are under economic level for us to maintain and some are asset based.

So, it's kind of a mixed bag over the fees in that line item, plus the fees from the mutual fund that he's talking about are constantly trying to put new mutual funds on [anonymous] platform which is higher revenues to us and constantly renegotiating the contracts that we have in place with existing funds..

Your next question comes from Will Katz with Citi..

Hi, this is actually Brian Delly filling in for Will this morning. How's it going? So, I guess coming back to the capital discussion, just wondering what your appetite is for the deals and maybe how we should think about the size and then some recent news article about recently as well I'm not sure if you can speak to them..

Yes. First we never talk to rumors about us or anybody else, so I can't speak to those but the size is almost irrelevant to the quality of the yield first. Morgan Keegan was our best acquisition in history kind of by a long shot which is a $1 billion that was a big deal for us.

So we tend to do things that are more modest and they have to be cultural fit, strategic fit and then price, so we actively are in the market, we have a corporate development function we talk to a lot of people, we've talked about a lot of focus on asset management as an area and some M&A.

So we're active and we want to deploy capital but only if it has a good fit, so we are not going to spend it just to be bigger. And we’ve been consistent on that, so we do believe we can deploy it on the right opportunity when we find it, but we just haven't found that opportunity yet..

Got it. And then can you give us any indication to activity levels into 4Q in particularly around [PCG maybe client flows]..

[Client flows] have been pretty steady, I think they were down 1% on the equities, so that latch was last month I think it was the month before when I saw the report but that's valuation driven alone, but it's actually during the big sell off, I forget how long ago it was now in August that I was actually surprised pleasantly that client selling market advisors did their job of not having people panic.

So I haven't seen any huge movement in client flows..

I think if you look at overall flows we don’t calculate that necessarily for all PCG client assets but one proxy for that is the flows into the nondiscretionary fee based accounts in the asset management segment which serves our private client group segment.

We haven’t finalized those flow calculations for this quarter yet but for the first three quarters of the fiscal year they were annualizing at around 15% or 16% flow for those nondiscretionary assets in the asset management segment..

Thank you. And next question comes from Joel Jeffrey with KBW..

I apologize if I missed this earlier. But can you give us some color on the pickup in the criticized loans.

I know last quarter you talked a little bit about that having some impact from [indiscernible] but just wondering that why we're continuing to see that and if it's just a function of loan growth?.

Hey, Joel. Steve Raney, good morning.

There was not really a general theme, we had some upgrades in the quarter where we had three corporate loan downgrades that drove the increase in criticized loans, they were in different industries, so several themes as you we review each credit on a quarterly basis and we see a deterioration in performance we proactively downgrade into that and that reserves so accordingly..

And have you seen any degradation in the energy loans that you made and can you give us a sense again for the size of that or the portion of your portfolio?.

Yes, Joel. That portfolio has been pretty stable over the last few quarters and this quarter is consistent with that as well top $450 million in loan outstandings in across a broad spectrum in the energy space.

As we've communicated before we've really shy away from I would say the more risky and many of the loans that have been criticized at some of the other banks and the expiration and production [E&P] faced really have one credit in that sector and actually there is no loan outstandings to that investment grade borrower so it's a very broad and cross section many of those loans are to -- what we think is less risky, less volatile and less susceptible to the true commodity price risk where there are more midstream nature take or pay contracts are in place.

We watch that very closely, we had added reserves really kind of across the board in that sector despite what we think is actually a well-constructed portfolio. One of the criticized loans that got added in the quarter I mentioned three one was in the energy space..

Okay, great. And then in terms of just the pick-up that we saw in the tax credits syndication revenues, is that just the seasonal thing but does seems to be a bit higher than what we've seen even in recent past quarters..

It's seasonal when it closes because when funds close we get the fees and they are just doing really well, we believe we are the largest syndicator of tax credit funds right now that's not syndicating them for internal use in banks and its doing well and its backlog is very-very good. They are very good at what they do. But it is lumpy..

Okay. And then just lastly from me and again if you have mentioned this before I apologize but I think last quarter you described the public finance pipeline as exceptional, is it that still the case given the rates you haven’t pushed out..

Yes, the public finance has been really had the just their strongest quarter this last quarter and backlog looks good in the particularly the M&A backlog looks very good, healthy even stronger so..

Thank you. Your next question comes from Hugh Miller with Macquarie..

Good morning. Couple of questions I guess one first one the PCG we were hearing about kind of a large peer that was considering kind of a garden leave clause in their pay plan for 2016.

I was wondering, are you guys seeing any benefit on the recruiting side for the pipeline because of that or brokers from that business kind of considering make me a change or is that not been impactful at all?.

I think that I know that someone was considering it; I don't think it’s been done. But anything like that is great for us, so we can add a garden leave provision except that we tell the advisors, they own the assets, they can leave anytime they want. So, it’s not pretty attractive for us.

But anytime we see competitors trying to put in clauses like that or what I call so institutionalize accounts by indirectly pushing products, or product goals for managers, it’s all been great for us and great for our recruiting because we’ve been boring and have kept the same kind of attitude and platform throughout our history of the -- that the advisors own the clients and that we’re here to help them.

So I can’t specifically address that one. I’ve heard it come up that recruits from places that there’s been discussion. And certainly it doesn’t hurt us when they do that..

Am I thinking about it correctly, initially you potentially see a benefit as people re-explore their options.

But I guess I would have to think that it would be extremely difficult to them transition your book of business once that was in place; for the longer term, does that -- could that create a meaningful headwind for people having a flexibility to pick and choose and move to new locations?.

Sure, if it was instituted well and people had to sit out, I don't know for how long and people actually sign the agreement and there wasn’t an out because they changed pricing and fees in such a way that was a change in contract or we can go on and on and on and on. So hypothetically, yes.

Just like some institutions thought we’re giving 250% retention bonuses would anchor their advisors down. When those came off, that hasn’t been the case. So, I would say theoretically, yes. One, I don't know if they can implement it without a revolver; and secondly, what they do, what the terms or breach or changes would be.

So conceptually, it would be something that helps people stick, hasn’t helped a lot in investment banking which is common in Europe to have those for a long time; it’s worked its way over here. But in the private wealth, I think it would be a barrier people can successfully put them in..

Got it, that's interesting color on the dynamics there. It’s helpful. And then shifting to couple of questions on the bank, obviously we saw very strong growth on CRE and CRE construction. I was wondering if you can talk about if there is one of those two that was seeing stronger demand.

And you also mentioned the impact of kind of lower prepays -- or repayments during the quarter.

Can you just help us quantify the differential in the net loan growth and what that difference was between new originations versus slower repays?.

Yes, good morning. It’s Steve Raney again. The real estate growth is really split, really evenly between our loans to REITs and then loans to individual projects. As it relates to the repayments in the quarter and the growth, we actually only made about 250 million more in loans in the September quarter versus the June quarter.

And as Paul alluded to the pay off and the run off in the September quarter was substantially lower. Part of that run off in the June quarter that was maybe our highest ever, was somewhat self-imposed. There was a very large wave of re-pricings in the market.

And some of those loans we just decided to exit because we didn’t think that going forward rate was the appropriate interest rate that we should be earning on that for that asset net the risk. So, our runoff was down.

The annualized runoff in the corporate portfolio in June was 44% and this quarter last quarter was about 15%, which was actually abnormally low; it’s usually about 25%; that's what we’ve seen historically over the last few years.

So highly unusual; I have two quarters linked together that were that different in terms of runoff amount? But that drove the substantial increase in loan growth for the quarter. Although we grew loans in all categories, our residential mortgage business, -- tax exempt loan business, growth in all categories..

One other, what are you guys seeing I guess in terms of the Canadian operations relative to the U.S.?.

A tale of probably two businesses up there to the private client group that’s doing good recruiting and margins are holding and similar margins actually here, which is unusual; I think it’s unique to our competitors in Canada. And the investment banking business, obviously it has been challenge in the commodity based economy.

So, we see a little bit of improvement but obviously at the tougher market we’ve -- building an M&A practice there, which we haven't had a specific one, recruited a leader last year and continuing to hire in a market where you can hire people.

So private client group, we expect to see some continued growth and the investment banking I guess, although will be better when through a challenging period..

And then on the IT or on the expense side, you mentioned that some of the regulatory items were driving up some of the IT investment and also some of the consulting fees.

Can you help us quantify that and as we think about heading into next year, should we continue to see an acceleration of that investment or should that level off?.

We think -- Jeff I think said earlier that the run rate is probably a good rate, I think somewhere between we were in that number, but I would urge the number we’re running at..

There are no shortages of projects, it’s just a matter of how many we can undertake at once. I think the most recent quarter’s probably a good run rate to use going forward. We can control enough and not let it accelerate much from there..

And then you mentioned that there seems to be a handful or very key provisions within the DOL proposal that would make kind of the most meaningful impact. Obviously you mentioned that you’re uncertain which way they’re going to go with those.

But can you just help us understand the handful that you feel are the most important to focus on have the largest impact on clients and the industry?.

First, the big exception for product commissions is the way it’s written; it’s almost unworkable for a lot of sized accounts. I think the DOL is focused on that. The concern is even if they adjust it, do they really understand the impact since they’re not in the securities business for a living.

But do they really understand the impact it’s going to how on the broker dealer; can we work under it? The other is that level fees is certainly there has been a discussion DOL is that to be level across the firm for all products, which if you look at trails and on the bus and omnibus and all the fees associated with mutual funds, it’s more complex especially around share classes, there has been some discussion that that may imply only to the advisor level, certainly a lot easier to deal with and dealing with across the firm.

Also an implementation timeline of this about eight months, which is almost impossible to rely on some of exemption, because our fund families tell us, they can’t provide the information, much less, thus providing that in the detailed format they want. So those are probably the provisions on overall basis.

To the extent all of those are workable, that’s great; to the extent that they are better, but at the end in order to comply with the exception, you have to do most of the work anyway has the bigger impact..

And then last for me, you guys mentioned I guess about seeing with any asset management segment kind of a substantial client loss of assets, maybe someone moving those assets. I think you mentioned an institutional account.

Can you just give us a sense of what was driving that decision and was it all in one particular fund?.

We have a great relationship or we’ve have great net flows and we had some outflows this year. I mean that’s kind of a normal course of business. We have the Eagle Boston last year that group left and we had half those assets that had an impact.

And then we had a client that just in the end of the year, a 20-year client focused on the small and mid-cap shut us to go with different manager, so that was probably the more surprise but that happens. And we get good surprises and bad surprises. We just had a couple surprises going against us in the last month at the end of the year.

I’m sure a term notice was probably the harder one. But I think fundamentally the business is in good shape and we had good strong flows until that happened. So we just have to keep chipping away at it. And we’re certainly institutionally in lots of proposals and if couple of those come through, it’s good and if you lose some, that’s bad.

And that’s part of the business..

Your next question comes from Jim Mitchell with Buckingham Research..

Good morning, guys. Could we maybe just talk a little bit about operating leverage? I think recruiting over the last two quarters has I guess probably been the strongest since the merger or acquisition of Morgan Keegan. And we’ve seen obviously investment spending upfront is pretty high and so revenue growth.

Earnings growth has been slower than revenue growth as expenses have grown a little faster. So, how do we think about the payback next year? You mentioned that recruiting still remains very vibrant.

Does that mean we still are going to have to wait for returning to positive operating leverage at least, how do we think about I guess that dynamic of investment spend versus return?.

I think we can't give you expense guidance, what we can give you is the market guidance. So generally in a flat market alone recruiting should drive growth. So, what happened this quarter obviously is a big drop in the market.

The recruiting -- it’s hard to recruit at those levels to overcome that kind of market adjustment, even though they’ve recovered some this month. So, our view if the market grows at some kind of rate, our recruiting should drive good numbers.

If we continue recruiting pace but the market continues to fall obviously, we can't overcome that since half the assets are tied are influenced by equity markets. So, that's the challenge that's protecting the market.

So, we're kind of keeping our operating targets the same right now and as the market is really good we'll do better, interest rates rise, we'll do a lot better, if the market goes down it's hard to chase it, but we'll be above of a lot of people.

Now a lot of the operating expenses too, we can cut costs, I mean we haven't at this point we've chosen to kind of keep the numbers we'd given you but certainly if the market goes down we have 68% of our revenues that you can see are variable pretty much are in most businesses and certainly we could cut back on a number of initiatives to save cost, but we haven't pulled that trigger yet..

Tim, I would say that in a flat equity and interest rate environment for the next year that -- if we recruit at the same level as we did this year we should see some pretty modest operating leverage improvement.

And this is not true just in PCG, I mean capital markets had some significant hiring this past year as well and those people have not yet been as productive as they should be in the coming year.

Because we do have a lot of -- some, we do have a fair amount of fixed cost that we should gain some operating leverage on but given the scale -- be fairly modest again in -- under those assumptions, also with the help from the equity markets or interest rates either one, we'll do much better..

Your next question comes from Devin Ryan with JMP Security..

You've always been very disappointed around deal, and I know there's a very high bar internally and you spoke to cultural and strategic and financial thresholds but when you think about the financial attracting this as a deal, what metrics are you guys looking at or is there a hurdle rate or how should we think about what makes the deal attractive financially?.

Our goal is always to generate a 15% ROE and that's under -- reasonably conservative assumptions we want to be able to bring the business integrated and generate that kind of return of our investments so, I know lot of people will go a lot lower saying it's a strategic initiative or that revenue synergies are going to create all sorts of stuff, we tend not to do that, we're pretty -- look at the cost, look at realistic retention rates and what we can grow the business and if we think we can generate a return and its strategically fit we'll do it.

We're just not [well on the rope] [indiscernible] hope. So, I don't think our returns are out of line but we're not trying to shoot for 25% ROE but we're pretty fairly conservative in the assumptions and there's a good business we can grow and we can hit that 15% plus target, it's something we'll do..

Maybe just shifting back to the recruiting momentum, is it still primarily wire houses or you can give us any sense of the mix over the past year or so kind of how has much has been wire houses versus other independent and the trailing production, [are not seeing] yet in results for the trailing production of the [financial advisors] have been hired.

How does that compare to the existing -- call it average production of the platform?.

Primary driver is wire houses and it seems to move around that -- that the one with the honors tends to move a little bit and in the last year we've had one that's been significantly better, I am not going to name names, but and seems to continue to provide us opportunities as they make changes.

But the independence, in the independent channel we've had more from non-wire houses that's increased, but the significant driver has been kind of wire house. The averages have continued to stay over our averages.

So, they've been that and the increase in average production as you've seen in the improvement, I think it's driven by both our advisors becoming more productive and are recruiting to be above our averages..

And maybe a last one for Steve, with respect to the net interest margin in the bank and you maybe speak to some of the puts and takes in the outlook.

You had a great quarter of loan growth, so how will that play on the forward NIM relative to -- obviously [indiscernible], so I'm just trying to put that all together to think about whether that interest margin maybe goes from here in the near term and then kind of longer term deal..

[Technical Difficulty] in some stabilization I think and we -- hopefully that's going to continue and as I've mentioned even in the prior quarter we're going to be really disappointed around it and if we have to forego some opportunities because margins -- in the right that are being afforded to us are acceptable we'll have to take some path on some loans.

So that being said right now we're pretty encouraged by what we see in terms of the stabilization after a period as you know of pretty significant compression. So, right now pretty stable outlook at least for the next couple of quarters..

Thank you. Your next question comes from Dan Paris with Goldman Sachs..

Hey, good morning guys. I just wanted to get maybe your updated thoughts on growth of the bank and onboarding of the excess client cash.

I noticed this quarter in particular there were some good growth in securities book, I'm sure some of that is mark-to-market but I wanted to know if we should read that as you are getting more comfortable deploying cash and securities essentially extending duration..

Let me first -- we're doing a little more at the bank but we do not believe it’s a good play to leverage our balance sheet and the securities and take a lot of interest rate risk and create more leverage in the bank and we saw that movie in '09, we're glad we weren't in it, and that we could watch it, we couldn’t totally watch it, we had the few chapters ourselves, but we stayed out of it, the big theme.

And we know we can do it, we know we can increase leverage in the banks, we know we can get some positive margin short term by taking some modest securities duration risk and we just try to stay neutral on interest rates to the extent we can and we're not interested in doing that, we'll be doing a little more of it and I call it very modest it's not a strategy that inflates the balance sheet and onboard cash and try to leverage up the balance sheet..

Got it, that's helpful. And then maybe a follow up, so I want to hear your thoughts on what's the right way to think about the loan loss provision from here. I mean it seems like the reserves the loans have held pretty stable.

Should we just assume the provision it's time to plug in that equation or if credit remains benign, can we expect that kind of reserve ratio to migrate downwards?.

Well as the balance sheet mix stays about the same as it is I think the 130 basis points type of reserve levels going to be pretty consistent if we slowdown the commercial production side and some of the mortgage and [SPLs] become a little more dominant, they may dip downward a little bit but as far as based on our production estimates going forward I think the mix will stay about like it is, but I'd say 130 is about correct..

Okay, got it. And then maybe just last one from me. So I want to make sure I have the message right on the non-comp side obviously you are investing heavily in the business which is good for the long term growth, I just want to get a sense of how kind of quickly you can turn on or off those investments depending on the revenue back drop.

I know the risk can we get kind of non-comp leverage regardless of the revenue backdrop?.

Yes. We are not going to -- we can if we thought there is marginal compression but is a good strategic initiative, we know we don't operate quarter-to-quarter in our strategies, so we are not going to do it.

If there is a bigger downturn in the market we'll be much more aggressive about it and so our view is I know you guys have to focus on quarter-to-quarter, we're kind of focused on the year and five years and building a franchise and value for the shareholders, [but it's not] my quarter so I would imagine in our numbers with our anticipation as that we're giving your guidance because we are not going to react to this the one quarter of margins.

If we think there is a continued trend or continued cut, then we will react as we have in the past..

Yes.

We went [indiscernible] went through this in the '08, '09 period and as we definitely have room to honker down if that came to that and there is a whole lot of things you can do, but they do impact at the levels of service or the levels of investment that you are making and the platform or as delaying projects or doing things and then God forbid you sample trips or conferences and you started being the culture to some extent.

So we're very cautious to do any of those things..

We think a lot of the our success especially on large teams and some of the teams in our pipeline are the largest teams we've ever recruited is a direct function of being able -- or a platform now.

The technology platform will put up against anyone, it's not perfect and that thing with the best in all areas, but it's certainly from an advisory standpoint at the top of the class.

So we are not going crazy, if we went by [refresh] from the business units that number would be a lot higher, so I don’t want you to think it's not managed, we think it's balanced.

But we could delay or slow projects and not all the projects are productive, some go discounting nature and other things that you have to do to run your business, but they don't impact the business, but most of our business [indiscernible] we can adjust a lot of numbers if the market comes down are right now [our intention] is to kind of stick with our run rates and think it's a good bet based on what we feel right now..

Thank you. Your next question comes from Chris Harris with Wells Fargo..

Thanks guys. I know this call is running long. I really just had one question and it's on the recruiting and PCG. When you guys are talking to your advisors the new advisors that have locked in on boarded, what are the biggest reasons those advisors are giving you as to why they are joining Raymond James.

And then I'm curious have those reasons changed at all over the last couple of years? Thanks..

I would say the reasons, the consistency is culture in the way we treat advisors.

And more than anything, I would say one of the big -- if you look at the -- so, that's being consistent, what's changed there too especially bank based advisors fee or like our institutions or trying to compete more and more with them and dictate how they do business, [we ever proceed] but they feel that the multi-channel approach and product kind of as they feel push has accelerated in terms of people looking to us an open platform that doesn't do any of that.

The second Pete, is technology I think that's the change -- we always had very good technology for the little market advisor. I think today we have excellent technology for the high network advisor, I am seeing these large teams. So, that difference has been a big differentiator in the influence also.

So, I'd say it's a lot of the same with some additional tools that's made the difference to bring people over..

Thank you. Your next question comes from Andrew Del Medico with Autonomous..

You mentioned the two discussions around level fees at the advisor and the firm level, is the way you guys read the rule currently, do you see that's being [indiscernible] at the firm level or the advisor level?.

No, it's a certainly the way that rule was written, was arguably above.

I think the clarification is it wasn't meant to be as constraining and we don't know the answer yet, until we see the revised rule, so I would say that the deal well has a had a lot of meetings and discussions with us, but the fear was that it would apply to both four IRA accounts..

And I guess, if it doesn't change -- how would that impact on some -- that you mentioned a lot of the revenue streams that you see with the mutual funds, on how that impacts that and I guess are there any offsets you could use the way you sell to clients etc.

on to regain those?.

Yes, I think what it would have to be -- funds are also very concerned. I mean this wasn't a broker dealer versus funds, both sides were against us and I think that what you're going to see are new product classes and from our internal asset management from funds that meet the requirements for IRA.

So, it would I'll call a little bit of retooling for both sides in order to meet the strict definition which could be done, it won't apply to all their products but the products [sold to] IRA accounts.

But that remains to be seen, we understand that from our discussions that that's going to be lessened and not be an issue or as much of an issue but I can't tell you until we see it..

Thank you. And at this time, I'm not showing any further questions..

Well, great.

I know it's a lot going on especially at year end and a volatile quarter in the marketplace but net net we think we've got a very solid year and a good quarter given the market and we -- the most important thing as our advisors are growing, our loans are growing, assets were down, but that's really a markets phenomenon for the most part and we're very confident that with any kind of reasonable market that we'll continue to leverage this platform and with a great work of the great advisors to keep the culture here up.

I'm very positive so, that's to your time, we really appreciate your interest and we'll talk to you next quarter. Thanks Terese..

You're welcome. Ladies and gentlemen, thank you for joining today's conference. I thank you for your participation that does conclude the conference, you may now disconnect..