Q1 2022 Raymond James Financial Inc Earnings Call

Being serviced please standby a conference operator will be with you momentarily. If you require assistance during the conference press the star followed by the zero on your telephone.

Okay.

Welcome to conferencing service you may have.

Yeah.

Yeah.

I'm sorry, hi.

Alright.

MS. Smith I'm, sorry, the first name I heard I wasn't able to hear.

Yeah.

Yeah.

Okay.

Okay perfect. So Ms. Smith, what is your company name.

Yeah.

Patrick I'll put you in the 2% increase over diluted EPS in the fiscal first quarter of 2021.

Excluding $6 million of acquisition related expenses quarterly adjusted net income was $451 million.

Our earnings per diluted share of $2.12.

<unk> return on equity for the quarter was 21, 2% and adjusted annualized return on tangible common equity was 23.7% a very impressive result, especially in this near zero rate environment and given our strong capital positions.

Moving to slide five we ended the quarter with record total client assets under administration of 1.26 trillion dollars up 23% year over year and 7% sequentially.

We also achieved record P. C. G assets in fee based accounts of $678 billion up 8% sequentially record clients' domestic cash sweep balances of $73 5 billion and record financial assets under management of $203 billion.

Through our client focused culture, and leading technology solutions, we maintain our focus on supporting advisers and their clients.

As a result, we continue to see strong results in terms of advisor retention as well as record results in recruiting new advisors to the Raymond James platform through our multiple affiliation options.

Over the trailing 12 month period, ending in December 31, 2021 we recruited financial advisors with nearly $350 million of trailing 12 production and approximately $56 billion of client assets to our domestic independent contractor and employee channels. Additionally.

Italy, we generated domestic P. C G net new assets of approximately $104 billion over the four quarters ending in December 31, 2021, representing more than 11% of domestic P. C. G assets at the beginning of the period.

First quarter domestic P. C. G net new asset growth was even stronger generating nearly 14% annualized rate the highest level, we have experienced such starting to closely track. This metric. These.

These results really highlight our industry, leading organic growth we ended the quarter with 8464 financial advisors, a net increase of 231 over the prior year period, and a net decrease of 18 compared to the preceding quarter.

As many of you know in the last calendar quarter, we generally see an elevated number of retirements and advisors choosing to leave the business and it was no different this year with approximately 90 advisors falling into that category.

However, when advisors retire they typically have succession plans and assets are usually retained by the firm. So there was minimal impact to the production or asset levels.

Clients' domestic cash sweep balances grew 10% sequentially to a record $73 $5 billion as Paul will detail later in the call. We should have significant upside to our pretax earnings and a rising interest rate environment also worth noting on this slide is the impressive loan growth at the Raymond James Bank during the.

Quarter up 5% sequentially to a record $26 billion.

This growth was driven by securities based loans the P. C G clients as well as the strong corporate loan growth.

Moving to the segment results on slide six the private client group generated record quarterly net revenues of $1.84 billion in pre tax income of $195 million.

Given the timing of certain expenses, we think it is most appropriate to compare the year over year results were the segments revenues increased 25% and the pre tax income increased 39% over the first fiscal quarter of 2021 truly fantastic growth.

The capital markets segment generated record quarterly net revenues of $614 million and record pretax income of $201 million, representing an impressive 33% pre tax margin to net revenues.

These record results were driven by record investment banking revenues, including records for both M&A and equity underwriting fixed income also generated solid results for the quarter.

The asset management segment generated net revenues of $236 million in pre tax income of $107 million on a year over year basis. The revenues grew 21% and pretax income grew 29% over the first fiscal quarter of 2021 primarily driven by higher asps.

That's under management.

Paul will discuss some of the sequential variances in this segment later on the call.

Raymond James Bank generated quarterly net revenues of $183 million and pretax income of $102 million, representing solid sequential and year over year growth.

Net revenue growth was largely due to higher asset balances as the bank generated attractive growth in its securities based lending portfolio up an astonishing 44% over December of 'twenty 'twenty. In addition to the growth in the residential mortgages and corporate loans.

Pre tax income growth was due to the aforementioned revenue growth in our bank loan loss release in the current quarter compared to a provision for credit losses in the comparative periods as macro economic conditions continue to improve.

These record results reinforced the value of our diverse and complementary businesses.

Before I hand, the call over to Paul I'll take a moment to highlight the completion of the acquisition of the U K based Charles Stanley Group earlier. This month, Charles Stanley adds approximately $36 billion of client assets, bringing Raymond James total client assets to the U K.

To approximately $57 billion, we have long admired this firm and we are pleased to welcome Charles Stanley to the Raymond James family.

And now for a more detailed review of our first quarter financial results I'll turn the call over to Paul Shoukri.

Paul.

Paul.

I'll begin with consolidated revenues on slide eight record quarterly net revenues of $2.78 billion grew 25% year over year and 3% sequentially.

Record asset management fees grew 1% over the preceding quarter.

I do want to touch on the 1% sequential decline of asset management fees in the asset management segment during the quarter, primarily due to a larger portion of certain client fees allocated to the private client group segment, starting at the beginning of the fiscal year.

Which effectively resulted in nearly $9 million of managed account fees that shifted from the asset management segment to the private client group segment during the quarter.

This change is the primary driver of the asset management segment's revenues and pre tax income declining sequentially.

Private client group assets and fee based accounts were up 8% during the first fiscal quarter, providing a nice tailwind for this line item for the second quarter of fiscal 2022.

But there are fewer days in the fiscal second quarter, So I expect somewhere around 5% to 6% sequential growth in this line item in the second quarter consolidated brokerage revenues of $558 million grew 6% over the prior year and 3% sequentially with 12% year over year growth in the private client group.

<unk> and sequential growth in the private client group segment and the capital market segment.

Accountant service fees of $177 million increased 22% year over year, and 4% sequentially largely due to higher mutual fund and annuity services fees as well as client account fees in the private client group segment.

Paul already discussed our record investment banking results this quarter, so I'll touch on other revenues.

Other revenues of $51 million were down 31% compared to the preceding quarter, primarily due to lower tax credit fund revenues, which are typically highest in the fiscal fourth quarter.

Gains on private equity investments also declined on a year over year and sequential basis.

Moving to slide nine client domestic cash sweep balances ended the quarter at a record $73 $5 billion up 10% over the preceding quarter and representing six 5% of domestic P. C. G client assets.

$1 million were down 31% compared to the preceding quarter, primarily due to lower tax credit funds revenues, which are typically highest in the fiscal fourth quarter.

This growth in client cash balances should bode well for us and a rising interest rate environment, which I will describe in more detail on the next slide.

Gains on private equity investments also declined on a year over year and sequential basis.

Turning to slide 10.

Moving to slide nine client domestic cash sweep balances ended the quarter at a record $73 $5 billion up 10% over the preceding quarter and representing six 5% of domestic <unk> client assets.

Combined net interest income and BD P fees from third party banks was $205 million up 3.5% from the preceding quarter.

This growth is largely attributable to strong asset growth and a resilient net interest margin at Raymond James Bank, which held flat at 192% for the quarter.

This growth in client cash balances should bode well for us in a rising interest rate environment, which I will describe in more detail on the next slide.

Average yields on the bank loan portfolio actually increased slightly this quarter, which was fantastic to see however, an increase in lower yielding cash balances kept the bank's net interest margin flat.

Turning to slide 10.

And by net interest income and BD P fees from third party banks was $205 million up three 5% from the preceding quarter.

We expect the bank's NIM to remain relatively stable at current interest rates and we expect a nice tailwind for net interest income going into the next quarter given the strong growth of loans at Raymond James Bank.

This growth is largely attributable to strong asset growth and a resilient net interest margin at Raymond James Bank, which held flat at 192% for the quarter.

But net interest income will also be impacted by fewer days in the fiscal second quarter.

Average yields on the bank loan portfolio actually increased slightly this quarter, which was fantastic to see however, an increase in lower yielding cash balances kept the bank's net interest margin flat.

Related to loans based on your feedback we have added ending period loan balances by category in our supplemental earnings schedule.

We expect the bank's NIM to remain relatively stable at current interest rates and we expect a nice tailwind for net interest income going into the next quarter given the strong growth of loans at Raymond James Bank.

We hope you find this update helpful and as always thank you for your suggestions to continue enhancing our disclosures.

The average yield of our JBT P balances with third party banks take lower to 28 basis points in the quarter, reflecting the low interest rate environment and a limited demand for cash from third party banks.

But net interest income will also be impacted by fewer days in the fiscal second quarter.

Related to loans based on your feedback we have added ending period loan balances by category in our supplemental earnings schedule.

I wanted to provide an update to the interest rate sensitivity from what we provided last may during our analyst and Investor day.

We hope you find this update helpful and as always thank you for your suggestions to continue enhancing our disclosures.

As of December 31st clients' domestic cash sweep balances were $73 $5 billion.

The average yield of our J b the balances with third party banks take lower to 28 basis points in the quarter.

Given our high concentration of floating rate assets that are funded with these cash balances we should have significant upside from increases in short term interest rates use.

Reflecting the low interest rate environment, and the limited demand for cash from third party banks.

Using the static balances an instantaneous 100 basis point increase in short term interest rates, we would expect incremental pre tax income of approximately $570 million per year with approximately 65% of that reflected as net interest income and 35% reflected as accounting service.

I wanted to provide an update to the interest rate sensitivity from what we provided last may during our analyst and Investor day.

As of December 31.

<unk> domestic cash sweep balances were $73 $5 billion.

Given our high concentration of floating rate assets are funded with these cash balances we should have significant upside from increases in short term interest rates.

Yeah.

This scenario assumes a blended deposit beta of around 15% for the first 100 basis point increase.

Using these static balances an instantaneous 100 basis point increase in short term interest rates, we would expect incremental pre tax income of approximately $570 million per year with approximately 65% of that reflected as net interest income and 35% reflected as accounting services.

Sensor it with what we experienced in the last rate cycle.

Moving to consolidated expenses on slide 11, first our largest expense compensation.

The compensation ratio for the quarter, 67.7% was well below our 70% target and close to the compensation ratio. We achieved in fiscal 2021 helped by record investment banking revenues.

Fees.

This scenario assumes a blended deposit beta of around 15% for the first 100 basis point increase commensurate with what we experienced in the last rate cycle.

As explained on our prior calls while our compensation ratio target is 70% or lower in this near zero short term interest rate environment.

Moving to consolidated expenses on slide 11, first our largest expense compensation.

We have demonstrated we can manage below that target closer to 67, 68% in the capital market segments generates at or near these record levels of revenues.

The compensation ratio for the quarter of 67, 7% was well below our 70% target and close to the compensation ratio. We achieved in fiscal 2021 helped by record investment banking revenues.

And of course, we will likely have to revisit this target if interest rates start increasing.

Non compensation expenses $339 million decreased 6% sequentially.

As explained on our prior calls while our compensation ratio target is 70% or lower in this near zero short term interest rate environment.

Primarily driven by the bank loan loss reserve release, this quarter, well as lower professional fees.

We have demonstrated we can manage below that target closer to 67%, 68% when the capital markets segment generates at or near these record levels of revenues.

As you can see in these results we have been very focused on the disciplined management, all compensation and non compensation related expenses, while still investing in growth and ensuring very high service levels for advisors and their clients.

And of course, we will likely have to revisit this target if interest rates start increasing.

Non compensation expenses of $339 million decreased 6% sequentially, primarily driven by the bank loan loss reserve release, this quarter as well as lower professional fees.

However, as we discussed last quarter, we expect expenses to increase throughout this fiscal year as we continue investing in people and technology poured our tremendous growth as business development expenses increased with travel and conferences resuming and as net loan growth drives higher associated bank loan loss.

As you can see in these results we have been very focused on the disciplined management of all compensation and non compensation related expenses, while still investing in growth and ensuring very high service levels for advisors and their clients.

Provisions for credit losses.

For example, you can see our communications and information processing expenses increased 13% year over year as we continue to make critical investments in technology.

As we discussed last quarter, we expect expenses to increase throughout this fiscal year as we continue investing in people and technology to support our tremendous growth as business development expenses increased with travel and conferences resuming and its net loan growth drives higher associated bank loan loss.

We would expect year over year growth for this line item to be right around this level for the full year in fiscal 2022.

Slide 12 shows the pretax margin trend over the past five quarters.

<unk> for credit losses.

While our pretax margin target in this near zero short term interest rate environment is around 16%, we generated a pretax margin of 21% in fiscal quarter, but 23% on an adjusted basis.

For example, you can see our communications and information processing expenses increased 13% year over year as we continue to make critical investments in technology.

We would expect the year over year growth for this line item to be right around this level for the full year in fiscal 2022.

Boosted by a record revenues, particularly for investment banking.

Still relatively subdued business development expenses and a loan loss release during the quarter.

Slide 12 shows the pretax margin trend over the past five quarters.

We will probably have to revisit our pre tax margin and compensation ratio target analysts and investors schedule in may we start to see it.

While our pre tax margin target in this near zero short term interest rate environment is around 16%, we generated a pre tax margin of 21% in the fiscal first quarter or 23% on an adjusted basis boosted by record revenues, particularly for investment banking.

Short term interest.

Hopefully by then we'll also have more clarity on other important variables such as the outlook for investment banking revenues, our level of business development expenses travel and conferences resume more fully and the impact of recently closed and pending acquisition.

Phil relatively subdued business development expenses and a loan loss release during the quarter.

We will probably have to revisit our pre tax margin and compensation ratio targets at our analyst and Investor day schedule ended in May if we start seeing increases in short term interest rates.

On slide 13 at the end of the quarter.

Total assets were approximately $68 $5 million.

11% sequential increase reflecting solid growth loans at Raymond James Bank as well as a substantial increase in client cash balances.

Hopefully by then we will also have more clarity on other important variables such as the outlook for investment banking revenues the level of business development expenses travel and conferences resume more fully and the impact of recently closed and pending acquisition.

I'm, a dating up the balance sheet.

What did he and capital remains very strong.

J F corporate cash at the parent ended the quarter at one point billion dollars right.

On slide 13 at the end of the quarter.

21%.

Total assets were approximately $68 $5 billion, and 11% sequential increase reflecting solid growth of loans at Raymond James Bank as well as a substantial increase in client cash balances that we're accommodating on the balance sheet.

The total capital ratio of 26, 9% and a tier one leverage ratio, 12.1%, both more than double the regulatory requirements to be wealth gap.

Providing significant flexibility to continue being opportunistic and grow the business.

Liquidity and capital remains very strong.

Slide 14 provides a summary of our capital actions for the past five.

J F corporate cash at the parent ended the quarter at $1 $4 billion, increasing 21% during the quarter.

In December .

A directors increased quarterly dividend, 31% to 34 cents per share per quarter, which is not reflected on this chart. The next quarter.

The total capital ratio of 26, 9% and a tier one leverage ratio of 12, 1% both more than double the regulatory requirements to be well capitalized providing significant flexibility to continue being opportunistic and grow the business.

The board also.

Our repurchases up to $1 billion.

We replaced the previous authorization.

Slide 14 provides a summary of our capital actions over the past five quarters.

As of January 25th 2022, all $1 billion remained available under this authorization.

In December the board of directors increased the quarterly dividend, 31% to 34 cents per share per quarter.

Due to regulatory restrictions following our pending acquisition of price stayed capital holdings, we do not expect to repurchase.

Which is not reflected on this chart until next quarter.

After close but.

But we believe this authorization signals our intention to repurchase the associated chairs soon after closing.

The board also authorized share repurchases of up to $1 billion, which replaced the previous authorization.

In the meantime, we expect our capital and our share count to continue growing between now.

As of January 25, 2022, all $1 billion remained available under this authorization.

Lastly, on slide 15 provide key credit metrics for Raymond James Bank.

Due to regulatory restrictions following our pending acquisition of Tristate capital Holdings, we do not expect to repurchase common shares until after closing but.

Credit quality of the bank's loan portfolio aimed healthy, but most trends continuing to improve.

But we believe this authorization signals our intention to repurchase the associated shares soon after closing.

But the size loans declined nonperforming assets remained low at just 19 basis points.

The bank loan loss reserve release, $11 million, primarily driven by improving macroeconomic assumptions used.

In the meantime, we expect our capital and our share count to continue growing between now and closing.

Lastly on slide 15, we provide key credit metrics for Raymond James Bank.

Bank loan allowance for credit losses, as a vintage of loans investment declined from one point to 7%.

Credit quality of the bank's loan portfolio remains healthy with most trends continuing to improve.

In quarter, two 1.18% at quarter end.

Criticized loans declined in nonperforming assets remained low at just 19 basis points.

For our corporate portfolios. These allowances are higher at around 2.1.

The bank loan loss reserve release of $11 million was primarily driven by improving macroeconomic assumptions used in the seesaw models.

Now I'll turn the call back over to Paul Reilly to discuss our outlook.

Paul.

Thank you Paul.

Overall I'm extremely pleased with our strong start to fiscal 2020.

The bank loan allowance for credit losses, as a percentage of loans held for investment declined from one point to 7% in the preceding quarter to $1, one 8% at quarter end.

We are well positioned entering the second fiscal quarter with strong capital ratios.

Records for all our key business metrics, including client assets.

For our corporate portfolios. These allowances are higher at around 2.13%.

Domestic cash sweep balances and strong activity level for the financial adviser recruiting in investment banking.

Now I'll turn the call back over to Paul Reilly to discuss our outlook Paul.

In the private client group segment results will benefit by starting the fiscal second quarter with an 8% sequential increase of assets in fee based accounts, which did result in a 5% to 6% increase in asset management fees, given two fewer days in the second quarter.

Thank you Paul.

Overall I am extremely pleased with our strong start to fiscal 2022.

We are well positioned entering the second fiscal quarter with strong capital ratios.

Records for all our key business metrics, including client asset.

Additionally, based on our robust recruiting pipelines, we hope to continue our recruiting trend as prospective advisers are attracted to our client purpose values and leading technology platforms.

Client domestic cash sweep balances and strong activity level for the financial adviser recruiting and investment banking.

In the private client group segment results will benefit by starting the fiscal second quarter with an 8% sequential increase of assets in fee based accounts, which should result in a 5% to 6% increase in asset management fees, given two fewer days in the second quarter.

I can't promise will be able to sustain the 11% net new asset growth, we achieved over the last 12 months or the phenomenal 14% annualized net new assets, we experienced in the fiscal first quarter, but given our strong retention and continued interest in all of our affiliation options I'm optimistic we will continue to deliver.

Additionally, based on our robust recruiting pipelines, we hope to continue our recruiting trend as prospective advisers are attracted to our client focused values and leading technology platforms.

During leading organic growth numbers in.

In the capital market segment, the investment banking pipeline remains very strong for the next quarter or two.

I can't promise will be able to sustain the 11% net new asset growth, we achieved over the last 12 months or the phenomenal 14% annualized net new assets, we experienced in the fiscal first quarter, but given our strong retention and continued interest in all of our affiliation options I'm optimistic we will continue to deliver.

Given all the uncertainties in the market, we really don't have much visibility for the second half of the year at this point.

We do know we have a much stronger team than we had five years ago and we have gained market share. So our productive capacity has certainly grown.

But what I can't tell you is what will happen to the market activity levels across the industry.

<unk>, leading organic growth numbers in.

In the capital market segment, the investment banking pipeline remains very strong for the next quarter or two but given all the uncertainties in the market. We really don't have much visibility for the second half of the year at this point.

Six to 12 months from.

We also expect solid fixed income brokerage results over the next quarter or two driven by demand from depository clients segment, which is still flushed with cash and searching for yield optimization opportunities that we do a fantastic job in helping our clients.

We do know we have a much stronger team than we had five years ago and we have gained market share. So our productive capacity has certainly grown.

And the asset management segment, if equity markets remain resilient.

But what I can tell you is what will happen to the markets and activity levels across the industry six to 12 months from now.

Results will be positively impacted by the higher financial assets under management, which continues to be driven by the strong growth of assets in fee based accounts private client group segment.

We also expect solid fixed income brokerage results over the next quarter or two driven by demand from depository clients segment, which is still flushed with cash and searching for yield optimization opportunities that we do a fantastic job in helping our clients.

And Raymond James Bank should continue to grow as well have ample funding and capital to grow the balance sheet.

We'll continue to focus on lending to the private client group segment through securities based loans and mortgages and we will remain selective and deliberate in growing our corporate loan portfolio.

And the asset management segment, if equity markets remain resilient and we expect results will be positively impacted by the higher financial assets under management.

Also as previously mentioned, we should experience significant tailwind and a rising interest rate environment.

Which continues to be driven by the strong growth of assets in fee based accounts in the private client group segment.

Finally.

And Raymond James Bank should continue to grow as well have ample funding and capital to grow the balance sheet, we will continue.

I want to thank all our advisers and our associates for their perseverance and dedication to providing excellent service to their clients.

To focus on lending to the private client group segment through securities based loans and mortgages and we will remain selective and deliberate in growing our corporate loan portfolio.

These results are a testament to their hard work and everyone in the Raymond James family.

With that operator will you. Please open up the line for questions.

Also as previously mentioned, we should experience significant tailwind.

Thank you if you relate to register a question. Please press the one followed by the four on your telephone you'll hear three tons to acknowledge your request if you can.

<unk> interest rate environment.

Finally, I want to thank all our advisers and our associates for their perseverance and dedication to providing excellent service to their clients. These results are a testament to their hard work and everyone in the Raymond James family.

Question has been answered and you would like to withdraw your registration.

Probably the one followed by this fee again to register for a question. Please press. The one followed by the four my moment for the first question.

With that operator will you. Please open up the line for questions.

[noise] Hill as it relates to register a question. Please press the one followed by the four on your telephone.

Andy first question kind of sign of men in Australia with Morgan Stanley . Please proceed.

Hi, good morning.

Three Tom prompt to acknowledge your request.

Good morning.

So I was wondering if you can unpack your comments on the net interest income and the sensitivity to higher Ed John and I know you said, a 570 million addition to pay tax income.

My question has been answered and you would like to withdraw your registration.

No one followed by the Street again to register for a question. Please press the one followed by the four phenomena.

The first question.

65%, NII and 35% of Ghansham its account and service fees, but is.

[noise] and my first question kind of buying of men in Korea with Morgan Stanley . Please proceed.

Does that assume a flat balance sheet and CIP balances staying flat and also third party deposits staying flat or so.

Hi, good morning.

Good morning.

So I was wondering if you can unpack your comments on the net interest income and the sensitivity to higher edge.

Is that basically more upside to these numbers given the loan growth that you're generating and all shell.

You said, a 570 million addition to pay tax income, 65% NII of 35% Concho This account and service fees, but.

The upcoming acquisition of fat of Tri State.

No you're absolutely right that is a static analysis based on current balances and so we do have upside.

Does that assume a flat balance sheet and CIP balances staying flat and also third party deposits staying flat or so.

Outside going forward as we continue growing the balance sheet at Raymond James Bank and also as we hopefully close the Tristate capital acquisition So weird.

Is that basically more upside to these numbers given the loan growth that you're generating and all show.

We have some good tailwind with we're in a rising rate environment.

Okay.

Got it. So then maybe I can push a little bit on your pretax margin comments.

The upcoming acquisition of Tri State.

No you're absolutely right that is a static analysis based on current balances and so we do have upside.

I know youre, not giving any targets right now, but you know maybe you can help us think through it.

Outside going forward as we continue growing the balance sheet at Raymond James Bank and also as we hopefully close the Tristate capital acquisition. So.

So if I look at your quarter right now I'd say youre running at a 20% pretax margin.

If I normalize for provisions and business develop and costs, maybe you get to 19% and then.

We have some good tailwind with we're in a rising rate environment.

If capital market revenues out of added maybe that gets you down to 18% windows normalized.

Got it and then maybe I can push a little bit on your pretax margin comments.

And.

Your comment of 570 million, if I'm doing the math right suggests there's you know three to four percentage points of upside to the margin. So.

I know youre, not giving any targets right now, but maybe you can help us think through it.

So if I look at your quarter right now I'd say, you know you're running at a 20% pretax margin.

Should we expect that in as we get through this rate hike cycle. Your margin can go up to 21, 22% in the cycle.

If I normalize for provisions and business development costs, maybe you get to 19% and then.

Yeah, I mean, we're not we're not ready to.

You know come out with a new target at this juncture if that because as you point out there are a lot of moving parts, but.

If capital market revenues elevated maybe that gets you down to 18% windows normalized.

You are correct that the $570 million on todays revenues would equate to somewhere around 300 to 400 basis points of benefit.

And your comments of $570 million, if I'm doing the math right. It suggests there's three to four percentage points of upside to the margin. So.

But I think the some of the other factors that we have to consider as sort of normalized business development, what capital markets revenues look like going forward. So.

Should we expect that as we get through this rate cycle. Your margin can go up to 21, 22% in the cycle right. Yes, I mean, we're not we're not ready to.

There are some other puts and takes and variables to consider as we get more clarity, but with that being said if you look at where we were in the Lat last rate cycle, we had higher pre tax margin target before rates were cut to zero and so we obviously have upside in tailwind from higher rates.

Come out with a new target.

This juncture, but because as you point out there are a lot of moving parts, but.

You are correct that the $570 million on todays revenues would equate to somewhere around 300 to 400 basis points of benefit.

But I think the.

Some of the other factors that we have to consider as sort of normalized business development, what capital markets revenues look like going forward. So.

Got it thank you.

And I think kind of a line of Steven Chabat with both research. Please proceed.

There are some other puts and takes and variables to consider as we get more clarity, but with that being said if you look at where we were in the latter last rate cycle.

Good morning, Paul and Paul.

Hey, guys.

So I wanted to start off with just a question on.

Had higher pre tax margin target before rates were cut to zero and so we obviously have upside in tailwind from higher rates.

Tristate capital you know at the time of the merger you had guided Paul to about 8% accretion from the deal.

Got it thank you.

Yeah.

Memory serves that only assumed two rate hikes through 'twenty 'twenty, four and assumption certainly it feels conservative given.

Yes.

Yeah.

And our next question kind of fine Stephen Shabak with both research. Please proceed.

Given the forward curve, reflecting close to eight hikes exiting 2023, and I was hoping you could just provide some updated expectations for T. S. He accretion or the incremental sensitivity. If we do get additional rate hikes and then just speak to your philosophy around.

Good morning, Paul and Paul.

Hey, guys.

So.

I wanted to start off with just a question on Tristate capital at the time of the merger you had guided Paul to about 8% accretion from the deal and if memory serves that only assumed two rate hikes through 2024 that assumption certainly feels conservative give.

How much of that NII windfall from higher rates would.

Would you expect to fall to the bottom line versus get reinvested in the business.

Yeah Man.

Given the forward curve, reflecting close to eight hikes exiting 2023, and I was hoping you could just provide some updated expectations for trc accretion or the incremental sensitivity. If we do get additional rate hikes and then just speak to your philosophy around how much of that NII windfall from higher red.

As far as the synergy.

Guidance that we provided upon announcement.

If my memory serves me correctly I think it was 808 percentage.

8% accretion not really factoring in any rate hikes at all and then maybe an additional three to 400 basis points with the rate projections that you just mentioned so.

Would you expect to fall to the bottom line versus get reinvested in the business.

To your point.

Rate increases are look like they're coming faster than we anticipated that that point in time, so to the extent they have a floating.

Yes.

As far as the synergy guidance that.

We provided upon announcement.

Highly floating rate balance sheet, a lot and securities based loans, 65% of their loans or in securities based loans that are floating.

If my memory serves me correctly I think it was 808 percentage.

8% accretion not really factoring in any rate hikes at all and then maybe an additional three to 400 basis points with the rate projections that you just mentioned so.

So.

To your point there is more upside if rates increase faster than we originally anticipated.

Okay, that's great color Paul but.

To your point.

Rate increases are look like they're coming faster than we anticipated at that point in time, so to the extent they have a floating.

And just for my follow up and maybe a bit of a point to your question on organic growth I mean, your headline organic growth is the highest of any of the public companies have reported so far that's coming in at an impressive 11% trailing 12 months, 14% annualized in the quarter at the same time they reported AUM when we go through the <unk>.

<unk> floating rate balance sheet, a lot and securities based loans, 65% of their loans or in securities based loans that are floating.

So to.

To your point there is more upside if rates increase faster than we originally anticipated.

<unk> marketing exercise to grow.

Sure.

With a 7% quarter on quarter is virtually identical it appears they are growing at half year stated organic growth rate and it just it also appears a little bit light relative to the gains that we saw in the S&P, but about 10% in the quarter and I was hoping you could just speak to the stronger organic growth why it's not necessarily translating into a higher level of <unk>.

Okay, that's great color Paul.

For my follow up and maybe a bit of a point to your question on organic growth I mean, your headline organic growth is the highest of any of the public companies that have reported so far.

Coming in at an impressive 11% trailing 12 months, 14% annualized in the quarter at the same time they reported AUM. When we go through the benchmarking exercise the growth of 7% quarter on quarter is virtually identical appears theyre growing at half year stated organic growth rate.

AUM growth frankly, one quarter does not a trend make and any differences you're just aware of in terms of how you run the organic growth calculation relative to what some of your peers might be doing.

Yeah as far as we can tell Steve we are calculating most of the peers.

And then just to also appears a little bit light relative to the gains that we saw in the S&P of about 10% in the quarter and I was hoping you could just speak to the stronger organic growth why it's not necessarily translating into a higher level of AUM growth granted one quarter does not a trend make and any differences you're just aware of in terms of how you run the organic grow.

Calculating the organic growth calculation. Similarly, we track that pretty closely so.

We have been generating as you said, leading organic growth. If you look at our net new asset metrics and if you look at our asset growth over time, which we've been saying for a very long time, even before we started producing net new assets you know our asset growth is the best in the industry as well as you pointed out those two.

Calculation relative towards some of your peers might be doing.

As far as we can tell Steve we are calculating most of the peers are.

Our correlated so from quarter to quarter, sometimes it's hard to tell but if you look at it over 135 year period or any.

Calculating the organic growth calculation. Similarly, we track that pretty closely so.

We have been generating as you said, leading organic growth. If you look at our net new asset metrics and if you look at our asset growth over time, which we've been saying for a very long time, even before we started producing net new assets our asset growth is the best in the industry as well as you point out those two.

Period of time, our asset growth on organic basis has been leading in the industry.

Sometimes you have to factor in acquisitions or big program hires or something like this but.

Certainly the net new asset and the asset growth has been amongst the best and then certain quarters the best certain years, the best in the industry.

Our correlated so from quarter to quarter, sometimes it's hard to tell but if you look at it over 135 year period or any.

That's great color Paul Thanks, so much for taking my questions.

Period of time, our asset growth on organic basis has been leading in the industry.

And our next question comes the line of Devin Ryan with JMP Securities. Please proceed.

Sometimes you have to factor in acquisitions or big program hires or something like this but certainly.

[laughter].

Hey, Thanks, good morning, guys.

Hey, Devin.

Certainly the net new asset and the asset growth has been amongst the best and then certain quarters the best certain years, the best in the industry.

I want to come back on.

Current outwork and some of the moving parts here.

If we look at the cash balances you saw a really nice step up in the quarter and big Spike in December as well I'm just curious if.

Okay.

Paul Thanks, so much for taking my questions.

Yeah.

Was that just kind of yearend selling or was it because of the strong M&A or versus reality I know that sometimes.

And our next question kind of line of Devin Ryan with JMP Securities. Please proceed.

And they're so you're really just trying to understand like how sticky do you think that kind of step function higher was in the quarter and then also in terms of deposit betas. You. Obviously, we have some good recent history of how things trended and it was quite a bit better than I think expectation heading into the prior tightening cycle. How are you guys thinking about may be competitive.

Hey, Thanks, good morning, guys.

Hey, Devin.

I want to come back on.

For sure it outwork and some of the moving parts here.

Look at the cash balances you saw a really nice step up in the quarter and big Spike in December as well I'm just curious.

Was that just kind of yearend selling or was it because of the strong M&A or versus seasonality I know, there's sometimes some seasonality in there. So really just trying to understand like how sticky you think that kind of a step function higher was in the quarter and then also in terms of deposit betas. You. Obviously, we have some good recent history of how things trend.

Threats or just competitive dynamics with fintech being a lot larger today than it was four or five years ago and many of those firms are kind of signaling that they're going to pass the majority of the benefit through to customers is that play in or do you not look at them.

Italy is direct competitors, when we're thinking about cash cash deposit rate.

And it was quite a bit better than I think expectations heading into the prior tightening cycle. How are you guys thinking about maybe competitive threats or just competitive dynamics with fintech being a lot larger today than it was four or five years ago and many of those firms are kind of signaling that they're going to pass the majority.

A good question Devin I think Theres, a few things first.

You have to remember client cash only six 5% of assets. So it's not a high percentage typically for.

For most periods were closer to 10 or so clients are still pretty invested so no part of that with the market growth, obviously, the equities grow versus the cash but.

The benefit through to customers is that play in or do you not look at them necessarily as direct competitors when you're thinking about your cash cash on deposit rates.

So the client cash has been very sticky in terms of the portfolio certainly not over weighted but also because of our recruiting we bring a lot of cash and when people move over.

Good question, Kevin I think Theres, a few things first.

You have to remember client cash is only six 5% of assets. So it's not a high percentage typically.

Their clients are allocated somewhere you know.

I went to 10% cash so that continues to grow and in our recruiting just doing great. We're still you know we're.

For most periods were closer to 10 or so clients are still pretty invested so part of it with the market growth, obviously, the equities grow versus the cash but.

Still full guns on it so.

So I think that we're pretty comfortable with that cash I think it's almost the opposite if there's.

So the client cash has been very sticky in terms of the portfolio certainly not over weighted but also because of our recruiting we bring a lot of cash and when people move over.

If there's a correction during this interest rate periods, we see a lot more cash generated but.

We haven't seen any unusual movements.

As a percent of assets still pretty low probably driven more with us by you know just star success in recruiting.

Their clients are allocated somewhere.

I went to 10% cash so that continues to grow and our recruiting is just doing great. We're still.

As far as your deposit data question.

Still full guns on it so.

There are more fin techs now than there were three years ago, but there are a lot of high yield accounts available online three years ago as well.

So I think that we're pretty comfortable with our cash I think it's almost the opposite.

If there's a correction during this interest rate period, we see a lot more cash generated but.

Yeah. So the off maybe offsetting factor is that unlike the last rate cycle. The banking systems extremely flushed with cash now maybe more so well definitely more so than it was in the last rate cycle. So.

We haven't seen any unusual movements.

As a percent of assets still pretty low probably driven more with us by just our success in recruiting.

Okay.

There are some puts and takes a week.

As far as your deposit beta question.

We are assuming in our $570 million pre tax upside.

There are more fin techs now than there were three years ago, but there are a lot of high yield accounts available online three years ago as well.

15% deposit beta which is commensurate with what we saw in the last rate cycle. We think that's a conservative but it could be lower or higher than that for the first 100 basis points, depending on those factors, we find clients who typically during these increases if we go through history that.

Yes, so the off maybe offsetting factor is that unlike the last rate cycle, the banking systems extremely flushed with cash now.

Be more.

Definitely more so than it was in the last rate cycle. So.

It's got to be over 1% face right before they can start looking at it. So we have a long way to go from one basis point certainly in the early goings on.

There are some puts and takes.

We are assuming in our $570 million pre tax upside 15.

Fin techs can offer one, but there's not really many pushed apart from very illiquid is that right. So.

15% deposit beta which is commensurate with what we saw in the last rate cycle, we think that's conservative, but it could be lower or higher than that for the first 100 basis points, depending on those factors.

I don't think I think the first 100 basis points to some pretty safe assumption, probably conservative given the history on the first 100 basis points and.

And clients to typically during these increases if we go through history that.

After that as rates go higher then there is.

It's got to be over 1% face right before they can start looking at it. So we have a long way to go from one basis points certainly in the early goings.

The games on but I think the early raises its a pretty safe assumption.

Yep, Okay terrific that all makes sense. So just a follow up here with Charles Stanley closed Amit. If you can just talk a little bit more about plans to accelerate growth and investments in kind of the U K wealth.

<unk> can offer one, but there's not really many pushed apart from very illiquid at that rate. So.

I don't think I think the first 100 basis points to some pretty safe assumption, probably conservative given the history on the first 100 basis points and.

Wealth management platform I know, it's still very small, but how we should think about kind of the trajectory there.

After that as rates go higher than there is.

And it may be your enthusiasm for the potential for additional growth outside the U S.

The games on but I think the early raises its a pretty safe assumption.

Yeah. So I think that's you know it's just closed a few days now so.

Okay terrific.

Makes sense. So just a follow up here with Charles Stanley closed, but maybe if you can just talk a little bit more about plans to accelerate growth and investments in kind of the UK.

We are just really starting to talk about integration and that takes some time, but.

It's a great franchise, if it was constrained it was constrained by capital a little bit.

Wealth management platform I know, it's still very small, but how we should just think about kind of the trajectory there and maybe your enthusiasm for the potential for additional growth outside the U S.

Family controlled and for good reason they didn't want to dilute their position you know where they were so.

I think those are off because we have plenty of capital to fuel it and.

Yeah, So I think that's it.

Generally when people join you. The first thing we always focus on is retention.

It's just closed a few days now.

We're just really starting to talk about integration and that takes some time, but.

And we've had a pretty good track record I think it'll be very positive there too and we need to get everybody settled down in the seat positive to the story I will tell you that.

It's a great franchise, if it was constrained it was constrained by capital a little bit.

Our family controlled.

All the ones, we've ever done and we have tried to stay still pending but.

For a good reason they didn't want to dilute their position where.

Or are they worse so.

Oh, who is a great cultural fit this is the we're hearing very very little noise from the advisors. They think it makes sense.

I think those are off because we have plenty of capital to fuel it.

Generally when people join you. The first thing we always focus on is retention.

And they think it's good for them, we will invest we do have some technology. They can use some of the other things.

And we've had a pretty good track record I think it'll be very positive there too and we need to get everybody settled down in the seat positive of the story.

So, but it's going to take a good year or so to really get through that integration, but we would expect where we have one of the leading growth firms in the U K with RJ I US are independent we think that we can really step up the growth as this Charles family management with the capital and.

I will tell you that of all the ones we've ever done.

I've tried to state is still pending but.

Oh, who is a great cultural fit this is the we're hearing very very little noise from the advisors. They think it makes sense.

The ability to recruit and the stories, so we're confident but I wouldn't expect anything significant this year.

And I think it's good for them and we will invest we do have some technology. They can use so many other things.

Yeah.

Okay, great. If I can just squeeze one more in here just on the administrative and incentive comp kind of trajectory how should we think about.

So, but it's going to take a good year or so to really get through that integration, but we would expect where we have one of the leading growth firms in the U K with RJ ISR and dependent we think that we can really step up the growth as it's Charles family management with the capital.

That relative to revenue growth across the business meeting.

Is there some leverage there or.

As revenues.

But that should continue to accelerate that but that will track ahead, just trying to think about some of the puts and takes.

The ability to recruit and the stories, so we're confident but I wouldn't expect anything significant this year.

Yes, I know Devin as you know we are always focused on.

Okay, great. If I can just squeeze one more in here just on the administrative and incentive comp kind of trajectory how should we think about.

Try to realize operating leverage in the business and growing revenues faster than expenses.

There is always noise quarter to quarter, especially when you're comparing fiscal year.

That relative to revenue growth across the business meeting.

Year end quarter with the beginning of the fiscal year on a linked basis, but if you step back.

Is there some leverage there or is.

As revenues.

In fiscal 2021, and the <unk> business, we grew the administrative and incentive comp by 5% with revenues in that business growing 19%. So that was really significant operating leverage and that's kind of continuing in this quarter with 25% year over year growth in revenues.

That should continue to accelerate that that will track ahead, just trying to think about some of the puts and takes there.

Yes, Hello, Devin as you know we are.

<unk> is focused on.

Trying to realize operating leverage in the business and growing revenues faster than expenses.

There is always noise quarter to quarter, especially when you are comparing our fiscal year end quarter with the beginning of the fiscal year on a linked basis, but if you step back in fiscal 2021, and the PCB business, we grew the administrative and incentive comp by 5% with revenues in that business grow.

Versus 14% year over year growth in administrative compensation expense so.

To your point, where we have always been focused and we're still focused on.

Realizing that operating leverage as revenue growth.

Okay terrific. Thank you guys.

19%, so that was really significant operating leverage and that's kind of continuing in this quarter with 25% year over year growth in revenues.

And I think kind of line of Jim Mitchell Seaport Research. Please go ahead.

Hey, Good morning, guys, maybe just follow up on the compensation question for the if I look at F. A payout as a percent of compensable revenue. It seems like it went up year over year I know that can move around but just is there any kind of pressure on compensation, given just competition or salary salary.

<unk>, 14% year over year growth in administrative compensation expense so.

To your point.

We have always been focused and we're still focused on.

Realizing that operating leverage as revenue growth.

Yeah, Okay terrific. Thank you guys.

Okay.

Inflation or is that just bouncing around but it seemed like it went up about 90 basis points year over year.

And our next question kind of find enough Jim Mitchell Seaport Research. Please go ahead.

Yes, the financial adviser payouts.

Hey, good morning, guys.

Maybe just to follow up on the compensation question for the if I look at F. <unk>.

Our on the grid and so in the employee channel in both in the independent contractor channel. So as you noted it does tend to bounce around you know 25 50 basis points from any quarter, when you're comparing it on a quarter to quarter basis. There are benefits that our crude in there and other things it's not just direct payout that you would.

Payouts as a percent of compensable revenue it seems like it went up year over year I know that can move around but just is there any kind of pressure on compensation Gibbons.

Competition or salary salary wage inflation or is that just bouncing around but it just seemed like it went up about 90 basis points year over year.

See on the grid, so it can bounce around from quarter to quarter, but we're not expecting a meaningful step up based on the mix of advisers, we have in our independent and employee channel.

Yes, the financial adviser payouts.

Our on the grid and so in the employee channel in both in the independent contractor channel. So as you noted it that does tend to bounce around $25 50 basis points from any quarter, when you're comparing it on a quarter to quarter basis. There are.

We have not changed really we haven't raised the payouts.

There are higher payouts and higher production for some so you get a little bit of that impact, but it's really I think just more of a bouncing around effects than it is any change here.

Benefits at our crude in there and other things it's not just direct payout that you would see on the grid. So it can bounce around from quarter to quarter, but we're not expecting a meaningful step up based on the mix of advisers, we have in our independent and employee channel.

Okay.

No change in the grid. Okay. That's that's helpful and just maybe on the PSC deal as you get closer to it do you feel like.

There is an opportunity.

To really invest to expand that more rapidly do what should we expect some some investment spending around that that business or is it really just hey standalone.

We have not changed really we haven't raised the payouts.

There are higher payouts on higher production for some so you get a little bit of that impact, but it's really I think just more of a bouncing around effects than it is any change here.

They can grow at just a little more incremental capital you don't need a ton of investment spend.

I think there you know.

If you look at their own releases.

Okay. So no no change in the grid. Okay. That's that's helpful and just maybe on the TSA deal as you get closer to it do you feel like.

You know we don't we're still in the middle of the shareholder Friday had a very very good.

Very good growth and yes.

There is an opportunity.

Yeah, I think I think what you'll see is us just giving them a little more capital than maybe to accelerate technology in to help serve their clients.

To really invest to expand that more rapidly to it should we expect some some investment spending around that that business or is it really just hey stand alone. We think they can grow at just a little more incremental capital don't need a ton of investment spend.

And we may get some synergies overtime on compliance when those kind of functions, but outside of that there will be operating alone will have a little more capital in their growth rates are very good. We're we're kind of very Natalie historically on their current place was very very good. So we certainly don't need them growing faster than they are I mean, they're growing well and that I think it's going to be.

I think they are.

If you look at their own releases.

We don't we're still in the middle of the shareholder private had a very very good they are very good growth.

Yes, I think I think what you'll see is us just giving them a little more capital than maybe to accelerate technology in to help serve their clients.

More of our balance sheet deployment to use of our cash in.

They're going to do their thing and serve their clients.

And we may get some synergies over time on compliance and those kind of functions, but outside of that we'll be operating alone will have a little more capital in their growth rates are very good were very easily historically on their current release was very very good. So we certainly don't need them growing faster than they are I mean, they are growing well and.

Right, Okay, great. Thank you.

And our next question comes from line of Bill Katz with Citigroup. Please proceed.

Thank you very much for taking my questions. This morning, So just picking up on T. S. C. So I appreciate the upside with the higher rates, but they did have a strong fourth quarter for we could tell as well how does the fourth quarter.

But I think it's going to be more of our balance sheet deployment the use of our cash in.

They're going to do their thing and serve their clients. So.

Trend relative to your baseline accretion of 8% as you sort of think about when this closes and any update on when do you think the deal itself may close.

Right, Okay, great. Thank you.

Okay.

Yeah, we kind of gave you some assumptions when we announced the transaction you know we use conservative assumptions when we do any kind of investment or make any kind of investments and certainly the the level of growth that they achieved in the fourth quarter again theyre separate public company. So I don't want to speak about their results.

And our next question kind of sign of Bill Katz.

Katz with Citigroup. Please proceed.

Okay. Thank you very much for taking my questions. This morning, So just picking up on PSC.

Shape, the upside with the higher rates, but they did have a strong fourth quarter for we could tell as well how does the fourth quarter trend.

Trend relative to your baseline accretion of 8% as you sort of think about when this closes any update on when do you think the deal itself may close.

But to your point.

I don't think you would call those conservative I mean, they've been generating really strong growth.

And so I'll just leave it at that in terms of timing, it's all contingent on a regulatory approvals and so we hope to get it done in calendar 2022, but again, that's a that's dependent on the regulatory approvals and you know right now and to shareholder vote and sharply at the end of <unk>.

Yes, we kind of gave you some assumptions when we announced the transaction we use conservative assumptions when we do any kind of investment or make any kind of investment and certainly the level of growth that they've achieved in the fourth quarter again theyre separate public company. So I don't want to speak about their results.

But to your point.

February so.

I don't think you would call those conservative.

Okay, Great just as a follow up coming back to our business development for a moment.

<unk> been generating really strong growth.

And so I'll just leave it at that in terms of timing, it's all contingent on.

The update in how you're thinking about sort of the glide path in fiscal 'twenty, two and and so that endpoint number of $200 million sort of exit this year relative to what you sort of guided to last quarter. Thank you.

Regulatory approvals and so we hope to get it done.

Calendar 2022, but again thats dependent on the regulatory approvals in right now and a shareholder vote.

Yeah, I wouldn't say the 200 million dollar was a guy that was just a reference point for where we were pre COVID-19 that would've been $50 million a quarter, we're right around $35 million this quarter and we actually were able to have an advisor conference this quarter for the employee channel.

That's the end of February so.

Okay.

Okay, Great and just as a follow up coming back to our business development for a moment.

Any update in how you're thinking about.

So the glide path in fiscal 'twenty, two and saw that endpoint number of $200 million sort of exit this year relative to what you sort of guided to last quarter. Thank you.

So you know I would be very surprised though you know most of the things here in the second quarter, we've postponed and pushed back.

Unfortunately, due to the Covid best spread I would be very surprised if we are able to even exit the year at the $50 million run rate per quarter, Unfortunately, and I say, Unfortunately, because we really do want to get back to traveling again, having the advisor recognition trips in the conferences.

Yes, I wouldn't say the 200 million dollar was a guy that was just a reference point for where we were pre COVID-19 that would've been $50 million a quarter, we're right around $35 million this quarter and we actually were able to have an advisor conference this quarter for the employee channel.

I think thats kind of the glide path, that's probably a longer flatter glide path and we thought this time last quarter. Unfortunately.

So I would be very surprised though most of the things here in the second quarter, we've postponed and pushed back Unfortunately due to the Covid best spread I would be very surprised if we are able to even exit the year at the $50 million run rate per quarter, Unfortunately, and I say, Unfortunately, because we really.

Okay. Thank you very much taking the questions.

Yeah.

And our next question comes from the line of Alex posting with Goldman Sachs. Please proceed.

Thanks, Good morning, guys.

Do want to get back to traveling again to having the advisor recognition trips in the conferences.

Just maybe picking up on that last point are you guys.

<unk> fantastic organic growth.

So I think thats kind of the glide path, that's probably a longer.

Over the last 12 months and that's really without spending a lot on things like conferences and your promotional expense to your point Paul It has been running well below where you guys were back in for the 19th so.

Flatter glide path and we thought this time last quarter. Unfortunately.

Okay. Thank you everybody for taking the questions.

Okay.

And our next question comes from the line of Alex <unk> with Goldman Sachs. Please proceed.

<unk> learned from the pandemic.

You guys can still achieve significant growth without spending as much why is that not the right passage.

Thanks, Good morning, guys.

Just maybe picking up on that last point.

Sure.

There are certainly lessons learned I mean, we were going to.

You guys are generating fantastic organic growth for this quarter over the last 12 months and that's really without spending a lot on things like conferences and your promotional expense to your point Paul It has been running well below where you guys were back in 2018.

A flexible work environment.

Before the pandemic so certain lessons, we're kind of reinforced we could do it.

But we think it's important to get people back in the office and we're making great progress, but obviously.

<unk> learned from the pandemic being you guys can still achieve significant growth without spending as much why is that not the right passage from sort of here.

With the holidays and since we've been conservative as the cases have been up but the big part of a lot of those.

Conferences.

But there are certainly lessons learned I mean, we were going to.

People think they are just kind of fund trips are very educational.

Flexible work environment before the pandemic, so certain lessons, we're kind of reinforced or we could do it but we think it's important to get people back in the office and we're making great progress, but obviously.

The advisors.

A lot of training and developed a lot of it of course is that they do.

And it's important culturally so I think advisors understand why we've had to cancel or cut back on it during the pandemic, but they wouldn't understand.

With the holidays and since we've been conservative as the.

The cases had been up.

With things going back to normal that they would just disappear. So we certainly have learned you can do a lot of things with less travel.

The big part of a lot of those.

Conferences.

People think they are just kind of fund trips are very educational.

There's a lot of things that require that face to face input.

The advisors.

A lot of training and develop a lot of it on courses that they do.

Frankly, we all know it from our own firms, there's a lot of the people.

People are tired of not.

And it's important culturally so I think advisors understand why we've had to cancel.

Being together and not seeing each other and interacting even though they like the flexibility. So we got to find that balance but.

Cut back on it during the pandemic, but they wouldn't understand.

The conferences are important culturally they are important and important to get people together keeps their bond with the firm and for training development I mean, theres a lot of lot of facets when they do cost money, but.

With things going back to normal that they would just disappear. So we certainly have learned you can do a lot of things with less travel.

There's a lot of things that require that face to face input.

Just as a the investor conferences that many of people in this firm will start back up post COVID-19 some of them been able to sneak them in.

Frankly, we all know it from our own firms, there's a lot of.

People are tired of.

Not being together and not seeing each other and interacting even though they like the flexibility. So we got to find that balance, but the conferences are important culturally they are important and important to get people together keeps their bond with the firm and for training development I mean, theres a lot of lot of facets and they do cost money, but.

You know you do them for the same reason and so will we.

Got it alright makes sense.

My second one is really just a follow up.

Sorry, if I missed that.

Good question.

Yes.

Paul assumptions around when possible.

The bulk of the hiring from Mcdonalds.

Just as the investor conferences that many of people in this firm will start back up post COVID-19 some of been able to sneak them in.

The higher revenues.

Oh interest rates, though.

Should we think about acceleration.

But you do them for the same reason and so will we.

In Boston, and then you know things outside of call.

Got it alright makes sense.

As rates go higher.

My second one is really just a follow up I'm sorry, if I missed it I think you've asked the question around.

I don't we don't have anything planned I mean, we're going to we'll have the same pressures on technology and what are we going to spend and we're going to have as we grow support will have to grow were spending a lot of time automating. The back office. So there are things that cost money.

The a.

<unk> around <unk> on the back of the higher rate in Mcdonald's you guys are going to Gazprom, obviously materially higher revenues in the backup.

Interest rates, though.

Theres been comp pressure in the industry, we havent I don't think felt it as we felt it but it hasn't been as you know.

Should we think about an acceleration in <unk>.

On things outside of comp.

There's a lot of other people have said its been in or people, leaving our turnovers.

As it relates to go higher.

We don't have anything planned I mean, we're going to we'll have the same pressures on technology and what we're going to spend and we're going to have as we grow support will have to grow were spending a lot of time automating. The back office. So there are things that cost money.

Up very much and again, I think thats culturally and we pay people well off a good year. So.

I don't see any big initiatives, I think three or four years ago, we had a huge initiative.

Kind of redo the whole compliance infrastructure and back office systems and <unk>.

Theres been comp pressure in the industry, we haven't I don't think felt it as we felt it but it hasn't been as <unk>.

Gear up but youre seeing the leverage of that now are those arent really going up commensurate with rep. So so we don't have any major plans.

There's a lot of other people have said its been in or people, leaving our turnover is up.

What would change over the next three or four years I'm sure there'll be investment initiatives.

Very much and again I think that's culturally and we paid people well off a good year. So.

Nothing like we've had.

I don't see any big initiatives, I think three or four years ago, we had a huge initiative.

Three or four years ago.

Thats, great Alright, perfect. Thank you very much.

Kind of redo the whole compliance infrastructure and back office and systems and gear up but youre seeing the leverage of that now are those arent really going up commensurate with revenue. So so we don't have any major plans. So I don't know what would change over the next three or four years I'm sure there'll be investment initiatives, but.

Thanks, Alex.

And our next question comes the line of Kyle Voigt with K B W. Please proceed.

Okay.

Hi, good morning.

Just one on <unk>.

That's right.

Growth there has slowed a bit in the quarter.

I'm wondering if you could comment on your appetite to Reaccelerate the growth there again with recent movement.

Nothing like we had.

Three or four years ago.

Really in the belly.

Of the curve.

That's great all right perfect. Thank you very much.

Yeah, we're keeping an eye on it.

Thanks, Alex.

We do plan on growing it modestly throughout the year, but you know we're trying to position ourselves for the increase in short term rates, so taking four to five years.

And our next question comes the line of Kyle Voigt with Keybanc. Please proceed.

Hi, good morning.

Four to five years of duration, because there's not a lot of three to four year paper out there that's available the fed still buying.

Maybe just one on the <unk> book the growth there has slowed a bit in the quarter.

But to take the four to five years of duration for one point to one 3% not overly compelling in a rising rate environment. So we're trying to preserve as much flexibility as possible. We do have a preference for being more exposed to the short end of the curve. The really short end of the curve and so.

I'm wondering if you could comment on your appetite to Reaccelerate the growth there given the recent move we've seen really in the belly of the.

Of the curve.

Yeah, we're keeping an eye on it.

We do plan on growing it modestly throughout the year, but you know we're trying to position ourselves for the increase in short term rates, so taking four to five years.

I think we're being kind of deliberate and patient as we always are and I think also you know we were.

Four to five years of duration, because there's not a lot of three to four year paper out there that's available the fed still buying.

We debated when we new rates were falling whether it was to lock in and we said, we're just better off long term with floating balance sheet. So now that we see all predictions are raised rates will rise you never know it's kind of a.

But to take the four to five years of duration for.

One point to one 3% is not overly compelling in a rising rate environment. So we're trying to preserve as much flexibility as possible. We do have a preference for being more exposed to the short end of the curve. The really short end of the curve.

It's kind of the wrong time to abandon that if you believe that rates are really going up and youre going to get.

Bunch of raises in the next year as people are predicting now so we're not we are investing in growing the securities book, but we're not going to race to do it because we think.

So I think we're being kind of deliberate and patient as we always are.

Also we were we.

We debated when we new rates were falling whether it was to lock in referred we're just better off long term with a floating balance sheet. So now that we see all predictions are raised rates will rise you never know it's kind of a.

Within a year, we'll look back and say gosh, we should probably shouldn't have done that so.

Yeah.

Understood.

Yes, I can just ask a follow up.

Earlier to a question that was asked on the administrative compensation and the PCB segment and you mentioned that it only grew 5% last year, despite 19% growth in the segment revenue and now we've seen that accelerates a 14% year over year growth in the first quarter here I'm, just trying to get a sense of this months an acceleration in this line for the full fiscal year.

That's kind of the wrong time to abandon that if you believe that rates are really going up and youre going to get a bunch of raises in the next year as people are predicting that also were not.

Our investing and growing the securities book, but we're not going to race to do it because we think.

Within a year, we'll look back and say gosh, we should probably shouldn't have done that.

If anything to note in that line in terms of seasonality in the fiscal first quarter and then if you could just.

Understood.

And if I could just ask a follow up earlier.

Earlier to a question that was asked on the administrative compensation and the <unk> segment.

Maybe just give an update in terms like the medium term outlook for that.

Administrative compensation line for TCG.

You mentioned that it only grew 5% last year, despite 19% growth in the segment revenue and now we've seen that accelerate a 14% year over year growth in the first quarter here I'm just trying to get a sense of this marks an acceleration in this line for the full fiscal year. If there's anything to really know in that line in terms of seasonality in the fiscal first quarter and then.

Is it right to think about that line as being kind of a mid single digit growth overtime.

Basis.

And can you just comment there that'd be great. Thank you.

So there's a lot of factors a lot of items that go into that line. I mean, there are supports seasonality as there is with <unk>.

Most compensation related line items.

If you could just.

But one of the line one of the factors that goes into it is just the accruals for benefits, which are based on profitability growth. So youre going to see growth in that line with the growth and profitability and as Paul says we have been very generous in terms of compensation to our associates, we have a long track record of sharing.

Maybe just give an update in terms of like the medium term outlook for that that that administrative compensation line for PSEG.

Is it right to think about that line as being kind of a mid single digit growth line overtime on a normalized basis.

And just commentary that'd be great. Thank you.

There's a lot of factors a lot of items that go into that line. I mean, there is of course seasonality as there is with.

The success of the firms with our associates and with our fiscal year end being in September . This line now reflects the salary and bonus increases that we gave at the end of our fiscal year end Youll start seeing that probably for most of our peers starting next quarter.

Most compensation related line items.

But one of the line one of the factors that goes into it is just the accruals for benefits, which are based on profitability growth. So youre going to see growth in that line with the growth and profitability and as Paul says we have been very generous in terms of compensation to our associates, we have a long track record of sharing.

So I think this is a.

There's a lot of factors that go into it but as I as I said earlier, we're really focused on realizing the operating leverage going forward.

Great. Thank you.

The success of the firms with our associates and with our fiscal year end being in September . This line now reflects the salary and bonus increases that we gave at the end of our fiscal year end Youll start seeing that probably for most of our peers starting next quarter. So I think this is.

And the last question kind of sign of Chris Allen with Compass point. Please proceed.

Hey, good morning, everyone.

Most of my questions have been.

I answered already I guess, just a quick one just on the client cash balances obviously helped by.

There's a lot of factors that go into it but as I as I said earlier, we're really focused on realizing the operating leverage going forward.

Net new asset growth.

What percent of assets.

Just wondering if you see any see typical seasonality there towards the end of the calendar year.

Great. Thank you.

Okay.

And the last question kind of sign of Chris Allen with Compass point. Please proceed.

And any commentary just on shifting the risk appetite from a client perspective to start this year, just given where the markets are.

Good morning, everyone.

Most of my questions have been.

Yes, Paul as Paul said.

As Youre already I guess, just a quick one just on the client cash balances obviously helped by.

Really the fluctuation in cash balances.

The extreme fluctuations really are more dependent on market movements.

Net new asset growth in both.

As a percentage of assets.

We have seen some.

I'm just wondering have you seen it typically seasonality there towards the end of the calendar year.

End of calendar year buildup of cash over our history over time.

And then of course as we get to the tax season in April some of that cash gets used to pay taxes.

And any commentary just on <unk>.

Shifting the risk appetite from a client perspective to start this year, just given where the markets are.

But I would say that the growth that we saw this quarter was really due to the fantastic organic growth that Paul was describing earlier.

Yes, as Paul said really the fluctuation in cash balances the.

Extreme fluctuations really are more dependent on market movements.

Yes, I think if you look at you know client sentiment I think of the remote recent it's been pretty flat with last quarter that about half for sure.

We have seen some end of calendar year buildup of cash over history over time.

Sure.

Confidence in the stock market. Good news is 95% are still confident in our advisors.

And then of course as we get to the tax season in April some of that cash gets used to pay taxes.

So I think of that in uncertain times people aren't going to rush to invest cash versus three or four years ago when you're in the middle overrun it looks like its continuing to run people are more likely to invest so I don't see any pressure for that number to really go down I don't see a rush for them to put money into the equity market and again as a percent of assets.

But I would say that the growth that we saw this quarter was really due to the fantastic organic growth that Paul was describing earlier.

I think if you look at you know client settlement I think the most recent it's been pretty flat with last quarter that about half for sure.

Slower than historical so.

Sure.

Confidence in the stock market. Good news is 95% are still confident in our advisors.

I think we're doing well there so.

So I wouldn't expect any fluctuations you never know right. So the market's dynamic, but I think we're in good shape.

So I think of that in uncertain times people aren't going to rush to invest cash versus three or four years ago. When youre in the middle overrun it looks like its continuing to run people are more likely to invest so I don't see any pressure for that number to really go down I don't see a rush for them to put money into the equity market and again as a percent of assets.

Thanks, guys.

Okay.

Alright, so I'd like to thank everybody for joining I believe that not only do we have a fantastic quarter. All the indications recruiting is strong you have upside on interest rates, our pipelines and investment banking are very strong.

Slower than historical so.

I think we're doing well there so.

So I wouldn't expect any fluctuations you never know right. So the market dynamic, but I think we're in good shape.

It's hard to give a I've been around too long or I see M&A come and go depending on market conditions. If you had a really sharp drop in rate or equity markets that certainly can impact it but in a normal state that's in great shape.

Thanks, guys.

So I'd like to thank everybody for joining I believe that not only do you have a fantastic quarter. All the indications recruiting is strong we have upside on interest rates, our pipelines and investment banking are very strong.

As long as we continue to first retain our advisers and have them through the great job. They continued to have done this last year and last quarter and in our recruiting momentum is extremely strong you know it's.

It's hard to give a.

It feels good to start the calendar year, where we are hopefully COVID-19 gets through the system and we can have more of a normal life and but it was a good quarter and I think we're well positioned going forward. So I. Appreciate you joining us this morning. Thank you.

I've been around too long or IC M&A come and go depending on market conditions. So if you had a really sharp drop in rate or equity markets that certainly can impact it but in a normal state.

It's in great shape.

As long as we continue to first retain our advisers and have them do the great job. They continued to have done this last year and last quarter end and our recruiting momentum is extremely strong.

Thank you that does conclude the call for today, we thank you for your participation have a great day.

Yeah.

Yes.

Oh.

It feels good to start the calendar year, where we are hopefully COVID-19 gets through the system and we can have more of a normal life and.

Okay.

Right.

But it was a good quarter and I think we're well positioned going forward. So I appreciate you joining us this morning. Thank you.

Yeah.

Thank you that does conclude the call for today, we thank you for your participation have a great day.

Sure.

Okay.

Yes.

[music].

Yes.

Okay.

Okay.