Good morning. My name is Brooke, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Raymond James Quarterly Analyst Conference Call. [Operator Instructions] To the extent that Raymond James makes forward-looking statements regarding management expectations, strategic objectives, business prospects, anticipated expense savings, financial results, anticipated results of litigation and regulatory proceedings and other similar matters, a variety of factors, many of which are beyond Raymond James' control, could cause actual results and experiences to differ materially from the expectations and objectives expressed in these statements. These factors are described in Raymond James' 2011 annual report on Form 10-K, which is available on raymondjames.com and sec.gov. In addition to those factors, in connection with the Morgan Keegan transaction, the following factors, among others, could cause actual results to differ materially from forward-looking or historical performance. The possibility that regulatory and other approvals and conditions to the transaction are not received or satisfied on a timely basis or at all. The possibility that modifications to the terms of the transaction may be required to obtain or satisfy such approvals or conditions; changes in the anticipated timing for closings -- closing the transaction; difficulty integrating Raymond James and Morgan Keegan's businesses or realizing the projected benefits of the transaction; the inability to sustain revenue in earnings growth; the changes in capital markets; and diversion of management time on transaction related issues. Thank you. Mr. Reilly, you may begin.

Great. Well, good morning, and thank you. And now that Brooke has explained that we can't forecast the future, we'd like to talk about really the first quarter of this year and what I would call kind of a difficult quarter for the capital markets overall in our industry. But I think solid results given where we are. As we said, we reported net income of $67,325,000 or $0.53 per diluted share. Again, as compared to a record quarter a year ago, obviously down but fairly flattish with the last quarter, as we put in our release. We go through the business, different business units, I think you could see where kind of the headwinds were. Starting with the Private Client Group, our wrap fee assets were down 6% coming into the quarter. And as you know, we bill in advance on our retail accounts and those fees, and that gave us a headwind. In the PCG group, we just weren't able to make that up on the commission volume. But if you look at this quarter, with the S&P up 11%, we'd estimate we'll reverse that and be up 6% or 7% this quarter as a starting point. So although we had a -- not over robust because of our beginnings, we could make it up in the commissions area. In the Private Client Group, we should be up, reversed to a better start this quarter. As you can see, our Financial Advisor account was up slightly in all of our segments, as we continue to recruit. So I think going into the quarter, we'll get a better start there. Probably really the story of the quarter was the Equity Capital Markets business. As you know, the industry didn't have the best quarter in the world, and we weren't…

Okay. And looking at the overall financials, margins actually held up pretty well relative to the previous quarter, in fact, even higher. It just was really more a matter of lower revenue generation. When you see the actual reported results next to last year, you need to bear in mind that last year's first quarter was our all-time is, our all-time record quarterly earnings of $81.7 million, so that one's going to be a tough one to compare against. A couple of other comments. The book value per share ended the quarter at $21.34. Tangible book value ended at $20.76. There wasn't a whole lot of bouncing around in the equity this particular quarter. It was pretty much earnings minus our dividend, which the board elected the whole flat this year, by the way, as you may have seen, versus a $0.02 raise in the prior year, and minus some stock repurchases that we did at the very beginning of the quarter, about 394,000 shares in October, for $10 million. That math works pretty close to where we ended equity. ROE for the quarter was about 10.3%, trailing last quarter's 10.7% and last fiscal year just by comparison, inclusive of the ARS charges, about 11.25%, 11.3%. And exclusive of the ARS charge on an operating-type basis, it was about 12.25%. Two things that are going to fluctuate pretty much regularly with our revenue in pretax income generation up and down are the comp ratio. As you can see, comp ratio is measured as a percentage of revenues, while a lot of the variable comp is self-adjusting as the revenue items rise and fall. We do have a fairly good level of embedded compensation expense. So as revenues decline, that ratio's naturally going to creep up, and that's sort of what…

Yes. I just like to make some quick comments kind of updating you on the Morgan Keegan transaction, although I think this is around the ninth business day since the announcement, which does seem like months ago because of our work. That whole process has gone very well. The top 13 managers have agreed to stay with us through that. I know that there was one group that made a comment they wondered if we'd have sufficient management for this and that we take little responsibility that we probably didn't give them enough information pre-transaction. So we have their total management team and our total management team. If you wanted to follow it, say we're kind of overmanaged in this process. But again, as we told you, we were very, very focused on the transitions, getting people on board and moving forward. The integration process is going well. We had 85 of 85 branch managers meeting with us for Morgan Keegan, understanding our platform, going through the fit. And what we find, both in payout structures and cultures are very, very strong fit. We've had our top 6 [ph] fixed income managers on both groups have met here already and then had a further second meeting going through where the integration challenges may be there. Management teams have gelled very, very well and I think performing well. ECM has made a tour of most of the banking groups already and has met with them one-on-one and then going through the process as well as in Memphis. And we've had our techs and ops group. I think 19 people down going through the various areas of integration from compliance to regulatory to ops to tech. And again, means are going very well in a good cultural fit. So we're very, very…

[Operator Instructions] Our first question comes from Joel Jeffrey.

Can you just -- I appreciate some of the color you gave on sort of what was going on in the Capital Markets business. Can you give us a breakdown more specifically on the revenues that came out in the fixed income business versus the equities business on the trading side?

On the trading, almost all of our trading profits more than -- usually, more than 100% of our trading profits are fixed income. We don't take proprietary positions. So we just have facilitation losses in ECM. And so the profits, if you look at trading profit numbers, more than 100% is fixed income. But I can tell you, it was skewed to December, too. The market started picking up and have continued to pick up from a slower start at the beginning of the quarter, and it continued to gain speed. But it's almost all fixed income.

I'm sorry, I probably should have said brokerage, not itself as trading.

Joel, you're referring to commissions or...

Yes, the institutional commissions for fixed income versus equity.

Equity Capital Markets was relatively flat with last quarter, so is fixed income. But not really a big variation versus the preceding quarter.

Commissions in capital markets were generally flat overall.

So it was really more on the shortfall from the previous quarters on the banking side, not on the brokerage side.

Okay. And then just thinking about the...

And I'm sorry, one more point. There's another operation within capital markets called Tax Credit Funds, which you've heard us talk about in the past, which had a very, very big quarter in September. It was pretty normal as they build throughout the year in a much -- the clients' probably $10 million swing in revenues between the last quarter and this one, and that's just that operation. But that exacerbates it to some extent.

Okay. And then just thinking about the growth you guys have had at the bank in the loan portfolio, like can you talk -- are you doing anything differently in terms of the strategy on how you're growing the loan portfolio? Is it still more acquired loans? Or is there a push to do some fort of a organic origination?

The strategy hasn't changed. And we've been an organic originator, but when we find times, we go into the secondary markets and get good loans. And usually to add on the positions, we continue to be opportunistic in that. So...

The only change I would mention is, as you've heard us say, is we're trying to get ourselves more into a lead position in some of these, particularly with our own Equity Capital Markets clients to get into more of a fee-generating type of role with respect to some of these facilities instead of being just a participant.

And Joel, we are doing more mortgage loan originations, residential mortgage originations on our own platform now, too. We had our biggest quarter ever in December in that business. And that led to us a residential loan thing roughly flat quarter-over-quarter. So that new production replaced the runoff in the quarter.

And then just staying with the bank, I apologize if I missed it earlier, but what was the reason again for the pickup in net interest spread quarter-over-quarter?

Average loan balances were higher quarter-over-quarter. We used more of the -- of our cash that was sitting there, earning a very, very low spread. And then there was incrementally some additional corporate loan fees that were taken into income as a result of paydowns and payoff of loans. So those 2 factors contributed to the higher net interest margin.

And is this sort of a sustainable level? Or do you think the fees were sort of onetime? Does it come back down a little bit?

Yes. There's been a little volatility in that, Joel, quarter-over-quarter. The December quarter was higher than September, but it was actually about equal to the prior December 2010 quarter. Loan balances for this quarter, for the March quarter, actually, is going to be higher than the prior quarter. So we've been intentionally putting some of our liquidity to work. I would mention that I would not expect our corporate loan growth absent the closing of the Allied Irish purchase that Paul referenced that we're anticipating closing later on this month. Absent that, excluding that, we would anticipate loan balances to grow at a lower rate this year -- this quarter.

And then just, I guess, lastly on the Allied Irish. Are you guys still expecting to take an upfront provision, I think it was $7 million, you talked about?

Yes. That will be impacted by the final loan balance that we're going to be closing on. I think that the loan balance may be a little bit lower now as it's taken more time to get this close. It could be below -- it could be between $6 million and $7 million at this point, Joel.

Your next question comes from Daniel Harris.

So as the transition happens to the Fed versus your prior regulator, I was wondering if you see any changes in how you guys evaluate your loan portfolio, your capital -- or your ability to upstream capital in any way? I mean one of the things we saw last night in a bank that moved from the OTC -- OTS to the OCC was a pretty big qualitative adjustment. I was wondering if you can comment on anything like that.

Yes. First, we are -- -- we have -- we're already under Fed jurisdiction as a holding company, so that's not really the change. It's just the form of going from a thrift holding company to a bank and financial holding company. As far as the OCC, you have to remember that most of our loans are shared national credits and have been reviewed by the OCC always. And the OCS has taken kind of those ratings because that's the Fed's most secured national credits of the originator. So the Fed's been in here in a pre-exam. They're back in. I'm sure there'll be slight differences. But I think philosophically, we don't anticipate really any changes of significance.

Okay. That's good. Switching gears here to the recent transaction, how does that deal do 2 things: first of all, impact your aggressiveness in pursuing new advisors this year and what could be a decent environment given retention bonus roll-offs; and then two, thoughts about the -- any potential acquisition in the Asset Management which you guys have been focused on for the last few years?

I think we looked at both of those as independent. I mean, I'm not going to say there's going to be a 0 management distraction through the integration, but our goal has always been organic growth. We have our home offices that are up. And we continue to bring people through. We're very focused on recruiting. And through this -- after -- through this transaction and after, we're going to focus on organic growth, as we always have. So this was just an unusual opportunity to bring it in. So we're going to continue to recruit on both sides, both the employee side, which is what Morgan Keegan really is, and the independent side, where management is not really involved as much on the integration. They're continuing to recruit. So our focus on recruiting really hasn't changed.

Okay. Is it right to think that this year should be, on a relative basis, better versus last year as the maturation of those retention bonuses sort of hits 3-plus years that were really granted in 2009, and if anything, we should see an acceleration off of what seem like a little bit of a decline in this current quarter in headcount?

Yes. We -- this current quarter, we're actually up in headcount. But the home offices, its numbers are up. So we would anticipate that's usually a leading indicator of recruiting. The people sign on, and so we would anticipate it being improving this quarter over last quarter -- I mean, this year over last year.

Your next question comes from Hugh Miller.

I had a couple of questions on the bank. I guess, first, Steve, you sort of talked a little bit about the sustainability of the NIM given the loan portfolio expansion, maybe some nonrecurring benefits from the paydowns in the quarter but also just an improvement in the level of nonperforming assets. I was wondering though, can you -- I don't think you really mentioned about what your view is about the sustainability of the adjusted NIM from the current quarter.

I think that it's -- there's some pressure on it that we've talked about. I think that it's within 10 or 15 basis points of that over the next 12 months is...

Which is higher than we did before, and the Canadian acquisition will only help that.

Yes, that's correct. That will help our yield.

We, again, had to try to be conservative in our modeling, but it's held up higher than we would have forecast.

Okay. I appreciate that. And I guess as we think about the dynamics of your operations working at a single office, your ability to kind of purchase loans and participate in some of the shared national credits, we're obviously seeing some improvements in the operating margin, both from the leverage and also the improved asset quality. But how should we be thinking about the incremental operating margin as a bank and kind of takeout margins as you look at that business?

I don't see a material change from this point forward. We are going to close on the Allied Irish purchase. We had a pretty dramatic growth in the December quarter. I think that we're going to intentionally -- I think the growth pattern's going to be slower going forward over the next few quarter. We're going to obviously be integrating this Canadian acquisition. We've already, as I've mentioned in prior quarters here, we've started doing some business in Canada. We have a handful of loans to Canadian-based companies that we have an institutional relationship with. We are growing our mortgage business. But I think that it's going to be relatively nominal growth from this point forward over the next year or so. And I think that our operating margin should be relatively consistent. And we've been able to leverage a very unique business model. We have a very low FTE, and therefore, our operating efficiencies are pretty high at this point. But I don't anticipate dramatic improvement in that going forward.

We are kind of targeting a net growth of $1 billion in loans for the year. And we -- you've seen for $450 million of it in the first quarter, and Canada's going to be another $400 million. So it won't take much in addition to that to get to our budgeted levels.

Okay. I appreciate the insight there. I guess moving to some questions in the retail segment, I know last year in December, you kind of had a substantial lift in retail commissions from the rollout of your annual best ideas product. I was wondering, how much of a fact did that kind of played for this December, whether or not it was a strong benefit?

That was actually down slightly. So it's not a huge impact. But it's about half of what it was last year.

Okay. And then I realized that there's typically kind of a lag, and we see a reduction in market volatility and when you might see clients start to kind of improve their interest in kind of taking on some risks and possibly getting a little bit more positive about equity investing. I was just wondering whether or not in January, if your hearing anything from your advisers, if they kind of sense that this may be on the cusp of starting to happen, or if that's not really much of a factor.

I think that's really the call. The investors are conservative and have been investing not to lose money. And certainly, up markets help and you see an increase. But I don't think you're going to take 20 days and change the attitude after people have been through last year, certainly. I think the election's adding a lot of uncertainty, and people are waiting. So we're just anticipating kind of this zone of range of market. And so I think things get sorted out.

Okay. And last question I have is on the Capital Markets business. I mean obviously, you talked about the backlog. You talked about the climate having to kind of improve in order to see some improvement in that business. I was wondering, I guess, what areas within the Equity Capital Markets do you really see poised for a rebound ahead of the others? What are you more excited about? And what do you think has to happen at this point now in order to kind of get the ball rolling?

We've got -- obviously, our energy and our REIT markets have performed relatively well. And the better the markets, even the better the activity in there because we're very well positioned. We certainly made a bet on tech. And those markets aren't robust to the extent tech rebounds will do better there. I think it's just really across the board, in the M&A business we're pretty broad. And that backlog looks good. And obviously, the better the market, generally, the better activity there right now. So we -- and the course, with the Howe Barnes, we've made a bet in the big space. And this is in the price range. What happened in the last quarter, if you look at banking pricing, a lot of banks didn't want to sell at that price. And a lot of banks didn't want to raise equity with that pricing. So the extent that market, which has picked up since then, continues to be solid, I think we'll get better performance there, too. So...

[Operator Instructions] Your next question comes from Devin Ryan.

Almost all my questions have been asked here, but just maybe a couple of follow-ups to some prior questions. So the Allied Irish portfolio acquisition, I think the yield that you guys had been given before was a little bit over 7% on an unhedged basis. Is that still the case given a little bit of shrinkage there? And how much hedging do you guys can speak to in there?

Yes. Devin, I would still say that's approximately the yield that we're anticipating in the portfolio on an unhedged basis. We're going through, as we're now getting a lot closer to closing on this, finalizing all of our hedging strategies. We've been talking to some hedging consulting firms, relying on some expertise that we have because we do provide some hedging for our borrowing clients with our Capital Markets professionals. So we're working through that right now. So I don't really have an answer in terms of -- the execution of that hedging has not been finalized yet. But the yield is still approximately in that 7-plus percent range.

I think it's fair statement to say we would hedge -- hedge is pretty substantially because we're not anxious to have FX gains and losses in the $5 million to $10 plus million range bouncing around every quarter in the banks or loans.

Yes. We're having to go through and forecast what we anticipate paydowns and new advances to be in new business. And so there's the...

Part art, part science.

Yes.

And then just in terms of moving from the OTS to the OCC, is there any added or onetime expenses as a result of that? And then will that also free up any capital, just given how some loans will be classified?

I think it will, first, run on really onetime expenses outside of what seem like a perpetual filing cost -- professional expenses. So there are no real changes in levels of expenses from there. And in terms of capital, it's actually because we really have been operating more like a commercial bank that does free up capital, because we got into some thrift real estate test that actually added to capital. But that frees up.

We're actually in the middle of our safety and soundness exam right now, Devin. And as you know, we went through a pre-conversion exam in the fall. And we went through one a few years ago. So we've had a lot of prior dealings with the OCC. And now it's a merged agency, and we actually have some of our former examination team on the OTS that are still involved with us. So not a terrible amount of change, and we're certainly prepared for any of -- we're well aware now of what to expect and how we'll be working with them.

Got it. And so I'm assuming that, that amount of capital that's freed up was already contemplated prior to the Morgan Keegan deal and the capital raise plans for that.

Yes, yes.

Got it. Okay. Great. And then just within other expenses. I know that item can bounce around quite a bit from quarter to quarter. But it looked quite a bit lower than it has in recent quarters. So I don't know if there's any color you can give there, whether or not that's sustainable or that should kind of pick back up in maybe the upper 20s or $30 million a quarter where it has been.

You got us scrambling.

Devin, I would tell you, it's running a little bit lower than the first.

Okay. That's fine. And then just lastly, another cleanup item here, just within the minority interest. I know that there's a number of items that can impact that. But just wanted to see if there's anything given that, that number was fairly high again this quarter. I want to see maybe what's in there.

We're looking again here, Devin.

Yes. That wasn't coming because, Devin, that was particularly out of line.

That's the same as the last -- as the preceding quarter. But that's the minority holder share losses in Latin America and the U.K., some of the consolidated Tax Credit Funds, those 3 businesses. Last year, we had some big banking fees and things in Latin America that caused us to actually go the other way, more than we have in recent history. But these are all add-backs to earnings, as you can see.

[Operator Instructions]

Let me make a clarification while we can. There seems to be some confusion in the room when Joel Jeffrey was on the line and asked about capital markets commission volumes. We had said they're pretty flat. We actually were comparing it to the immediately preceding quarter, not to the last year's first quarter, which was a much more active equity underwriting environment, et cetera. They're down over 20% from last year's first quarter, but they're about flat with the immediately preceding quarter. I can't remember which one he was asking about, but we answered it relative to the preceding quarter.

At this time, there are no further questions.

Well, great. We thank you for joining us this morning. I think that we have some tailwinds starting this quarter, but the market is certainly uncertain. Our businesses, I do think, are operating in good shape. We're focused both still on delivering the numbers this quarter in Morgan Keegan. So we're busy over here, but we're optimistic, really, about both. So thank you for joining us this morning, and we'll talk to you again soon.

Thank you. This concludes the conference. You may now disconnect.