Good morning, and welcome to the Earnings Call for Raymond James Financial Fiscal Second Quarter of 2016 Results. My name is Stephanie and I will be your conference facilitator today. This call is being recorded and will be available on the company's website. Now, I’ll turn the call over to Paul Shoukry, Vice President of Finance and Head of Investor Relations at Raymond James Financial. Please go ahead.

Thank you, Stephanie, good morning, and thank you all for joining the call this morning. As always, we appreciate your time and interest in Raymond James Financial. After I read the following disclosure, I'll turn the call over to Paul Reilly, our Chief Executive Officer; and Jeff Julien, our Chief Financial Officer. Following their prepared remarks, they will ask the operator to open the line for questions. Certain statements made during this call may constitute forward-looking statements. Forward-looking statements include, but are not limited to, information concerning future strategic objectives, business prospects, anticipated savings, financial results, industry or market conditions, demand for our products, acquisitions, our ability to successfully hire and integrate financial advisors, anticipated results of litigation and regulatory developments, our liquidity and funding sources, or general economic conditions. Words such as believes, expects, anticipates, projects, forecasts and future conditional verbs, as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements. There can be no assurance that actual results will not differ materially from those expressed in those forward-looking statements. We urge you to carefully consider the risks described in our most recent Form 10-K, which is available on the SEC's website at sec.gov. During today's call, we will also use certain non-GAAP financial measures to provide information pertinent to our management view on ongoing business performance. These non-GAAP measures should not be considered replacements for and should be read in conjunction with the corresponding GAAP measures. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures may be found in the schedule accompanying our press release. With that, I'll turn the call over to Paul Reilly, CEO of Raymond James Financial. Paul?

Great. Thanks, Paul, and good morning, everyone. I guess you guys know the drill now. I am going to go start and give some overview numbers and turn it over to Jeff little more detail, make some comments before we turn it over for Q&A. Considering all of the challenges this industry is facing, the competition, markets, the regulatory environments, the rising cost of people and healthcare, I have to say, I am pretty pleased with our results for the quarter. As you know at RJ, we don't get overly excited about a good or bad quarter. I don't know if that's because Jeff and I are CPAs by background, but I think it's more that we really do take a long-term focus and I think as I go through what we've achieved, you are going to see that we have good long-term metrics here. Revenues for the first half of the year were up 2% over our record start of last fiscal year. So we're off to a good start. I don't really want to take credit for that. We can't forget it’s our advisors and people and managers in the field that really make that happen. The net income for the first six months of $232 million were adjusted $237 million, is just $3 million less than our record start for last fiscal year at the same time period, so that delta is really, most of that was in the technology spend. In the loan loss provision, which a lot of that was driven by growth and some extra reserves and the energy portfolio, which I'm sure we’ll talk about. And I think we've also seen some very solid discretionary expense management, so I want to give kudos to our managers who have worked hard on that. Maybe…

Thanks, Paul. Looking at some of the specific P&L line items, we generally, by the way around here talk about things in terms of segments. We don't actually focus as heavily on the line items, but it's helpful to see how the segment results translate into these various line items, which is how we report in the P&L. The commission line was relatively flat. The 10th page of the press release give you some good detail and you can see the flat Private Client Group commission sequentially, which Paul just talked about, the factors influencing that, and then we had some good institutional fixed income commissions offsetting a slight decline in equity commissions. Similarly on the same page as a good breakdown of the investment banking line item, and again it reflects most of the things Paul talked about. Underwritings are down, underwriting revenues are down from last year and last quarter, even the last quarter was fairly slow. It was down further, but that other primary factors in that line item all saw increases. The M&A fee, fixed income, our public finance revenues and tax credit funds, as he mentioned, had a very strong quarter. So, as a result, the overall segment and that line item showed an increase from the preceding quarter. Investment advisory fees, I think we mentioned on the call a quarter ago that Eagle had seen some significant institutional accounts leave and that is weighing on that investment advisory line at the moment. Coupled within the December quarter, we had a $3.5 million performance fee that only hits in the December quarter each year. So that distorts it even a little further. Interest is one of the factors that that probably was throwing the models off the most this quarter. Its interest and its account…

Thanks Jeff. As we look forward I think first, record number of that days thanks to the great retention and recruiting, it's going to help drive given a cooperative market at the Private Client Group and certainly for successful on the to be formed Alex. Brown division where so far our signs have been over 90%. That should be a great driver for us. And the Capital Markets area, fixed income has been very consistent and performing very well in this market as is public finance, I think on the year end rankings we are eight, total credit to lead nationally. So, from this a lot of this is driven by our combination with Morgan Keegan which has really been four years ago now believe it or not it has really put us at fixed income public finance business a major player. Tax credit funds had a great quarter but it's a spiky quarter even though we look at them having their best year if you look at the backlog, but it was still a good outlook for the tax credit funds and equity capital markets was the question that’s certainly been better and March and April have been better than March, but I wouldn’t call it robust and especially with energy markets we're going to have to see what happens. So, although it is improved, I would say that's the one business where we see potential headwind still. The asset Management, again our internal platforms will benefit from our strong recruiting as they have been. The Eagle net sales have been very heavy, but we still have experienced net outflows in challenging market. RJ Bank who has had very, very strong growth as you can see, we're looking more for a kind of 10% target looking forward in that…

Thank you. [Operator Instructions] Your first question is from the line of Devin Ryan with JMP Securities.

Hey, good morning everyone.

Hey, Devin.

Clearly another great quarter here on the financial advisor recruiting front. I’d just love a little more perspective around the outlook and window and anything you can give us on home office visits. And also just kind of layering in around the DOL, as well I’m just curious if you anticipate any change in trajectory or may be a slowdown on the independent side just as these folks are trying to figure out or they’re trying to figure out what the actual real changes in the business will be going forward. So, I’m curious if you think that will create a little bit of an air pocket just in people in motion just trying to figure out what the DOL actually means for their business?

So, I would say, Devin, right now as recruiting is off home offices up because these are up everything is up. And just for many, many factors, in fact, the one that’s up the most is the independent contractor channel. So, I would say from mobility of it from advisors wanting to move, it hasn’t slowed down at all. Joins and commits are up and very solid pipeline as good of a pipeline as we’ve ever had. So, we don’t see the slowdown in movement will it get to a point where advisor say well do I want to wait a couple months, this might have to repay for DOL and repay to move, might I wait a little bit? Maybe. But we don’t see that indication now. We certainly are focused when we recruit, I’m looking at books to see how much is IRAs and maybe subject to some change and not, but right now the pipelines look great and all the forward indicators are up, overlapping.

Got it. Okay, that’s great color. And then just one around capital management thought process, you guys have been doing kind of a line on all fronts obviously, Alex. Brown, the recent debt retirement for share buybacks, I’m just curious one, how do you think about excess liquidity capital today? Then two, what are the priorities and are you still looking at thinking about doing acquisitions and how does the pipeline look there?

Yes I would say that first we do have the Alex. Brown transaction coming up and we will look at our capital structure and make decisions on how we finance or pay for that. We do have plenty of opportunities in the market. So I would say from a corporate development it’s very positive. We also have a lot on our plate. So we are trying to choose our opportunities very, say sparingly right now because we have a lot of things to deliver and focusing on the DOL impact of just not hurting the business impact and talking about just the process of change anytime you have that you’re going to spend focus on it. So I don’t think our capital structure or guidance has really changed from what we’ve told you before we’ve been pretty consistent on it. We think we can deploy capital certainly in Alex. Brown, we will. And in these markets we always focus on liquidity. Where we think we have good liquidity right now but if we do Alex. Brown and others that gets tighter in liquidity and we’ll make arrangements for that.

Okay. Got it. And just a quick modeling thing, so I appreciate the strength in NII and some of the commentary around the first rate hike has all of the benefit of that flow-through at this point? Were there any corporate loan fees in NII I know this can be lumpy. And then just separately just also thinking about modeling, on commissions on a go-forward basis, I’m assuming that the trails should have a pretty nice step up all of equal because of the recovery in markets kind of point-to-point, so just a few of those things I would appreciate it?

On your point about corporate loan fees Devin, in the NIM which increased nicely 19 basis points over the prior quarter. And virtually all of that net was driven by the rate hike. There were higher corporate loan fees from the very low December quarter which had a positive impact, but there was also a negative impact that just about offset that from the bank having higher than projected cash balances throughout the middle of the quarter. Not at the beginning or the end, but at the middle of the quarter they – we saw a big influx and flying cash balances that swept through our Bank and they don’t earn very much on cash balances as you know. So that actually dragged down the NIM to sort of offsetting the corporate loan fee increase. So net the increase really was because of the rate hike.

Got it. And is that all in – so that fully flow – the full results including the account and service fees?

Yes, I would say virtually all the first rate hike is in this quarter, may be a little bit more would come on in the second calendar quarter. But I think from the bank perspective where most of the interest earnings are showing up, I think we guide to a little higher NIM somewhere around this level for the rest of the year. All the factors that I mentioned and they can change, so they can get excess cash, they could have loan fees go up or down, the Fed could move on gross rates again or we could end up increasing rates to clients, it’s a competitive landscape change. So any of those actors can change, but based on where the things are today, I think where was is probably a good level for the balance of the year.

And the trails on commissions?

Trails, they were actually a little weaker this particular quarter because of mutual fund, I will call the market swoon in the middle of the quarter, as trails are based on average balances for the quarter. So certainly the equity funds – equity-based funds saw a little bit of a decline in trails. So, to the extent that we don’t see another equity markets swoon those could actually recover a little bit from where they were this quarter.

Great. Okay. Thanks a lot guys.

Yes.

Your next question is from the line of Christian Bolu with Credit Suisse.

Good morning, guys.

Hey Christian.

Hello. So, just curious how you’re thinking about the 15% pre-tax margin target? So, I guess the firm is substantially bigger on short-term rates and substantially higher then where they were when these targets were set. So, maybe what’s holding you back from raising that target?

Yes, I think on a non-GAAP basis, there was about 15.6% this quarter. I think continuing on the non-GAAP basis, it probably should be in the 16% plus range now that we’ve gotten the benefit of that first rate hike given the magnitude of the benefit we’re seeing. And we would probably shoot for that for the balance of the year. Whether we officially set as a target or not, it’s – certainly our goal is to improve it from here.

Given some help in the equity market from capital markets, we should do that.

Okay, great. And then on a fixed income business, I feel like I ask one every quarter, but it feels like it just continues to defy what we see at the bigger banks. Curious how you think the market here in here, I think you’ve classified as a B market in your kind of A to D scale. So, where are we just now in terms of the market environment and any thoughts on how – what we can think about in terms of just outlook for that business?

Yes, I think the outlook in the present market is I don’t foresee any short-term drivers for change. I think you have the big banks who are in the debt origination business which were really not to any degree, certainly have been impacted on the taxable side, the taxables that are certainly off. But the big banks have also, because of the capital requirements, have lowered their inventories. So I think we’re a more go to market which helps us turn in more quickly. And we just have to manage it so that the markets over stop and you have less people with inventories you don’t want to end up with them all. So we think our risk management is very strong and I don’t see any factors right now because the ECB held rates today, I don’t see any factors right now that would say in the short-term we should look any different.

One of the things that helped us past quarter was some of the volatility you saw in the tenure bouncing around, which helps activity a little bit.

Okay, and is there any sort of seasonality in that business should we think about the first quarter or the March quarter as being stronger or do you foresee just fairly stable trends going forward?

Yes, I don’t think there’s seasonality in terms of the first quarter being exceptionally strong.

I think the opposite Jeff. Some of these annual costs that creep in.

So I don’t – again I don’t see anything that would say, I would look at it. We wouldn’t expect anything different right now and anything can happen. We think we will get continue good performance.

Okay. Fair. And then just lastly clean up. On cash management just how much cash do you guys have just now, client cash and what kind of spreads are you getting on the off-balance-sheet cash?

We anticipated that we would, just to tell you why we’re off on our forecast and what we’re guiding people to, we were predicting client cash balances around $34 billion to $35 billion for the year. During the March quarter they spiked and peaked at almost $40 billion. They are back to about $38.5 billion as we sit here today. Most of that is in the bank sweep program, our own bank has had an appetite for a lot of it. But on that off – we’re getting in the high 40s in the bank sweep program, off-balance-sheet program.

Great, thanks you for the color. Congratulation for strong quarter.

Thank you.

Your next question is from the line of Steven Chubak with Nomura.

Thank you very much. Good morning, gentlemen.

Good morning Steve.

Jeff first question I had is, just on the last remark you made on decline cash off-balance-sheet you noted the yield that you’re getting is in the high 40s. Can you remind us where that stood before the initial December rate hike?

It was in the high 20s.

They are in high 20s

They are almost all on floating rate. We basically saw 25 basis point increase in the rate actually 24 hedge funds effective only it went up 24 basis points actually. So we actually saw 24 basis point rise in the earning side when we passed about four basis points, so to the clients so far.

I want to get a little color why it maybe a little better than maybe others, the two. We’ve been pretty disciplined about not fixing rates, leveraging the bank with fixed-rate securities and others. We’ve kept it pretty matched floating business compared to others. So those rates came through and frankly we raised rates when the rates came through and no one else did. So, we’ve always said we’ve had two rate rises and most people have done none and we’ve just said well, it’s kind of crazy to be way out in front of the market. And on top of that, balances spiked. So, you add all three together – this sum of what we do is certainly competitively driven and that just ended up, that we ended up with better earnings from that.

All right. So with the assuming with next rate hike, how much of that should you expect to retain? I assume maybe to step-up will be more modest just given, but it’s going to be contingent on competitive dynamics? So may be you can give some outlook.

I think you look at it and that’s absolutely right that if historically, one of our benchmarks has always mutual funds that will be interesting and the environment would gain some liquidity and all that with who is going to be the competitive rates that are for interest rates. So, we assume at some point the market is going to move and pass it on. And I would guess at the next interest rate hike you’d see that .

Yes, looks like the next hike money market funds would actually get off the zero to one basis point train and pass something through to clients but that remains to be seen.

So, it would be less. But we certainly would pass larger percentage to clients than we did so far.

Got it. And Paul, maybe just one on the DOL, I appreciate your comments on the expense items, some of the color that you've given, I guess what you view is that the greatest potential threat focusing on what some of the potential revenue impacts to be based on the proposal and there has been some discussion around revenue sharing fees, a declining commissions, and maybe as – are there any potential litigants that you also see on the horizon and one that has been highlighted by you guys in the past to be accelerated conversion through higher fee advisory?

Yes, even moving to fee advisory is a big under the DOL rule which means you are taking a fiduciary move with your client to put them on a fee-based platform. So there's no free launch on here. And you know frankly people should do what's in the best interest of the clients. So that's fine. We don't object to that. The problem in the rule is you are almost caught no matter what you do. Even the grandfathering is if your account kind of stays where it is, you are grandfathered as soon as you change anything your ungrandfathered. So the rule is very, very complicated. And I think the early assumption by lot of people was the rule wasn't bad than the rule was horrible. The truth is that a little better, and the adjustments and what takes time is not going to come from just the firm. I mean there are going to be changes in client fees and charges. There could be a change in advisor fees and comp, certainly funds will look – I think the funds and the way we do business with each other will change over time too. So those are all the moving pieces that no one knows. I would say, at the end of the day I don't see anyone in the chain, clients what if I so we have to make sure that we're comfortable for the liability we are assuming now that we can on very small accounts whether its worth it. Mutual funds still want to use us as a platform. They are going to be supportive, there is just going to be a change I think across the business on how everybody does business. So and that's going to take a few months to even figure…

Understood. There is a lot to digest, so I appreciate the color. And I will hop back in the queue.

Okay.

Your next question is from the line of Bill Katz of Citigroup.

Okay. Thanks so much for taking the question this morning. I just want to come back to a couple of sort of math topics and I apologize if I'm not following along. If you look at many other banks across the sector NIMs have improved a little bit, even some of your peers, but not to sort of same magnitude. Can you sort of review your balance sheet a little more in terms of how much is floating rate versus fixed rate, just trying to understand the sequential improvement a little bit better.

Are you talking about at the bank level?

Yes.

Of our $16 billion balance sheet, all about $1 billion is floating rate. And then the $1 billion that's not to the extent that its got any significant term to it, I guess we may with some security, but we had anything that goes out very long-term, so we are very insulated from interest rate moves.

I mean some of our – Bill, some of our residential mortgage loans we tend to do adjustable-rate mortgages that are five, sevens, and some tens that have – they are fixed for that period, Jeff has referred…

Yes, sometimes we put in the fixed rate.

Yes. But…

We’ll see some short-term fix stuff and then longer term fix stuff. Longer-term fix stuff which we call seven years or longer that’s the billion I was talking about. We had a substantial portion of that and then all of the other – the vast majority which is a corporate loan portfolio is all floating rate.

And I think that's the route of the Delta when you compare, we're very interest rate…

Yes. We have such a high percentage of floating rate loans through deposits versus other banks which have bigger resi portfolios and bigger security portfolios and we know there are – have fixed rate to them we would naturally benefit a little bit more.

Okay. That's helpful. And then just following up on the provision discussion. I think I heard you said you still provision about the reserve about 7% of the NC book. If you do the math I think that division incremental would be even higher than what you reported at the average level the 9.6. Is there anything reversals elsewhere in the portfolio to bring the net down? I'm just trying to understand that in the concept of bit of a step off criticized loan portfolio.

A big – a growing portion of the reserve is qualitative in nature. We did add to the energy but there are other factors in the qualitative reserve that we could like upon and I could quite give you one example without giving any specific numbers is we had a qualitative, a course on a qualitative reserve relates to companies that are most sensitive to rapid rises in interest rates. And six months ago when the Fed was – everybody's – the talk was the Fed was going to raise four times this year et cetera, that was a bigger risk for companies that were more interest rate sensitive but that specter has waned somewhat as we've gone on. So that's an example of a qualitative reserve that we didn't need to have as much allocated to. We also have several credit fund loans payouts in full. There are other improvements in the credit quality. The residential portfolio continues to improve. So there are a lot of factors there to build, but you are right we actually increased our reserves against the energy portfolio by $13 million that outstand to 31.7 million as we reference at 7% of our outstanding. So we feel very comfortable with that we’re on top of that situation.

Okay. And just last one for me. Thanks for taking all questions this morning. If I still go back to your last guidance on rates it sounds like a lot more questions quarter-to-quarter, where do you stand if you would get a 400 basis points rate has now, what percentage of that 100 basis points you think you have incrementally from here?

We have – in our statements right now there's probably 45% of the full amount that we would anticipate from the 100. In other words it not 25, 25, 25, 25 with each rate hike, it is more frontloaded than that based on where we are today. So we have got another half at least to go if they raised by the 400. That number we gave you for the 400 is probably still a good number, 169 is probably a little higher now because cash balances have grown. But that $160 million-ish type number is probably still accurate for the 400 basis – again it depends on what the money market fund rates are and competitor rates at that time. That's still about where we would expect to be. We are just getting further along from the first rate hike than we had anticipated.

Okay.

We are just a little sort of half, I guess is the answer to your question.

Okay, that’s very helpful. Thanks so much.

Your next question is from the line of Chris Harris with Wells Fargo.

Thanks guys. Just want to follow-up on a question that was asked earlier about the margin. Thinking about it for the year maybe in the second half, you talked about maybe being comfortable with 16%. Is that a good target even inclusive of what expenses might come out as it relates to DOL and the Alex. Brown integration or would that perhaps SKU you guys hitting that number?

For the Alex. Brown integration expenses, we're going to show on a non-GAAP basis, so it is exclusive of those. And you also have to remember what's going to pressure margins – recruiting is absolutely fantastic. But it does pressure margins in terms of our upfront transition assistance and amortization of that. So that continues to grow. We think a great ROE and a great return on investment. So we've got – I think that as a target of 16% is probably reasonable target, but growth in our other growth investments are going to impact that. Our history on – if you look at our few acquisitions, they always take time to get up and running also. And get through the cost of the systems. At Morgan Keegan, we're very heavy per year in terms of staffing and my guess this year will be little heavy also as we get through the integration process. So, I don't think the target Jeff had put out is probably unreasonable, but it's not a layout either.

We've got some higher than projected expenses with the DOL and other things, but we also are getting a little more help on the interest and accounting service fees than we had expected. So net-net, I think that's probably a reasonable goal to shoot for.

Okay, very good. Just the one follow-up from me and that relates to the loan growth. Any commentary you guys might be able to share with us about where you are entering those loans and perhaps what the outlook is for the remainder of this fiscal year for that?

Chris, yes, it's been pretty broad over really all of our sectors that you see. And we grew loans in all of our categories residential, securities based lending, our tax exempt business, commercial real estate, and then our large corporate C&I book. So we have grown loans as Paul mentioned 19% year-over-year, we don't expect to grow that rapidly over the next 12 months I think some things in the low double-digit, high single-digits 9% to 11% would be kind of a good target for us for the next 12 months.

All right. Thank you.

I would mention Chris we're expecting some positive growth coming out of the Alex. Brown advisor channel, we are excited about getting ready for that opportunity and we would expect growth in our mortgage banking business and securities-based lending business and our margin lending business too coming out of that business. So it should be very helpful for those businesses.

Wish all will hit for fiscal 2017?

Yes, Right.

Your next question is from the line of Hugh Miller with Macquarie.

Hi, appreciate you taking my questions and just wanted to follow-up with Steve at the bank. As we think about obviously asset quality still very sound, but looking at the uptick in MTAs and the criticized loans, can you just give us a sense of what types of credits you are seeing migrating there?

Sure. We actually had three full par payoffs in our criticized portfolio of this last quarter that we've downgraded five loans during the quarter, three of which were in the energy sector. So we now have out of the 32 energy loans, eight of them are criticized. That continues to be the largest concentration of criticized loans in the portfolio. There is no other real trends everything else is just unique to the client and company situation is in that portfolio. So still a very good, very good quality on a relative basis. Our level of criticized loans are relatively low still. So yes, continued obviously watch the energy sector in particular very, very closely and try to be very proactive in terms of how we are provisioning against those exposures.

That’s helpful. Thank you. And then I guess, sticking with the energy themes as a follow-up. As we think about the potential for eventual consolidation in that space, and we think about your capital markets vertical there, is there anything you are seeing in terms of dialogue with CEOs and companies about just appetite for M&A and concern and just potential demand for that?

Yes. I think that typically in sectors where you have these issues, there is a bit in the asked and people not trying to hold out and get through as long as they can before they do something or feel like they have to do something. And I think that dynamic is still going on. As you can see there’s been some financings in energy, most recently, so we are seeing for those that are in strong balance sheets, there is some access. And there certainly are some people looking at the consolidation opportunities which gives us M&A opportunities. But I would say that’s – discussions are more active, but it hasn’t really shown too much up in the markets yet.

Thank you very much.

Your next question is from the line of Doug Doucette with KBW.

Good morning, guys. I think most of my questions have been asked. I just have one quick one. In terms of the increase in pre-tax income, is there anyway that you guys can tell us the amount that was attributable just to the higher rate environment?

Since we got the first full quarter, I would say somewhere in the high-teens. It’s a little difficult because there is bank growth and client cash balance growth and other things during the quarter, but somewhere in the mid to high-teens.

Okay. Thanks.

Okay.

Your next question is from the line of Jim Mitchell with Buckingham Research.

Good morning, guys.

Yes.

Just a couple of questions. With the significant pickup in FA hires over the last few quarters, I mean growth rate – year-over-year growth rate has been accelerating. I guess my first question is there a higher AUM per FA associated with that issue getting into the Northeast? And I guess two, is most of those assets been brought over or is there still quite a bit to go? Just trying to get a sense of what we should think about new AUM flows over the next couple of quarters?

Yes. So, first thing the average assets recruited are higher than our existing average in general. And as we to focus more for those who are in the higher end markets either Southwest or Northeast, they tend to be higher-end advisors. But we’re certainly recruiting higher-end advisors in other places too. So, it takes maybe a year for a lot of people to get all of their assets over, good chunk come in the first six months, but if you look at the pipeline we keep recruiting, so I don’t know if there’s any really net changes. People coming in are being – are starting to bring assets over and we have the new recruits starting to bring assets over that pipeline has been pretty steady, it’s slightly rising. So, I think the trend should continue given the market’s cooperation. And I think for the forward-looking quarter, we’ve got those assets and we should get better billings off of those fee-based assets plus the recruiting should give us a good lift if the markets stay okay.

Right. Okay, that’s helpful. And maybe Jeff I appreciate the comments on the comp ratio, you guys are actually lower than the given seasonality expectations, but you guys declined quarter-over-quarter on a comp ratio, is that mostly because the benefits of the rate hikes and should we expect that comp ratio as FICA and other things slow down to trend down from here over the next couple of quarters?

Yes. We’re not going to change that 68% target on comp ratio. You are right, I mean the rate hike, there’s both a volume and a rate variance here. I mean, obviously the balances are up both at the bank and client cash balances, but the rate that might help. And as the bank became a bigger part, the banks got a very low comp ratio compared to other parts of the firm. So overall, the mix and the rate hike, now the rate hike is going to be with us for the rest of the year too, but we kind of expect the other parts of the business to pick up on a relative basis to the bank and so I think the 68% is probably still where we would shoot more for the year.

Okay. I got it. Your rate sensitivity does not include the balances from Alex. Brown right?

Correct. Because that’s…

There’s none here.

There will be…

I get it.

There will be and that will be fiscal 2017 budgeting issue and how we deal with all of that. But they obviously won’t have much of an impact on the fiscal year.

Right. But there’s still about what $5 billion to $6 billion?

They got between cash balances. That’s correct.

Okay. All right. Well, that’s all for me. Thanks, and I guess, and I will see you in a few weeks.

Good.

Your next question its from the line of Daniel Paris with Goldman Sachs.

Hey, good morning, guys. Two areas, I want to focus on around energy and the DOL, I know limited visibility on both but I will try anyway. On the 7% reserve on the energy, well, can you just kind of give us the pieces, what was the outstanding energy of loan balance and are there any unfunded, can you give us the unfunded revolver balance on the earnings look?

Yes. Sure, Daniel. The outstanding balance of the March 31 in the energy portfolio is $444 million – I’m sorry, $451 million, excuse me. That’s once again 32 borrowers. Our total commitments came down by $28 million on a quarter and now the total commitment is $742 million. So the difference there is the amount of unfunded commitments.

Okay. That’s helpful. Thank you. So I guess if oil stays where we are today, do you feel like you are fully reserve based on your best estimate or we stay at this level for a long period…

I don’t think anyone is fully reserved and oil stays low for a long period of time. So there is certainly companies that are leveraged or asset rich and who are using cash or other things are going to struggle. So I would say if we have sustained oil prices at this level, there will be additions to reserves.

Okay. Got it. Maybe if I could shift over to the DOL, I understand that its very early days and very unclear. One area that stood out to me, the DOL was specifically talking about was the ability to kind of pitch for 401(k) rollover business. Can you give me a sense of, A, if you agree with that and B, kind of what percent of your organic growth the past few years have come from 401(k) to higher rate rollovers. Well, first, you are allowed to pitch for 401(k) rollover business. You just fall into the BIC and you enter into a fiduciary position that you have to be giving that advice to rollover in the best interest of the clients. So again if you look at most of the standards it says, you about can do anything as long as it is in the best of the clients and be ready to prove you did. So that’s really what the rule over boiled down says. So certainly it has been an area 401(k) because people do retire and want it managed and rollover. I don’t know if it is a huge percentage of our business, but it is – I couldn’t give a percentage, but certainly it has been a part of everybody’s business. And I don’t think it will go away, the standard has raised. But I think the standard of making sure it’s good for the client is fine. There’s nothing wrong with that. That should be the standard. I guess – I think the DOL in their historic position has had a bias saying that it generally wasn’t in the best interest of the client. I think the new rule basically says we’re not trying to force the lowest fee platforms, but just make sure you’re recommending what’s in their best interest. So, anytime a person goes from not having a fee to having a fee, you can argue, they are biased. I just think you have to prove that it’s a reasonable recommendation in looking at the client. And so it will continue. It’s just I think there may be more liability associated with it, certainly more documentation which a lot of these costs are going to be on process and documentation.

Okay, got it. That’s helpful. Maybe just one more. I know you guys tend to be very disciplined on capital in general and acquisitions, just curious if you think the final DOL rule makes it more likely for you to pursue wealth deals for smaller players who maybe will struggle with some of the kind of compliance costs that you’ve just outlined here.

Yes. I think that’s a potential outcome. And frankly, we like that there are independent firms in the industry. We don’t want to be the only non-big bank owned firm, so – but we look at our costs and certainly any type of layer – layer of regulation really increase costs, especially if you cross the $1 billion, and then you cross $50 billion, you get another level. So it’s certainly – it’s tough on the industry and tough on employers when you have this much regulatory costs, we feel it. And I am sure our friends and competitors, the friendly competitors in other firms who share similar values, it’s got to be tougher on them. So we’re not hoping regulation drives them out of business, but I mean if they make the determination that it’s too costly and they want to join someone who is of like-minded culture for those firms we would welcome them. And I’m not sure that’s a good result for the industry.

Got it. Thanks a lot for taking my questions.

Thanks.

We do have a follow up question from the line of Steven Chubak with Nomura.

Just one quick question for me. I don’t know if you guys have provided, will you expect the step up in FDIC assessment fees to be beginning in the back half of this year?

We actually expect ours to be slightly down from where they are. The mega banks are going to be the ones that feel it a little more than us. We will get the step down but down a little bit of us – full step down and partially back up because of our size. So we actually expect hours to drop but not materially.

It will be a small number.

Yes. A fraction of a basis point or fraction thereof.

Okay. So modest step down, but nothing material?

Correct.

All right. Perfect. Thank you very much.

At this time there are no further questions.

Great. Thank you all very much. I know you had a lot of questions, so we wanted to allow the time. And most importantly, last quarter I know people thought was a little weaker and this quarter a little stronger, but what we focus really on is on long-term. As I said the end of last quarter, which – that all of the indicators recruitment assets were positive. Yes, I feel the same thing about this quarter. I’m not going to takeover believe this is a long-term business and the good news is our forward indicators are positive. We have a great team of people here working hard, and we have to earn it every quarter. So I appreciate your time and interest this morning and we will talk in three months. Thank you.

Thank you. This does conclude today’s conference call. You may now disconnect.