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Raymond James Financial (NYSE:RJF)

Q4 2012 Earnings Call

October 25, 2012 8:15 am ET

Executives

Paul C. Reilly - Chief Executive Officer, Director and Member of Special Committee

Jeffrey Paul Julien - Chief Financial Officer, Executive Vice President of Finance, Treasurer and Chairman of Raymond James Bank

Steven M. Raney - Chief Executive Officer of Raymond James Bank and President of Raymond James Bank

Analysts

Christopher Harris - Wells Fargo Securities, LLC, Research Division

Hugh M. Miller - Sidoti & Company, LLC

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Devin Ryan - Sandler O'Neill + Partners, L.P., Research Division

Operator

Good morning. My name is Jodi, and I will be your conference operator today. At this time, I would like to welcome everyone to the Raymond James Quarterly Analyst 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 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, difficulty integrating Raymond James and Morgan Keegan's businesses or realizing the projected benefits of this transaction, the inability to sustain revenue and earnings growth, changes in the capital markets and diversion of management time or integration-related issues. To the extent, Raymond James discusses non-GAAP results, the reconciliation to GAAP is available on raymondjames.com and the earnings release issued yesterday. Thank you.

I would now like to turn the call over to Mr. Paul Reilly, Chief Executive Officer of Raymond James. Please go ahead.

Paul C. Reilly

Thank you, Jodi. Good morning, everyone. After the release, a lot of people asked me how I felt, and despite fighting a cold and economic, political and regulatory uncertainty, I feel pretty good. The -- I think it's important because there's a lot of what I called noise in the quarter, with so much going on within the firm and the integration as the first, put the quarter in perspective.

This was a record quarter in revenue and in earnings, and sure, you could say, well, part of that was Morgan Keegan. That certainly aided. But if you took Morgan Keegan out in the related costs of the acquisition and integration, it still would have been a record quarter in revenue and earnings. So I think that if you look -- it was a very solid quarter in terms of operating, much of the beat we recognized, as you have, was from a tax rate benefit driven by COLI, which Jeff will talk a little bit later. But it was a good operational quarter. And in this environment, especially with the integration going on, we feel very good about it.

There is a lot of things happening on the cost side, as you've noticed, and we will talk about in some of the segments, especially in Jeff's part. We do have, as we've told you, increased technology spend. We've been very focused in elevating the platform for our financial advisors and our individual clients, which has gone very, very well. But on top of that, we've had the integration with Morgan Keegan. And while we're integrating the Morgan Keegan system, we've made some upgrades to our back-office system, because we would have had to do them twice. And that has elevated technology spend. And we've also used a lot of consultants, which has elevated technology spend, with the philosophy that once the integration is over, the consultants can leave and the operating people will still be here.

So you see much of that going through the system, which will be here for a while as we go through the integration. There is some onetime charges. We'll talk about them. There's some allocation changes as we move people, align departments. We've moved some people from MK and RJ, and we've kept people in MK in the broker dealer. There are pieces that move around. So it makes comparisons, sometimes quarter-to-quarter or business to business, a little difficult as we get through the integration.

One message that we kept on is that we wanted to err on the side of keeping our service high. Anecdotally, I was at operation managers' dinner last night, and I just went from group to group asking how service was since we announced the Morgan Keegan integration. And everyone said it's been very, very high, that they haven't noticed any declination [ph] in service. And I think that's the result why we've continued with high retention rates, both in legacy Raymond James and Morgan Keegan, and that has been our strategy. So we know the costs are high through this integration process. It's been part of our strategy. And given this environment, I think we've had it -- we had good revenue for the quarter. Maybe more importantly, as we position the platform, record assets under administration at $390 billion, record assets under management at $43 billion, should bode well moving forward.

We do have some market tailwinds coming into the quarter, especially in our Private Client Group. In our advance billings, we went in with a 3.3% drag with the S&P 500 down. We moved in with a tailwind with 5.8% increase in the S&P, really helping us start our next quarter. So all in all, I'm really proud of the management team. It's difficult running and focusing on a business while integrating a company at the same time, and I give them very high marks for doing that. So far, so good. We still have a long way to go to complete the integration, and I'll speak a little bit more of that in a minute.

PCG group. I'll talk to a few factors, and Jeff will talk to some of the costs. Revenue up despite going into that headwinds, with the S&P down, moving into the quarter. You can see growth really in our account servicing fees. We're slowly moving Morgan Keegan into some of our cost structure. But most of the benefits on the revenue side, on the omnibus platform, on marketing fees with our mutual funds and other things. Although we're getting some, almost most of that will happen after the integration of the PCG platforms in February.

Technology costs are probably the big costs of this sector, and I'll let Jeff go through that. And I describe kind of some of the issues that are hitting us in that, and I leave it for that. The other area I wanted to comment was on the financial advisor headcount reduction, as you noticed on the schedules. And that's really driven more than 100% on the net number by a reduction of low-end producing Morgan Keegan FAs, who have exited the system. For example, there's a group of 30 that average 136,000 in trailing 12s. I mean, there are people that -- good people that just weren't meeting the standards. We had 4 retirements and one death, where we kept the book. So if you look at who's left, it's really been the lower-end producing MK financial advisors. Our retention on those who were offered retention agreements is close to 96%, so we're feeling very, very good that the people that we targeted to keep are staying.

Our HOV, which we call our home office visits, those are recruits coming into the office, are increasing, continuing to increase both in our employee and our independent contractors divisions. So we feel very good about the recruiting pipeline, especially a very high-end producer. So I think that the Morgan Keegan combination has resulted in a lot more interest than our overall platforms. People recognize that maybe a little bit more of what we're accomplishing.

The other difficult segment to really read through for this quarter is the Capital Markets segment, as we titled it, "The Tale of Two Cities." The Equity Capital Markets business has been difficult since really the meltdown of the European markets last September. This quarter, our Investment Banking revenues were down. Actually, securities commissions were up some, but if you look at the whole tracking of the institutional business, it's in decline. When you gain -- we've been gaining market share but certainly not enough to offset the overall decline in commissions over the desk as more and more, not only is volume going down, but the percentage going electronic and ETF is going up.

On top of that, in a tough market, if you look at Howe Barnes, who we acquired right before this -- the Morgan Keegan. In Morgan Keegan, we've added substantially to our support, to our banking and our research staff during that period of time. So as the market has gone down, we have grown. So that has put a lot of pressure on our results in Equity Capital Markets and something we're just looking to rationalize and see where we think the markets will head and where we're positioned.

On the flip side, the Fixed Income has done very good. If you look, overall, it's interesting the commissions are slightly down, doing some right-sizing really last quarter, as we continued to -- last quarter, we did our adjustments in our sales and trading group but our trading profits are solid. The group is very strong. Management has come together. We love the platform. And it's been very, very consistent. And so it's made up much of the decline we saw in Equity Capital Markets.

Our Public Finance group was off on the quarter due to a very, very slow July as we told you in the operating statistics. But since July, we've had a series of very strong months and very good backlog in our Public Finance fields. And we're very, very comfortable where that business is also. So we have the equity side of the business struggling and the Fixed Income, Public Finance side of the business doing very, very well.

On the Asset Management side, we continue to have steady growth, good net inflows. As you've read in our releases, we've had an addition of several teams -- a strong, seasoned, the small and mid-cap team has joined Eagle. And also, we announced the purchase agreement of a large minority interest in ClariVest, the $3 billion asset manager, which will help us in our strategies in the large cap space.

We've said we've been open to looking out for the large cap manager in international space. We'll continue to look a little less aggressively. If we find someone, we will continue to add opportunities in Eagle, but we are making progress on our acquisition strategies as we have mentioned before.

There's a lot of information on the bank. We just had a great quarter on the bank, driven -- again, we have great loan growth for the year and a good credit quality. And we benefited from a lower provision this quarter. But great quarter and great year for the bank, and you've got a lot of operating statistics in there, so I won't really go into too much detail, but very, very comfortable where the bank is headed.

So with that, I'm going to turn it over to Jeff. I know you're going to have a lot of questions. So Jeff, why don't you go ahead and address some of the items?

Jeffrey Paul Julien

Okay. I think most of the comments I've read from all of you this morning, that have written about us already, have been pretty much right on with how we view the quarter. It was really kind of a confluence of goods and bads and highs and lows for the quarter, and in some ways, for the year as well. I mean, on the positive side of the ledger, we certainly would have the bank, as Paul just mentioned, which had -- has had consecutive record quarters and, by far, a record year.

Fixed Income for the last 6 months since the integration is performing about as well as one could expect, given the massive task of integrating 2 fairly sizable businesses and trying to right-size that. There's probably still a little bit more of that to go. But certainly, for the fourth quarter, they performed every bit in line with our expectations.

Proprietary Capital, for the last 6 months, has certainly been a pleasant surprise as we've -- in both quarters, to our interest, had a $5 million type profit recognized in that segment. And certainly, this most recent quarter, the tax rate benefited, which I'll talk about in a second. So overall, very positive elements. But there were also some negative elements. Equity Capital Markets continues to be a difficult business. As Paul mentioned, I'll talk about our comp ratio, which we view as a higher than -- it should be and higher than it will be in the future.

And certainly, IT costs, as we've made some of these investments, which, again, I'll talk about. So with that, let me talk in some detail about a couple of things, in no particular order. With respect to the tax rate, we've used the reasoning with the COLI in the past. Typically, we've had to use it when we've had down markets, and it's possible [ph] To have an exceptionally high tax rate. Well, it's nice to know it does work in our favor as well. We have around $150 million block of corporate and life insurance that -- which gains and losses do not impact taxes. So this case, we have to kind of predict every quarter where we think COLI is going to go.

And at the end of June, when the market was coming off a 3.3% decline that quarter, we kind of projected COLI would be flat to slightly down from that level for the year and pegged our rate accordingly. And of course, when you do that, it just does the opposite, then it rocketed up in the fourth quarter. So we had a lot of tax-free gains on the COLI, which is -- there's some other items going back and forth but that was, by far, the main driver. And obviously, it helped overall for the year to some extent as well.

The comp ratio has a lot of moving parts in it. Now we did have -- we recognized this year and mostly in the fourth quarter over $10 million of what I'd call non-recurring items, things like a catch-up expense on some benefit plan accruals, some -- and FLSA internal review, to catch up on that to avoid any kind of -- it's the Fair Labor Standards Act, in terms of catching people up on past over time, et cetera. So those type of things should not be recurring going forward. And most of that hit the PCG segment, which caused that segment to show a poor margin than we would have expected.

The level of comp in Equity Capital Markets, when they're having poor revenue times, is obviously going to be higher, it has a big overhead base in that area. So to the extent that revenues recover, that should normalize that comp level over time.

IT is still very heavy. Remember, we're still running 2 systems, and a lot of that's in people count. Some of it's in systems -- the systems line but a lot of it is in people headcount where Morgan Keegan still run their Phase 3 system and all the support related to that. So we still have a lot of what I'll call, future synergy in the IT area, some in the headcount.

Fixed Income and Private Client Group are probably still running heavy. And Fixed Income, as Paul mentioned, did some right-sizing at the very end of September on some of the sales and trading areas and some of the support areas. And we started to do a little bit more of that in some of the other PCG support areas as well. But most of that won't be recognized until post the integration in February. So when I look at all this together and look at our businesses going forward, I think mid-60s is still our target and still achievable as a comp ratio. Again, that includes the high comp level associated with independent contractors. But most of the remaining synergy savings are going to be -- will be headcount reductions and IT ops, other support areas, post integration, so that will help drive down the comp at that time.

I'll talk on net interest for a second. It's interesting it increased every quarter this fiscal year, despite the fact that we incurred a lot more corporate debt in connection with the Morgan Keegan acquisition. And that's mainly on the heels of the bank's growth which, as we mentioned already, had a -- by far, a record year. They didn't -- we still have the same dynamic. I don't need to go into -- with respect to when interest rates rise, so we're still looking forward to those days.

Proprietary Capital, I mentioned, the difference this quarter versus last quarter is that last quarter, the writeup was in an investment where we had a fairly minor interest. So the -- it's a consolidated entity, however, so we had a very large revenue and a large, non-controlling interest charge to reflect that part that we did not own.

This quarter, the writeup was in one that we're accounting for on, I'll call it, the equity method or investment method, where it's all to our interest. So it's same amount of writeup basically, net to our interest, but one larger revenue and then minority interest in this one, the revenue and straight to the bottom line. No minority interest.

IT costs. We've talked about -- there's a number of things going on in that area. The headcount is certainly one [ph] From running 2 systems, but they're also -- some of the initiatives that we've had under way for the year are regulatory in nature. Cost basis is probably the biggest regulatory project that we've got going on as do -- does everyone in the industry. We also have other regulatory reporting efforts under way. There's unfortunately no capitalization involved or anything else with those type of projects. It's just regulatory necessity. We also have spent quite a bit this year on improvement of the advisor desktop, a system we call Advisor Access, and other enhancements to stay competitive, maybe doing a little bit of catch-up in that regard but to remain competitive with the competition out there, so as not to impact recruiting and our ability to service FAs and clients.

ROEs. We don't put that in the press release we make going forward. For the quarter, our GAAP ROE was 10.4% versus last quarter's 9.8% and last year's 10.7%. So all hovering around the 10% level. On a non-GAAP basis which, this year, excludes the acquisition and integration costs and, in the prior year, would exclude the auction rate securities charges was -- for this quarter was 12.6% versus 11.5% last quarter and only 10.2% last year, when we -- was a very rough quarter. If you remember, the U.S. downgrade, the market was in a tailspin last year, September quarter. So from that perspective, it was a little easier comparison. And more importantly for the overall fiscal year, our ROE on a GAAP basis was 9.7% versus 11.3% last year.

Again, that's on a GAAP basis. We had higher integration charges than we did auction rate securities charges. But a better comparison is the non-GAAP number, which was 11.2% this year versus 12.2% in the prior year. Paul mentioned we would have had a record year of even ex-Morgan Keegan. The real -- the whole reason for the decline in ROEs, we had more E [ph] between earnings. And the stock offering we did to consummate the acquisition added $360 million to equity. So we're running about the -- still in that 11% to 12% ROE range on an operating basis.

I have a couple other things that you all have asked in the past. I thought I would just get that out on the table. People ask about the commission breakdown in our line item. I've tried to look at -- I've looked at the last 6 months, which is the period we've had Morgan Keegan, and try to give a rough approximation of how the commission line -- commission and fee line breaks down. It's roughly 80% Private Client Group, 13% Fixed Income and 7% Equity, is about what it is over that period. That's going to bounce around from period to period, but that's effectively the breakdown as it stands now.

The other one that you've asked about is the Investment Banking line. Again, looking at the last 6 months when we've had Morgan Keegan and their significant Public Finance effort, it's been about 40% equity underwriting, 25% M&A, 25% public finance and 10% tax credit funds are the 4 components of that line. Again, 40% equity underwriting, 25% M&A, 25% public finance and 10% tax credit funds. So those are your constructing models going forward.

We get asked a lot about client asset mix. We have -- and again, an approximation, this bounces around. But where we stand today, on our client assets, we don't have as good information into the Morgan Keegan system as we do the RJ. But we'd suspect they're fairly similar. Our client assets are 300-plus billion is approximately 50% equity and this looking through mutual funds to what they're actually holding. It's about 50% equity, it's about 35% Fixed Income and about 15% cash alternative investments, real estate, everything else. Cash levels are probably in the 11% to 12% range right now, so not much of the other.

At the same time, sometimes I'm asked, and I try to tell what's in the asset managed segments, in terms of how sensitive are those to the equity markets. In terms of the managed portion of our assets, the $43 billion, it's about 70% equity and 30% Fixed Income, which is probably as high a Fixed Income component as it's ever been and are -- because we've had our roots as an equity shop and still are mostly known as that.

In the non-managed portfolio, the rest of the fee-based assets that you see that we talked about, it's about -- it's similar, it's about -- as a client breakdown, it's about 50% equity, 30% Fixed Income and 15% cash and 5% these others. So not much different than the overall client breakdown, but that gives you some idea of our sensitivity to the equity markets. Obviously, we had a good market in the September quarter. So our billing base will be substantially higher -- was substantially higher on 10/1 than it was on 7/1 going forward.

Back to the current year, I tried to do an analysis extracting all the revenues and expenses associated with Morgan Keegan out of our numbers to see what our true increase would have been for the year, and it's -- I would say revenues, ex all the Morgan Keegan, were up about 2.5% for the year. Legacy Raymond James expenses were up a little less than that, about 2.3% to 2.4%, which would have meant the non-GAAP pre-tax was up about 12% for the year, which is a pretty good, good result, given we had some of the higher IT spend, not much help from Equity Capital Markets, and some of the other factors I mentioned.

So a lot of facts and figures, but that's sort of where we ended up for the quarter and the year.

Paul C. Reilly

One last comment and I'll open it for questions, is that in terms of the integration, we continue to be on schedule. We've stayed ahead on retention. So our targets, I'm very confident we're going to be able to get our operating synergies down on the cost side, that's going to be after conversion. So we're slating for our final conversion in February. There's probably 90 days to get operationally stable and through it all. So we're going to be -- we'll be able to lower some of our costs in between. But I think the great bulk of that is going to happen during that post-integration time frame. But I'm confident that we're on track. I'm confident they're there. And if we can keep the people, it would be a great story. And so far, so good.

So with that, Jodi, why don't we open up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] You're first question comes from the line of Chris Harris from Wells Fargo.

Christopher Harris - Wells Fargo Securities, LLC, Research Division

So I know there's a lot of noise going on this quarter, a lot of moving parts you guys addressed, I guess, a lot them in the prepared commentary there. Just trying to get a sense on the cost side of things. Paul, you mentioned the majority of the savings to come, I guess, after you integrate. And I'm just kind of curious, right now, you guys are running about $180 million or so of non-comp expense backing out provision and adjustments. Just kind of curious as to where you think that number can go, as you guys start to integrate the platform.

Jeffrey Paul Julien

Chris, it's Jeff. I'll remind you that a lot of the future synergy is going to be in the comp line. And non-comp might -- it will probably trend a little lower than that, as we get rid of some of the system and platform duplication that we've got, some of the contracts that are in place that we won't have any more, et cetera. But...

Paul C. Reilly

Think of most people [ph] .

Jeffrey Paul Julien

Yes. And most of the synergy, to date and remaining, is going to be in the comp line.

Christopher Harris - Wells Fargo Securities, LLC, Research Division

Okay. Are you guys still budgeting for that $50 million to $80 million target? I mean, I guess you've already realized some of that but...

Jeffrey Paul Julien

I'd say we've probably realized maybe 1/4 of it and a lot of it was in Equity Capital Markets, where we kept the revenue-producing units and -- et cetera. But even the people we've kept there, we haven't had the best of markets to realize the production. So that hasn't really resulted in a synergy. Even though we had quite a bit of headcount reduction in the Equity Capital Markets area, we haven't had the revenues that historically have been there.

Paul C. Reilly

Yes. Our estimates haven't changed, Chris. We're pretty confident they're there, and it's just -- we're going to have to get through integration to realize them all.

Christopher Harris - Wells Fargo Securities, LLC, Research Division

Okay. All right, fair enough. And a few questions then on the bank. Nice step-down in provision expense in the quarter. You guys are at 181 basis points now, your allowance ratio. Just wondering where you guys are comfortable taking that ratio, assuming credit continues to do well here.

Steven M. Raney

Chris, it's Steve Raney. Yes, you saw that it trended down just slightly. We're actually trying to grow loans and adding to provision accordingly. That said, we've had a pretty benign last 18 months or so in terms of credit. In terms of that ratio, it could come down slightly, but it's not going to come down materially. So we're really watching that closely. We're very comfortable of having quite a bit of coverage in terms of our total allowance to our non-performers. You see that's about 138% right now. We like to have that level of cushion in our credit portfolio. But it could come down a little bit, but not materially.

Christopher Harris - Wells Fargo Securities, LLC, Research Division

Okay, Steven. And then while I have you, maybe a quick one on the NIM, and then I'll let others get in here. Pretty big step-down this quarter. I mean, I guess that's similar with pretty much every other bank. What are you guys seeing NIM going over the course of the next year or so?

Steven M. Raney

Yes. Chris, just to clarify, it was down 14 basis points for the quarter. About half of that was attributable to -- we had about $150 million more in cash balances that obviously impact the NIM but don't negatively impact our net interest and bottom line. So about half of that 14-basis-point reduction was related to additional cash balances we had. And the rest was just across the whole loan portfolio. We -- as you know, we introduced this securities-based loan product earlier in the year, back in February. That product has about a 300-basis-point net interest margin. We want to grow that business. It's a very low-risk business, but it is a lower net interest margin business. And we have had some very small reductions in NIM in our corporate and our residential portfolio. That being said, moving forward, I would say maybe compared to the 355 basis points in NIM, it's something in the 340 to 350 range. So not a material drop for the next 12 months, but maybe -- it will come down maybe slightly.

Operator

Your next question comes from the line of Hugh Miller with Sidoti & Company.

Hugh M. Miller - Sidoti & Company, LLC

Certainly appreciate the insights you guys have given us on kind of the exposure to the equity markets. As you talked about kind of a 50% exposure with the retail client assets to equities, can you just talk about how that compares historically? Have you taken a look there to see what -- has that really changed much in the last several years?

Jeffrey Paul Julien

Well, I can only give you an anecdotal. I mean, we didn't have the same ability to look through mutual funds and sort them out as we do today on an automated basis. I would say it's probably down, I would guess, probably 10 percentage points from historic levels versus the client allocations in the past. I think the world has gotten a little bit more conservative here in their investing strategies, but that's just anecdotal. I was a little surprised. I thought it'd be a little higher than 50 even now, but that's how it shook out.

Hugh M. Miller - Sidoti & Company, LLC

Okay. And I mean, how much of a factor do you guys feel or are you getting any feedback from clients about the November elections, the fiscal cliff? Is that really playing a substantial factor in their aversion to equities? Or what do you guys think has to happen in order for there to be potential rebalance of allocations?

Paul C. Reilly

Hugh, I think it's just overall confidence. And all those add into it, whether it's Europe, fiscal cliff, the elections, governmental policy, direction, regulation. I mean, there's just not a high degree of confidence that we're heading somewhere, and people are risk-averse.

Jeffrey Paul Julien

There's one more uncertainty that will be removed in a few weeks.

Paul C. Reilly

Yes. But a few to be added even when that one is removed until we see what happens so...

Steven M. Raney

It may add a few more.

Paul C. Reilly

It's going to take a while. So we may get some euphoria after an election with one result or another. But I think people are going to settle down and say, "What does that mean until Congress convenes?" So...

Steven M. Raney

We aren't having -- we aren't advocating that people make election [indiscernible] at this point.

Hugh M. Miller - Sidoti & Company, LLC

And I know that the majority of your fee-based accounts are booked in the prior quarter. But we did see a kind of a pickup in September in average daily commissions that were -- it's a little higher than what I would have expected. Anything in particular? I assume, given the higher exposure within the PCG side, but was there any -- to those types of commissions. But anything in particular that was kind of driving that rise in September?

Jeffrey Paul Julien

There's 2 general factors for us. One is, it's after summer. So September is usually better than the summer months. And secondly, it's our year-end. And I think that people work hard to close out their books and positions and -- so we'll get a lot of -- they qualify for clubs and levels and -- so they work really hard in the month to close out the year well, and they probably work harder. So I think that if you look overall, it was a -- it wasn't record month on a daily basis, but it was much better than the previous 2 months.

Hugh M. Miller - Sidoti & Company, LLC

Okay. And last question I had was just with regards to some of the commentary you guys have made about consideration of cost structure within kind of the cash equities business, just given what you guys referred to as both cyclical and structural changes in there. Can you just delve in a little bit further about -- to what extent you would consider making an adjustment there and any types of things that you guys have talked about and what you would consider changing?

Paul C. Reilly

No. We're still early going. But I mean, if you just look at the market that the -- if you look at the over-the-desk commissions were down. And that's how we get paid. We're a research-based firm. So we have high costs, and it's just -- you got to rationalize either what people get paid, how much cost you structure, how you -- just how you look at that whole thing. So we're examining it, because we believe that part of it is cyclical, but part of it's structural. And we're just taking a look at it now so...

Operator

Your next question comes from the line of Alex Blostein from Goldman Sachs.

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Jeff, sorry if I missed it already, but can you walk me through the comp dynamic again this quarter? So I guess your point on the comp rate being higher because of kind of slower Equity Capital Market activity. But I guess, when I look at last quarter, $736,000 and just in dollar terms, went to $745,000 this quarter. Commissions were kind of flat. Everything else out of Investment Banking were kind of flattish as well. So can you just explain, I guess, what drove the sequential increase in comp, dollar terms?

Jeffrey Paul Julien

Yes. A couple of things. We had some onetime charges, as I mentioned, about $10 million of them. Most of which hit in this fourth quarter, which probably makes up your difference right there. But there are other things as well. As we continue to work on these IT projects, some of the hiring we do comes in the form of contractors, which actually gets into the comp line. The consultants don't, but contractors do. So we've actually added headcount in IT to keep some of these projects alive, that I mentioned some of the regulatory, some of the advisor desktop, et cetera. Not much, that's a small quarter-to-quarter but still an item. So it was predominantly right-sizing of all the incentive comp pools -- it happens at year-end. That's an exercise around the firm, as well as these onetime charges probably between quarter-to-quarter, probably makes the difference.

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Got you, that's helpful. And then I guess, looking at the entire expense line for the quarter, 930 [ph]. You're saying you guys are already running about 20%, 25% of your targeted cost saves, kind of in the numbers. So it's sort of -- kind of in the run rate. Can you give us, I guess, an update? What's -- how much is left? But also most importantly, when you think about extra cost that the business is incurring right now, aside from Morgan Keegan, so whether it's travel, which is I guess something you guys talked about last quarter, some of these contractors, IT-related stuff. It just feels like there's more running through the total expense line right now than what's kind of implied in your ultimate savings. Is there a way to size that?

Paul C. Reilly

Yes. Let us address that. Let me go back to your first -- your other question real quick. One more -- one other thing that impacted quarter-to-quarter on the comp, the Morgan Keegan retention packages, which were delivered in April and May, the amortization of those started July 1. That's about $5 million a quarter.

Paul C. Reilly

And those aren't onetime.

Paul C. Reilly

Yes. Those unfortunately will be recurring or fortunately, but those will be recurring. But that was just looking quarter-to-quarter. That was the additional $5 million increase, not a onetime charge.

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Okay. And just I guess on the -- on any other costs that are flowing through that will eventually go away?

Paul C. Reilly

It's hard for us to say. We've told you for several quarters that we're going to have higher technology spend here for some time. And we certainly lived up to that. Some of these costs [indiscernible] systems, et cetera, aside from Morgan Keegan. We'll finish some of the projects we have in process. I don't know if that means the cost will go away, because some of the capitalized projects you start -- then realize the amortization of those through your P&L. And we'll have other projects that need addressing. So I don't know that we can say that there's a lot of fat in the base level of expenses outside of the comp expense at this point in time. I don't know, Paul, maybe...

Paul C. Reilly

No. I think the ongoing IT is a little heavy. But I mean -- after the cost savings. But it's -- we do have an elevated IT investment that we'll be seeing really for a few years. And we've talked about that way before the Morgan Keegan acquisition that, that's up. So that run rate is up. It's just accentuated this quarter by a number of the things Jeff has talked about, some adjustments, some allocations and the consultant cost. So...

Jeffrey Paul Julien

I don't see that occupancy or business development or some of the other expenses really. I think they're in the approximately the right rate for where we are, inclusive of Morgan Keegan, and obviously, have more people going on trips and things like that.

Paul C. Reilly

That will slow down.

Jeffrey Paul Julien

Yes. But I don't see a lot of, like I said, trimming to do in the non-comp expense area beyond some of the IT.

Paul C. Reilly

Yes. There's a lot of costs that are honestly hard to quantify that you go through in these integrations, for example, we've had almost 60 Morgan Keegan office people here for 5 weeks being trained on all of our systems. We've had all their operations people being trained for 3 days this week and then joining our operations as managers running [ph] the new system. So you do get some elevated costs through this integration process that will go away but the...

Jeffrey Paul Julien

I think there might be a little help in occupancy. We right-sized 5 or 6 Equity Capital Market offices around the country already. Now we've taken some of those charges through the non-recurring, as we have either abandoned or subleased some space or whatever. But we won't have that occupancy expense for some of those going forward. I don't know how big a lift that is, but that may be fairly minor. And I don't think there's much of that, if any, in the PCG side post integration to come. So we do have a new data center going in, in Colorado that will increase occupancy a little bit. But I think, by and large, the expenses are at about the right level outside of comp for the current level of operations.

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Got it. I know it's difficult. So I guess -- throw out the number there. So I appreciate all the additional color. One more from me on the bank. Clearly, you've a good growth there. Have you guys talked at all about, I guess, how you're thinking about growth in the bank heading into next year? Should we think about the loan portfolio growing roughly at the same rate? Can you accelerate some of that? Have you seen incremental opportunities in certain parts of the market? Or is that -- should be, I guess, pretty similar to what it's been this year?

Steven M. Raney

It's Steve Raney. A couple of things. Since this last fiscal year, reminding you that back earlier that year, we closed on the Canadian portfolio. We also closed in July on a $185-million purchase of the legacy Region's securities-based loans. We had a couple of non-recurring events that helped catapult our growth during fiscal '12. That said, we are being opportunistic in trying to grow the loan portfolio organically this year, kind of across the whole spectrum, our corporate lending, our mortgage banking business and securities-based lending. I would -- I think that we're -- to the extent that the market is available, we're not going off into any new businesses or any new ventures at all, so we're going to stick to our core businesses. But we'd love to be able to grow the bank high single digits, low double digits, call it 8% to 12% over the next fiscal year. So that's what we're targeting right now.

Operator

[Operator Instructions] Your next question comes from the line of Devin Ryan from Sandler O'Neill.

Devin Ryan - Sandler O'Neill + Partners, L.P., Research Division

Just want to get your perspective on acquisition opportunities in the Private Client space, just as regulatory costs rise and in smaller firms, I think, continue to get squeezed. They just don't have the same economies of scale that you guys do. So essentially, maybe outlook and even appetite, given an outlook.

Paul C. Reilly

Well, right now, we're fairly busy digesting our latest venture here. I think that there'll be opportunities for small firms. We -- the -- as the regulatory burden comes up, it's going to be hard for people to be small broker dealers. They can go into the RIA space. There's lots of opportunities to change business for advisors. But there'll be -- we are interested in organic growth or in this acquisition, I think Morgan Keegan was a rare opportunity. There's a couple of mid-sized firms. We'd love their business. If they became available, either in the independent space or the employee space, we'd love to have them as part of the family. But there's smaller kind of -- maybe smaller kind of acquisitions. But right now, they're not. And -- but there aren't -- if you go through the list, there aren't a whole bunch of them. And there are a lot of firms that are also in business, just have different products in space. We're not big in variable annuities. We're not big in closed-end funds and things that firms -- some firms do. And we don't do them. So if you look at the people that do business the way we do, there's a handful we'd like. But there's not a ton of them. And if they became available, we'd love them to join us. But I think that a lot of them may stay private or stay their own way, unless the regulatory pressure or succession dictates [indiscernible].

Devin Ryan - Sandler O'Neill + Partners, L.P., Research Division

Got you, okay. And then from a modeling perspective, how should we think about the ClariVest results? And then are you planning on consolidating that business? Or I guess, how should we think about modeling it?

Jeffrey Paul Julien

That will be consolidated. So there's some additional non-controlling interests to come there. We're acquiring 45% of it as the release said and then manage about $3 billion, mainly in the large cap space.

Devin Ryan - Sandler O'Neill + Partners, L.P., Research Division

Great. And then, I apologize if I missed this. But did you give the specifics on what drove the $10 million in onetime comp charges? And then just additionally, on comp again, just to beat the dead horse, I'm just trying to figure out the numbers here. And based on the commentary, if you're going to assume that the $60 million to $80 million of expense saved, are the majority still yet to come? Then I'm estimating that the comp expenses may be elevated by another $10 million to even up at $15 million higher, just related to that Morgan Keegan -- the elevated Morgan Keegan expenses. So I just want to make sure that I'm kind of thinking about things, maybe just in the right ballpark. And then secondly, just give us some detail on the onetime $10 million this quarter.

Jeffrey Paul Julien

It wasn't all this quarter. It was over the last 2 quarters. But most of it was this quarter. We had a -- we did an internal Fair Labor Standards Act analysis around our entire firm. So we weren't subject to any penalties, et cetera, in the -- by the DOL or anyone else, when they look at that at a later date, which caused us back overtime pay off about -- over $2 million around the entire firm, most of it in the IT ops areas where most of the clerical-level employees are and some in the branches. So -- but most of it was in the PCG area. Another one was the $5 million catch-up charge for some of our deferred plans, where people had reached retirement age and aren't subject to forfeiture anymore. And that was in the fourth quarter. Those were the 2 biggest things, and there were some little true-ups around the firm. To your second point, I think, your -- I would expect that your number, hopefully, is light, that we -- like I said, I think we're probably 1/4 of the way, at least, in the September numbers. We severed 30 people at the very end of September, so that hasn't been reflected in this yet in terms of any comp savings. But probably 20% of the, what I'll call, the synergy expenses have already been incurred through the integration of ECM and the beginning of integration in Fixed Income. And like we said, when the rest of it happens, it's going to be primarily in comp.

Devin Ryan - Sandler O'Neill + Partners, L.P., Research Division

Yes. And my numbers were on a -- I was talking on a quarterly basis, not annualized, as well.

Jeffrey Paul Julien

Yes. So I mean, I would hope that -- yes, I hope comp is inflated by more than your $10 million to $15 million, post integration.

Operator

At this time, there are no further questions. I will turn it back over to management for closing remarks.

Paul C. Reilly

Thank you, Jodi. Thank you, all, for joining us this morning. Again, I think it was a very good quarter, given everything was going on in a tough market. And it reflects all the work we're doing and a lot of work left. So I appreciate your time this morning, and we'll talk to you again soon.

Operator

Thank you. That concludes today's Raymond James quarterly analyst call. You may now disconnect.

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