Paul Shoukry : Yes. I would say just jumping to kind of where we are today, for example. So we ended the quarter with sweep balances and Enhanced Saving Program balances at $52.2 billion. You fast forward to where we are today, and we’re right around $52 billion since we’ve been Enhanced Saving Program balances, and that reflects the fee billing that we do quarterly, which was over $1.2 billion and also annual income tax payments. So we feel comfortable and confident that the sorting dynamic is closer to the end than it has been to the beginning, as I said on the comments, the average cash per account the sweep program now it’s right around $15,000, which is sort of a low point as far as we look back and have that data. So we’re commented, but things are closer to the end, but we don’t know how much longer, obviously, that dynamic will continue.
Meanwhile, we’ll continue to be — offer attractive products to our clients that give them good yields and get them good FDIC coverage to keep deposit balances as strong as we can.
Paul Reilly : And I think you asked the FA reaction there has been, look, their job was to invest idle cash and they put it in money markets, and they didn’t leave the system. They put it in money markets and they put it in treasuries, CDs to get yields and they said just give us the yield. We like the program. So once we roll it out, we’ve had money flowing in. And so our job is to manage just how much of it we really need. It’s in the system. We have a very good product, and we’re just going to have to balance that given operations. We feel very comfortable at our levels right now. And with the reserves we have on top that we really haven’t touched. So I think it’s going to be just the process of managing how much of the higher cost funds you need given the movement in the market.
Paul Shoukry : One other metric that I think is pertinent on this topic is sort of the deposit — aggregate deposit data since rates started rising. And really, you have to look at it both at the sweep program and also adding the Enhanced Saving Program balances. And on a spot basis, that aggregate deposit beta has only been for us 25% to 30%. And we bet, which is we’ve seen so far, again, they have a much higher mix of the higher cost funding at this juncture. And that’s with us being able to be more generous to our clients than most of our competitors in the sweep program. So to the extent that we have to raise some incremental higher cost deposits, 25% to 30% aggregate deposit beta at this point is much lower than I think we all expected at this point in the cycle. So we have a lot of kind of capacity and bandwidth to add higher cost funding, while still generating attractive returns.
Manan Gosalia : That’s helpful. And maybe as a related question then. Can you talk about the percentages on the third-party bank fee rates from here as we think over the next few quarters? So after the Fed stops hiking rates, I’m assuming that deposit betas will continue to rise and be a drag. But I guess, at the same time, the demand for these deposits will also likely be strong. Is there some offset from the 12.5 basis points or so of spread that you make on that portfolio?
Paul Reilly : There’s no doubt. I mean, there’s huge demand for deposits in the system. So the extent you have cash, banks are hungry for it. So the question is, what happens with rate and you would assume with that demand, you might get the spread should increase, right? So yes. So if the Fed stops raising or you have a recessionary cash returning out of the markets back into the regular sweep programs and deposit programs, do you think you — our prediction as you would — those spreads would increase, but we’re not there at this point today. So it’s really hard looking forward right now. I — if we want to look forward a year or so, we feel a lot more comfortable than next quarter just because we’ve been in the middle of — since March of a very dynamic market.
Manan Gosalia : It sounds like if balances are relatively flat, third-party bank fees should also be relatively flat beyond the second quarter?
Paul Shoukry : You have to look at the average, the average balances will be down 25% even if we keep them flat with where they ended the quarter. So — but beyond that, then just depend on where the balances. The balances will drive it more so than the spread that we earn from the third-party banks, I guess, is the easiest way to describe it.
Manan Gosalia : Yes. Got it. Perfect. And then just a quick clarification on the office portfolio, you mentioned an LTV of 60%. How much of that is based on new appraisals versus valuation at the time the loan was made?
Paul Shoukry : It’s a little bit of both, both on the — to the extent that we have new appraisals that’s factored into it. But I mean I think you can assume, as I said in the prepared remarks, that valuations are probably lower now than even that new appraisal base. So — but the point being is we still have a reasonable cushion and underwrote those properties conservatively. But we also expect there to be some challenges if the economy continues to soften, particularly for real estate.
Paul Reilly : And in that percentage too, if you expect you have REIT loans, we are — even our experience in ’08 and ’09 was that those diverse portfolios came through pretty well. And then when you have single property loans, you’re more idiosyncratic, and so you just have to watch. But our total mix of commercial office is relatively low for any bank.
Operator: And the next question comes from the line of Jim Mitchell with Seaport Global.
James Mitchell : Just maybe circling back on the Enhanced Savings Program, maybe a clarification, Paul. Are you saying in March, you had restrictions that required net new money, and now those restrictions are off. And if that’s the case, how do you dial that back if you want to? Is it just price? Or I just want to make sure I understood what you’re saying on the enhanced savings product?
Paul Reilly : The restrictions are where we opened it up for sales of certain securities for people that wanted to move from money markets back into cash, which is the only reason they the money markets was the spread. So we’ve opened that up. And we have two choices. We can say we’ve given time limits. If we need more, we can extend the time limits. Or if we want to cut it off, we can cut it off or — you can always do that with rate, let it find seek its own level. So we have all those options. And we’re just watching the balances. We’re comfortable at these cash balances. We’re actually comfortable lower, but we’re Raymond James we always seem to be accused of having excess capital and excess balances. So we’ll just dial it back or stop it, or if we open it up to other securities type, if you really need it, and there’s treasuries, there’s CDs, there’s other things that have stayed on the system seeking yield.
So we have a lot of flexibility. It just depends how much we need.
James Mitchell : Okay. So is the strategy from here if and when we start to see sweep balances stabilize, and it sounds like at least the outflows are slowing a little bit in April. We’ll see if that continues. But if that does stabilize, do you sort of — is this a level of deposits that you’re comfortable with, you would sort of stop or slow the enhanced savings if you could stabilize all-in cash levels at the — at current levels? Is this the defending level that you’re thinking about?
Paul Reilly : We think we’re at a level even when we were at the end of the quarter when we dropped below 50%, we were fine. But we’ll keep it until we have extra in this environment. We’d rather — if more flows in, we’ll keep it for a while. You can always again lower rate, have it flow out the other yielding instruments. But yes, we’re not trying to get it back into the 70s. That’s for sure. We had excess too much cash then, but there is no place to put it. But I think somewhere in the 50s level, we’ll try to — we would start slowing it down.
Operator: And the next question comes from the line of Brennan Hawken with UBS.
Brennan Hawken : One, just — it sounded like from Paul Shoukry comments on the comp ratio that if — unless we see some kind of substantial change in capital markets environment that the comp ratio is probably — this is probably a reasonable zone to think about until that inflects. Number one, is that right? And then if we do see a recovery in the Capital Markets revenue, what kind of order of magnitude would you expect to feed through and pull down that comp ratio?
Paul Shoukry : Yes. I mean it’s a mix — it’s so is complicated because the revenue mix matters when you talk about our comp ratio. So we expect PCG revenues to be up given the higher fees — assets and fee-based accounts. But that has a higher compensation ratio associated with it, then our net NII does, obviously. And so — but again, to the extent Capital Markets revenues rebound to the healthier levels, not even record levels, but that they were enjoying in the last couple of years, but just healthy levels then that would be — that would result all else being equal and an improvement to the comp ratio. So again, it’s just hard given the revenue mix, I think 63% roughly for us historically has been very low, and that’s been helped by the high levels of interest income and BDP fees that are not directly compensable to the producers.
But I think the revenue mix going forward will dictate what the result will be. I think, anywhere close to 63%. Again, our guidance was 66% or lower just a year ago, a little bit more than a year ago, and that would have been historically a pretty attractive place to be. I’m not saying that’s where we’re going to get to. But if we can stay anywhere close to this range, we’d be pleased with that.
Brennan Hawken : Got it. Okay. Yes, that makes sense. — a 10% decline in So one more on cash and deposit dynamics. I’m sorry, it’s been a real dead horse to beat here. But you gave the trends quarter-to-date in the enhanced program, which is really helpful. Could you also speak to like overall trends in cash quarter-to-date? And then if what we’re seeing in the Enhanced Program would be selling out of the purchased money fund and into the deposit program, wouldn’t then we see you moving in the direction of the peers. Paul Shoukry, I think you commented a few times on how you’re at 10 and peers are at 50. Does that mean you’re going to converge to that level? Or you be pulling on some of those price and other levers that you referenced before to prevent that from happening?
Paul Reilly : So the #1 thing in the banking business I think maybe people forgot over the last decade, liquidity and protecting stable deposits. So that’s number one. So that’s — it really depends on the deposit level. And to the extent we’ve given kind of a general target to you on the deposit levels, you just — you have to compete with rate and to grow them unless market conditions change, and we don’t know when that will happen. So yes, if the market keeps doing that, my guess is ours will go up over 10 and theirs will go up over 50 because to get the deposits reprice and repricing more, that’s going to be a trend for everybody. It will be industry-wide. If it’s idiosyncratic for one institution for some reasons, that they need a lot more, it’s going to go up higher.
So a lot of that’s market dynamic. I think the biggest thing people forget, when we limited kind of the money we put into banks for many years at 50%. And then when TriState joined, we upped it. We have less leverage. About 70% of our deposits go roughly to our banks. We have competitors at 90. And if you’re up and it’s not a criticism there, but if you’re at 90, you got to be more aggressive for funding. We have more of a buffer. So we’ll just watch it and play it by ear and watch it closely and do what we have to do to make sure we maintain liquidity and the outcome will be how much of higher cost deposits we have to have, but we’re not doing it just to raise costs. We’re only going to do that if we need it.
