Q3 2021 Raymond James Financial Inc Earnings Call
Yeah.
Good morning.
Walker to Raymond James Financial third quarter of fiscal 'twenty 'twenty 1.
As Paul.
Of course, it's being recorded and will be available for replay of the company.
The Investor Relations website, now I will turn.
Now I'll turn it over to Christine <unk>, Vice President of Investor Relations at Raymond James Financial. Please go ahead.
Thank you good morning, everyone and thank you for joining us.
I appreciate your time and interest in Raymond James financial with US on the call today are Paul Reilly, Chairman and Chief Executive Officer, and Pulse you agree Chief Financial Officer. The presentation being reviewed this morning is available on Raymond James Investor Relations website. Following the prepared remarks, the operator will open the line for questions. Please.
Please note.
We have payments made during today's call may constitute forward looking statements. These statements include but are not limited to information concerning future strategic objectives business prospects financial results anticipated timing and benefits of our acquisitions and our level of success in integrating acquired businesses and.
Dissipated.
The pit of results of litigation and regulatory developments impacts of the COVID-19 pandemic or general economic conditions. In addition words, such as believes expects could and would as well as any other statement that necessarily depends on future events are intended to identify forward looking statements. Please note that there can be no assurance that actual.
Results will not differ materially from those expressed in the forward looking statements. We urge you to consider the risks described in our most recent form 10-K and subsequent forms 10-Q, which are available on our Investor Relations website. During today's call. We will also use certain non-GAAP financial measures to provide information pertinent to our management's view.
View of ongoing business performance a.
A reconciliation of non-GAAP measures to the most comparable GAAP measures maybe found in the schedules accompanying our press release and presentation with that I'm happy to turn the call over to chairman and CEO, Paul Reilly Paul.
Good morning, Thank you Christy I'm acts.
Joining you today from Chicago, or we've had a number of day meetings with the euro.
Some of our top of independent advisors. So it's great to see both of their success during the pandemic.
The excitement as we move forward.
It's kind of hard to believe now it's been over 16 months.
And we're just starting to see the.
At the end of the tunnel with the distribution of vaccines and now the spread of Delta variant reminds us that we could be dealing with this 1 way or another for quite some time.
Fortunately our economy has really proven to be resilient and creative quickly adapting to these changes which has facilitated the recovery of our economy.
<unk> the stock market over the past year.
Similarly, our advisors and associates have been just simply amazing and I'm really proud of what they've been able to do enabling Raymond James to achieve these record results for the first 9 months of.
The fiscal 2021.
Why don't we move on to slide 3 with our quarterly.
The weighted.
The fiscal third quarter was another strong quarter with several I guess of many records.
<unk> reported record net revenue of $2.7 billion net income of $307 million and earnings per diluted share of $2.18.
Excluding the losses on extinguishment of debt.
It was $98 million.
$7 million of acquisition related expenses adjusted quarterly net income was $386 million and adjusted earnings per diluted share were $2.74.
<unk> Records.
The increase in quarterly net revenue was largely driven by record asset.
Net of management and related administrative fees and record investment banking revenues during the quarter.
Adjusted net income growth was due to the April mentioned higher net revenues along with the loan loss reserve release from the quarter compared to a provision for credit losses, a year ago.
Annualized return.
For the quarter was 15, 9% and the adjusted return on tangible common equity was 22, 2% really an impressive result, especially in this near zero rate environment and given our strong capital position.
Slide 4 and we'll see that the quarter.
Non equity ended with the record total client assets under administration of 1.17 trillion.
Which were up 33% on a year over year basis, and 7% sequentially.
We also achieved record <unk> assets in fee based accounts of $617 billion of 9.
Sequential improvement, which will benefit the fourth quarter and record financial assets under management of $191 billion.
We ended the quarter with record 8413th financial advisors, and Thats net increases of 258 over the prior year period.
Men per 6 over the preceding quarter.
Advisor recruiting has been robust even in this very competitive market.
Over the prior 4 quarters financial advisers with approximately $325 million of trailing 12 production and nearly $53 billion of assets of their prior firms affiliate.
The affiliated with Raymond James domestically.
As far of net organic growth results from the private client group, we generated domestic PSEG net new assets of nearly $69 billion over the 4 quarters ending in June 32021, representing more than $8.
86% of domestic PCT assets at the beginning of the period and remember this is net of client fees.
And this trend has accelerated throughout the 12 month period with the past 2 quarters, reaching an annualized rate over 9%.
So far this fiscal year is shaping up to be.
5 wrong in terms of advisor retention as well as attracting new advisors to the Raymond James platform.
Of our multiple affiliation options. In fact, we are on track for a record year of advisor recruiting in fiscal 2021.
We remain focused on providing a superior platform to support advisers.
Their clients and also helping advisors grow their practice and it's resonating well in the market.
Visors are attracted to our leading technology solutions as well as our advisor and client centric cultures.
Let's move on to slide 5 the <unk>.
The client group generated record.
<unk> quarterly net revenues of $1.7 billion.
And pre tax income of $195 million and 11, 5% pre tax margin, reflecting significant operating leverage over the past year.
Quarterly net revenues grew 3% over the preceding quarter predominantly driven by.
The higher asset management related administrative fees, reflecting higher assets and fee based accounts, which will also provide a tailwind for the fourth quarter.
The capital market segments generated quarterly net revenues of $446 million and pre tax income of $115 million.
Driven by record investment banking revenue revenues and the continued very solid fixed income brokerage revenue performance.
The strong result reflects the significant investments we've made to strengthen our platform over the last 10 years and we are continuing to make investments, including the recently completed acquisition.
Of the consumer focused M&A advisory firm financial and the announcement of the acquisition of <unk>, a leading private funds placement age of the secondary market to private equities.
We are well we are excited to welcome Tonight and her team to the Raymond James family. When we close the deal currently expect.
<unk> to be in the fiscal fourth quarter.
The asset management segment generated record net revenues of $225 million and record pretax income of $105 million. These.
These results are primarily due to the growth of financial assets under management driven by equity.
Depreciation and net inflows into fee based accounts from the private client group, partially offset by the modest quarterly net outflows of Carillon towers associates following a solid quarter of net inflows in the fiscal second quarter.
Turning to the bank record net loans of 23.
$9 billion grew 13% over the prior year and 4% sequentially.
This growth was primarily driven by the strong growth of the the securities based loans, the PCT clients of more than 50% and 14% respectively.
This is the loan category, we continue to see good opera.
<unk> for growth and attractive risk adjusted returns.
Raymond James Bank generated quarterly net revenues of $169 million and pre tax income of $104 million.
Quarterly net revenues declined 5% compared to a year ago quarter, primarily due to the impact.
Of lower short term interest rates sequentially quarter in quarterly net revenue grew 6% as higher app asset balances offset the modest compression in the bank's net interest margin during the quarter.
Pre tax income growth year over year was primarily due to the loan loss reserve release in.
In the quarter compared to a provision for credit losses, a year ago period the.
The credit quality of the bank's loan portfolio remains healthy as Paul Shoukri will cover in more detail in his remarks.
Looking at the fiscal year to day results on slide 6 we generated record net.
Packages of.
$7.07 billion during the first 9 months of fiscal 2021 up 20% over the same period a year ago.
And despite the losses on extinguishment of the debt this quarter, we still generated record record net earnings per diluted share of 6.
Revenue of 92 for the first 9 months of 2021 of.
Adjusted net income was the 1.2 of $6 billion up 73% from the net income in fiscal 2020.
And given all of the unique circumstances I think it's also worth comparing our results so far.
Far in fiscal 2021 the fiscal 2019 of very strong year for Raymond James.
When comparing the first.
9 months of fiscal 2021 to the first 9 months of fiscal 2019 net revenues have grown 24% net.
Net income has grown 27%.
And adjusted net income has grown 35% truly spectacular results, particularly given the zero interest rate environment. This fiscal year.
Moving to the fiscal year to date segment results on slide 7.
The private client group capital markets and asset management segments.
Paul generated record net revenues and record pre tax income during the first 9 months of the fiscal year.
Again these results reinforce the value of our diverse and complementary businesses.
Before I turn the call over to Paul I wanted to highlight of separate announcement, we made this morning.
We announced our.
Arms intention to make an offer for the entire issued and to be issued share capital.
Capital of the U K base, Charles Stanley Group at a price of $5.15 pounds per share or approximately 279 million pounds.
The U S equivalent of approximately $387 million.
Charles Stanley as a firm we've admired for a long time has a tremendous reputation of 200 your heritage and a talented pool of wealth managers and professionals the.
The 2 firms share of common and increasingly rare client centric approach, where the primary client relationship is held by the individual wealth managers.
For our Raymond James subsidiary of the U K R. J S has operated in the UK for over 20 years under strong leadership and has experienced exceptional growth.
This combination with Charles Stanley would provide the opportunity for further accelerated growth in the U K the <unk>.
Largest English speaking wealth management market.
Charles Stanley is nearly 200 wealth managers and $27.1 billion pounds in client assets, bringing our total UK assets to over 40 billion pounds.
Additionally, Charles Stanley multiple multiple affiliation options would give raymond James the ability to offer affiliation choices consistent.
The <unk> with our models in Canada, and the U S and greatly accelerate the growth of the RJ asked new newly launched employee of affiliation module model, while building on its market, leading independent contracting and investment management.
Services businesses.
As I mentioned the announcement today is our intention.
<unk> make the software.
We expect the offer to be made in approximately a month regs.
Regulations issued by the UK takeover panel limit what we can further say at this point, but we will provide updates as more information is made available.
Now for a more detailed review of our third quarter results I'm going to turn it.
Over to Paul Paul.
Thanks, Paul.
I'll begin with consolidated revenues on slide 9 record quarterly net revenues of 2.4 dollars $7 billion grew 35% year over year and 4% sequentially.
Record asset management fees grew 8% sequentially commensurate.
Pension sequential increase of fee based assets in the preceding quarter.
Private client group assets and fee based accounts were up 9% during the fiscal third quarter, providing a tailwind for this line item for the fourth quarter.
Consolidated brokerage revenues of $552 million grew 14% over the prior year.
But declined 7% from the record set in the preceding quarter instead.
Institutional fixed income brokerage revenues remain solid, albeit down from the record set in the preceding quarter.
Brokerage revenue was in <unk> were up 22% on a year over year basis, but down 6% sequentially due to lower trading volumes as well as of the large.
The placement fee in the preceding quarter.
Accounts service fees of $161 million increased 20% year over year, and 1% sequentially largely due to higher average mutual fund balances.
Record consolidated investment banking revenues of $276 million grew 99.
Percentage year over year, and 14% sequentially driven by record M&A revenues and strong debt and equity underwriting results our investment banking pipelines remain strong. So we would be pleased if fourth quarter revenues came in around the average for the quarterly revenues generated over the first 3 quarters of the fiscal.
Year.
That would have been about $260 million on average but of course. This line item is inherently difficult to predict.
Other revenues of $55 million were up 25% sequentially, primarily due to $24 million of private equity valuation gains during the quarter of which approximately 10.
Fiscal Union dollars were attributable to Noncontrolling interest, which are reflected in the other expenses.
Moving to slide 10.
Clients' domestic cash sweep balances ended the quarter at $62.9 billion, essentially flat compared to the preceding quarter and representing 6.1% of domestic PSEG.
10 million assets as we continue to experience growing cash balances and less demand from third party banks during fiscal 2021, $8.6 billion of the client cash is being held in the client interest program at the broker dealer over time that cash could be redeployed to our bank of third party banks as capacity becomes available.
Which would hopefully earn a higher spread than we currently earn on short term treasuries.
On slide 11, the top chart displays our firm wide net interest income and RJ <unk> fees from third party banks on the combined basis as these 2 items of directly impacted by changes in short term interest rates the.
The combined net interest income and BD piece.
The client party banks of $183 million were up slightly compared to the preceding quarter as modest NIM compression was offset by growth in client cash balances and higher asset balances and Raymond James Bank. However.
However, it is still down significantly from the peak of $329 million in the second quarter of fiscal.
2019, really highlighting the remarkable results, we had been able to generate despite near zero short term interest rates.
In the lower <unk>.
The portion of the slide we show net interest margin of our NIM for both RJ Bank and the firm overall, we continue to expect the bank's NIM to.
The decline to 2 just around or just below 1.9% over the next quarter or 2.
The average yield on RJ BTB balances with third party banks declined 1 basis point to 29 basis points in the quarter we.
We believe this average yield will remain around this level for the rest of the fiscal year, but there will lie.
Of downward pressure in this yield in fiscal 2022, especially in the back half of the fiscal year.
<unk> demand for deposits don't improve from current levels.
Moving to consolidated expenses on slide 12, first our largest expense compensation.
The compensation ratio decreased sequentially from.
<unk> would be 9.5% to 67, 2% largely due to record revenues in the capital market segment, which had a 57% comp ratio during the quarter and the benefit from the private equity valuation gains, which do not have direct compensation associated with them.
Given our current revenue mix and disciplined manage of expenses.
We remain confident we can maintain the compensation ratio lower than 70% and this near zero short term interest rate environment.
As I've said over the past few quarters, we could outperform that just as we did in the fiscal third quarter with capital markets revenues at or near these levels.
Non compensation expenses of $425 million increased 18% compared to last year's third quarter, and 53% sequentially, primarily driven by the $98 million loss on extinguishment of debt.
Acquisition related expenses, the noncontrolling interest of $10 million in other expenses.
Fences related to our private equity valuation gains.
And higher business development expenses.
As we discussed last quarter, we successfully executed a debt offering in the fiscal third quarter to take advantage of the low rate environment and significantly extend the maturities of our existing balances we raised $750 million of 30 year senior.
375% and utilized the proceeds and cash on hand to early redeem our next 2 senior notes that were maturing in 2024, and 2026 effectively resulting in the same amount of senior notes outstanding.
This resulted in $98 million in losses associated with the early extinguishment of those notes.
Of note in doing so locked in very low rates for 30 years, while significantly extending the duration and stability of our funding profile.
Overall, our results show, we have remained focused on managing controllable expenses, while still investing in growth across all of our businesses and ensuring high service.
But all of our advisers and their clients excluding the debt extinguishment expense, we do expect non compensation expense to continue picking up over the next few quarters as hopefully travel recognition trips and conferences continue to resume and we continue to increase our investments in technology and high quality service levels.
For our growing business.
We would eventually expect loan loss provisions associated with net loan growth as well.
Slide 13 shows the pre tax margin trend over the past 5 quarters pre tax margin was 15, 6% in fiscal third quarter of 2021, and the adjusted pre tax margin was 19, 8%.
Levels boosted by record revenues the loan loss reserve the lease and still relatively subdued business development expenses at our analyst and Investor Day in June we outlined the pre tax margin target of 15% to 16% and this near zero interest rate environment, but as we experienced during the first 9 months of the fiscal year. If there is meaningful upside to our margin.
Which was when capital markets results are strong and improving macroeconomic trends lead to releases of our allowances for credit losses.
On slide 14 at the end of the quarter total assets were approximately $57.2 billion.
A 2% sequential increasing.
Increase reflecting solid growth of securities based <unk>.
Margin at Raymond James Bank.
Liquidity and capital levels are very strong.
With cash at the parent of approximately 1.56 billion a total capital ratio of 25, 5% in the tier 1 leverage ratio of 12, 6%, we have substantial amount of flexibility.
<unk> the to be both defensive and opportunistic.
The third quarter effective tax rate of 23% benefited from non taxable gains in the corporate life insurance portfolio.
We would expect that tax rate to be around 21% in the fiscal fourth quarter, assuming a flat equity market.
Slide 15.
The Bill provides a summary of our capital actions over the past 5 quarters and.
In the third quarter, we repurchased 375000 shares for $48 million.
As of July 28, $632 million remains available under the current sheet share repurchase authorization, but it is.
Paul Reilly will discuss our priority continues to be deploying capital to grow our businesses.
Lastly on slide 16, we provide key credit metrics for Raymond James Bank the.
The credit quality of the bank's loan portfolio remains healthy with most trends continuing to improve nonperforming.
<unk> from assets remained low at just 12 basis points of total assets and criticized loans declined sequentially.
The bank loan loss benefit of $19 million reflects an improved outlook for economic conditions and higher credit ratings on average within the corporate loan portfolio.
Due to reserve releases.
The leases in loan growth during the quarter the bank loan allowance for credit losses, as a percentage of total loans declined from 1.5% to 134% at the quarter end.
For the corporate portfolio. These allowances are higher at around 2.4%.
We believe we are adequately reserve, but that could change if economic.
Of forming conditions deteriorate.
Now I'll turn the call back over to Paul Reilly to discuss our outlook Paul.
Thank you Bob So overall I'm very pleased with our strong results for this quarter, which top of many records and did so in spite of the persistent challenges of the global health pandemic.
And near Zero short term rates.
As for the outlook, we remain well positioned entering the fourth fiscal quarter with records of many of our key business metrics strong pipelines for financial adviser recruiting and investment banking.
In the private client group results will that be.
We'll benefit starting in the fourth.
Non maker with a 9% increase.
The assets and fee based accounts.
With the strong recruiting pipeline, we are on track for a record fiscal year of recruiting as prospective advisors from across all of the affiliation options have continued to be attracted to our platform.
The leading technology solution.
Of our adviser and client centric culture.
These recruiting results are primarily.
<unk> given the very competitive.
The market for experienced advisors.
In capital markets segment of the investment banking pipeline remains strong and we expect solid fixed income brokerage results driven by demand from the.
Depository clients segment, however, keep in mind these.
There is still an economic uncertainty due to the ongoing pandemic that could impact these results.
And the asset management segment, if equity markets remain resilient, we expect results to be positively impacted by higher financial assets under management.
Of asset managers continue to face structural headwinds. However, we were pleased to see positive net flows on a fiscal year to date basis for Carolina Tower Associates, We hope that the 1 benefit of increased market volatility instead of it reinforces the value of our high quality asset active managers.
At Raymond James Bank should continue to grow as we have ample funding of capital to grow the balance sheet.
We will continue to focus on lending the BCG clients through securities based loans and mortgages and we will continue to be selective and deliberate in growing our corporate loan in the agency backed securities portfolio.
As we look further ahead.
We remain focused on the long term growth and as we've outlined at our recent analyst and Investor day. Those key growth initiatives include driving organic growth across all of our core businesses continue to expand our investments in technology and sharpening our focus on strategic M&A.
Today's announcement of our firms intention to make an offer for Charles Stanley Group demonstrates our focus on these initiatives and our commitment to deploy excess capital of over time.
We believe this acquisition stays true to our longstanding criteria for acquisitions of <unk> being a good cultural fit.
The good strategic fit and makes financial sense for shareholders and something we can integrate.
I also want to once again.
Take a moment of thank our advisors and associates, they've been amazing at being able to provide excellent service to their clients through these difficult times.
I'm very proud to be of part of the special Raymond James family. Thank.
Thank you all for attending with that operator, Tommy I'm going to turn it over to you for questions.
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1 moment please of our first question.
We'll get with our first question on the line from a non goes Xylia from Morgan Stanley. Just go right ahead with your question.
Hi, good morning.
I was wondering if you can day getting a little bit into the child's down and he grew up acquisition [noise]. You know can you just talk us through you know maybe the rationale for the acquisition you know why expand in the UK versus the U S and you know maybe what the synergies out with your current does the.
Yeah.
Not a lot we can say right now because of the strict.
Teacher grass and all of us.
We believe we can grow in all of our markets and we certainly have a couple of the grow in the U S, Canada and the UK and believe in all 3 of those private markets.
We've been in the U.
UK market at the Raymond James.
20 years, and we've had very good growth.
I'd say undersized and our employee channel was.
Charles Stanley brings first the culture of identical to us it's the stewardess.
[noise] the Howard family for generations, I think of the 4 generations of the business is it.
The same value of of client the centric advisers centric culture and has multi channel so the combination.
Gets us at 40 billion pounds and really.
Really gives us the mask of utilize.
A lot of of the things they've done well and to continue to grow that business and really give us the base to make a difference. So it's not saying we're not choosing it over the U S. A canada or the UK. We believe in all 3 of those markets and when we find these rep. You know these rare opportunities to acquire of 200 year old firm.
Great brand of the name and matches our culture, we're going to act. So we believe very strongly in it I think it will really help our business.
Great I mean anything.
I know you can't say you know that much given the regulations about anything you can say on the financial details you know revenues from the tax margin you know, maybe how much Catholic of utilizing from the acquisition.
Yeah, I can sort of see from their disclosure of that it's about 240 million of show on revenue isn't that 10% profit margin, but you know I'm all of a says you mean that there is synergy as an additional investments that he was thinking about shell is there any more color you can give on that.
I would just say that not a lot I mean, you can see the public information on their current revenues and base and we do plan to invest.
And you know the technology of that business and we think combined it'll be we'll be able to be at a much better place to do that and they've got a very good back office and strong technology, so but outside of the details we really can't get into any more details right now.
But we will make them available as soon as we can.
Got it and anything on the capital that you're utilizing from the acquisition.
Yeah, I would tell you [noise] and a regulatory filing we basically said that we have sufficient cash on hand to the fund the acquisition Ah the <unk>.
Regular Tori filing also discusses a a low note are offering that would be possible that's fairly common in the U K as discussing the the filing. There's it's has a nominal interest rate of about 10 basis points, which can change over time with the short term rates.
But obviously with the overall cash.
The overall consideration of less than $400 million, we have 1.6 billion almost of cash at the parent company.
As we discussed earlier on the call. We have a 1 billion dollar target. So we have sufficient cash at the parent company to fund the acquisition without kind of any.
Any capital actions beyond that.
Okay, great. Thank you.
Thank you very much will get her next question on the life of mine the Bill Cats from Citigroup go right ahead.
Okay I'm from you. Thank you very much of taking the questions. So I guess, maybe start with pause you think about maybe both of you guys. Just in terms of getting to the tier 1 leverage ratio. How does this acquisition sort of fit in against that and and maybe stepping away from that as you sort of.
[noise] commented on the the primary focus here is growth should we assume that the bank growth will be the primary driver to driving down the 2 more leverage ratio overtime. Thank you.
I think you're going to see it in all sorts of ways of that you know the.
You saw the announcement today, we are looking at other opportunities to expand the business and again, we can never predict. These you know so many of these we've known people for years before.
The interested in selling so we are strategic M&A is really sharpened and our opportunities of really sharpened I don't know if deals will happen, but if we can find opportunities of expand our business. That's we've said that's our priority.
We also plan to grow the back to the extent we can.
You know within that and you know we've used to share repurchase purchases when we can so.
I think we're still gonna focus on opportunities to grow our business, which includes the strategic M&A Ah and Ah and also continue to grow the bank and the level of the bank growth of them are aggressiveness, probably depends first of all the economic.
Opportunities, but also how much capital, we're able to deploy through other opportunities. So we'll balance that out.
Okay. That's helpful. And then maybe just follow up question I don't know if you could unpack pull your comments on the NIM about sort of maybe a little bit under the 190 over the next couple of quarters and maybe on the sweep side, where you sort of hold out. So the second half of next year. He may be ring fenced like what might be expiring or coming up.
The contract with all of those be sort of think about the timing next year. Thank you.
Yeah, well, we we kind of just essentially reaffirming our guidance on the name of a dry.
Around 1.9% that we provide the last quarter so.
Over the next quarter to obviously depends somewhat of an asset mix and the growth of the agency M. B S portfolio, which we've essentially decelerated over the last quarter of just given where rates are we would expect to come in right around that 1.9% give or take a couple of basis points over the next quarter too.
As far as the yield on the Beady P balances with third party banks there was a significant portion of our deposits of mature contractually you know over the next I would say 6 to 12 months.
Right now the sort of market rate for new deposits. If you. If you can even get capacity is much lower than the 30 basis points or the.
The 29 basis points that we're currently earning on average.
But remember if the at the yield on those deposits.
Aren't attractive with those third party banks, we have the the capital flexibility going back to Paul's comments earlier to bring those cash balances on the balance sheet and invest in other assets. So I don't think it's as easy as the formula of just assuming that those balances reset at a lower yield of.
Off balance sheet because depending.
Depending on what we can or not balance sheet.
It may be more compelling to bring it on balance sheet and invest in other assets at the bank securities of <unk> loans.
Okay. Thank you both.
Thank you very much.
And once again as a reminder of on the phone to if you'd like to ask any questions or comments. Please do so another person the 1.4 by the 4 on your telephone keypad. When it's kind of is the 1 for for any questions or comments.
And we'll get her next question on the line from Stephen to back from Wolf Research go right ahead.
Hi, good morning.
So have a follow up to bills earlier question, you said of the continued pressure on the bank ma'am no consistent with the trend we've seen the recent quarters just give me the very strong long growth, particularly in the SPL the channel and already low securities yields I was hoping Paul you can unpack what the primary driver of the name of <unk>.
Oppression from here.
And relating to the third party sweeps, what's the breakeven level or spread where you might look to sweep third party cash more aggressively to the bank as you face that repricing head or that price and headway in the in the back half of the next year.
Yeah, I would I would tell you Steve that the primary driver of the name of compression cause most of the short term rates of reflected in the sort of sort of the yields of the various ah.
Asset categories, most of our asset categories are floating in nature. So they.
The kind of the right environment that we're in so most of the NIM dynamic going forward is really going to be driven by asset mix. So for example, this quarter. We grew security space loans on the net basis $700 million, which is just truly fantastic growth, 14% sequentially over 50% year over year.
And those have those are fully secured with marketable securities and help.
Help the strengthened the relationships between advisers and their clients and the private client group. So we loved that asset.
But that yield is 2.22% on average in the quarter, whereas the corporate loans are in the 2.5% of 2.6% and they have been growing we've can resume growth there, but not to the same extent as the SPL. So just by the change in mix to sort of of the lower.
Risk categories like Security's based loans.
That's going to put downward pressure on your name all else being equal.
As far as the break even analysis I wish it was that simple there's a lot of variables that go into that to bring it on balance sheet. Obviously uses capital and then you have to the essentially take either duration of <unk> credit risks to earn a higher yield.
And so you know in the in that higher yield changes week to week, depending on the the latest fed announcements so.
1 thing of certain if we don't have the capacity off balance sheet or the capacity of that.
Very low rates than the bringing it on balance sheet, certainly looks more attractive on a relative basis and that's something that we have.
The capital and the appetite to do if necessary.
Yeah.
Understood. Okay, and then from my follow up Paul just on some of the non Com commentary that you provided you noted that noncomp expenses should grow S. T and he picks up ultimately of good problem to have now if I look at the non coms this quarter and I back out the non controlling interest piece of the reserve release.
The Queen numbers about 330 million, it's slightly above that 1.3 billion annualized run right you had spoken to in the past just giving some of the drivers of Noncomp growth you cited how should we be thinking about the.
The pace of growth from here and maybe <unk> can you give us an updated run rate of jumping off point as we think about the noncomp trajectory for the next couple of quarters.
Steve.
Fortunately is still a lot of uncertainty their business development being 1 Prime example of that you know I would say the the 1.3 billion dollar jumping off right I want to say that our quarterly revenues at that time were somewhere around $1.7 billion to $1.8 billion I don't remember exactly when that was but we're at 2.5 billion now.
So.
Just the the business is a lot bigger now and there's a lot of expenses directly associated with the size of our business whether it be sub advisory fees. That's.
That support the asset management business, whether it be FDIC insurance expense, which supports the bank.
The.
Branches branch expenses, we continue to recruit.
More advisers, we've done a couple of acquisitions, we just announced another 1 so a lot has changed since we.
Provided that 1.3 billion dollar metric, which begs the question when are we going to provide more new guidance and the new threshold and.
I would say we want to do that as soon as there's more clarity kind of on the go forward path, particularly for things like business development expense and fiscal 19 before the pandemic that was running at around $200 million for the year of $50 million of quarter. So even this quarter's number of $31 million is.
As well below that as an example, and then the loan loss provisions as well, obviously that does something that's going to be a volatile until there's more of kind of economic certainty of clarity going forward. So as soon as there is more of certainty around what these expenses will look like we will certainly be transparent as we always are and tried to provide you better guidance.
Thanks, Okay of I squeeze in 1 more I just wanted to get of you on the organic growth sustainability. Obviously, the 9% that you cited has just been very impressive statistic. The other thing both you and your peers are running well above long term average is was hoping you could you speak to the sustainability of the organic growth as well.
What you're seeing across all the different affiliation of options.
So part of that the times the market's been robust.
People have been growing.
The client of engagements been really good so you know.
That could all change with the downturn.
Clients get fearful.
Assets off of the same in those environments, but if you look at outlook, we see in the short the midterm at all it's still very very wrong.
Yeah cause I sort of.
The the meeting with our advisers and they're all very positive experiencing.
[noise] top of Adviser's, you know not just record growth of their business.
But I can tell you by the questions over 2 days of watching what they're doing with their practices.
No thoughts of slowing down either.
I you know again short the midterm I think of sustainable of the recruiting has been good across all of the options.
Which is ironic too sometimes.
We got the slowed down a little bit of a few quarters ago from the private.
Channel the offices were closed.
But that's really taken off of it.
Kind of hit a record of probably.
On a piece of the hit a record this year, even after the very.
Start so.
We're seeing it all across the affiliation of options.
Pipelines very strong.
So I'd say for the short to the term it looks very very good longer term it depends on the.
You know viability of the numbers.
Growth for good this quarter.
People say part of it.
The for awhile.
That's a great color Paul Thanks, so much for taking my questions.
Thank you very much well of course.
The next question on the line from Gerry O'hara Jeffries go right ahead.
Great. Thanks for taking my questions. This morning, perhaps just kind of just stepping back a little bit as it relates to the acquisition could you give us a little bit more sense as to your ex U S kind of I suppose M&A strategy, and where you think maybe some of the mark.
What's that you're most underpenetrated in or perhaps where the.
Where you are offering specifically would resonate best thank you.
So the focus it depends on the business here at the focus of the private client group has been.
The U S, Canada and the UK.
We have a unique offering.
No more of less than all of those markets with the multi affiliation option.
Again unique in Canada.
And in the UK so.
Charles Stanley was the perfect fit because of their work many people not just the cultural heritage.
You know the.
The the multichannel options. So we are focused on the private client group of any type of opportunity of those 3 markets, we're not really.
Ah to expand the other markets and the private business right now.
Just 1 of focus.
Growing and competing with all of those 3 markets.
Roger and the emanate.
Categories. The 1 business that we do look at global opportunities both from.
Capital of the appointment.
The capital for most places just an office people versus you know capitals heavier than the other businesses.
Business. So we will continue to look for opportunities, but again, we've been focused in north.
North America.
The UK in Europe.
We have looked at things in other places.
And then the rest of the businesses.
North American.
Focus so we're not the.
You know, we don't we have plenty of capital to grow with strong positions of the UK, we had a very good practice, but it was small.
You know acquisition would put us in the very.
Competitive position of our weekend.
We think the accelerated growth. So that's been our focus continues to be of focus.
We're not looking at other kind of global market.
Okay. That's that's helpful and then perhaps 1 for Paul Shoukri and forgive me as I'm I'm still new to the story, but I think you said, 21% around the tax rate into the physical <unk> assuming of flat equity market can you, perhaps just remind me a little bit about what some of the ma'am puts and take.
That could kind of move that rate higher or lower as you know depending on I suppose backdrop. Thank you.
Yeah, and and welcome to the story of glad to have you part of the the cupboard universe.
Yeah. The the 1 of the biggest drivers and we can get into more detail offline.
For the tag of that impacts the tax rate quarter to quarter is are we have of corporate owned life insurance portfolio, which we used to sort of.
Fund the some of our non qualified.
Benefits.
That we offer our associates and so the the way that corporate owned life insurance portfolio of those balances work is that when the equity market appreciates the typically results and non taxable gains in that portfolio, which means that.
You know our effective tax rate all else being equal is lower and vice versa. When the equity market goes in the other direction.
The results of non deductible losses, which means of our effective tax rate all else being equal goes higher so.
Typically the trend is when the equity markets are up are effective tax rate is lower than vice versa. Again, there's a lot of other factors, but that is the the factor that seems to be the most sort of volatile are impactful from quarter to quarter.
Okay helpful. Thanks for taking my questions. This morning.
Thank you very much we'll get to the next question on the line from Devin Ryan with G. M. P Securities go right ahead.
Hey, good morning, everyone. How are you.
Hey, Devin.
Hey, sorry, I hopped on a minute late here, so apologies of I'm being a bit redundant, but on the recruiting outlook. You. Appreciate that you know it remains robust, but we've been hearing in the market that you on the employee side, there's been kind of another maybe ratcheting up of.
Titian packages are you guys seeing that and I know you had spoken about a few quarters ago kind of increases and then you took your your offer up so I'm I'm curious like it is.
Hitting another level, where new competitions intensifying even more so we make you more pricing pressing pressroom or just you higher packages just kind of curious what you see in the market there.
I can't really say that I think that you know we've been so active and the.
Recruiting that we were pretty good a good feel of what everyone's doing so we said a few quarters ago. The you know where people can ramping up for a year.
We had the make some adjustments, but I can.
It's competitive.
There are always it seems like an outlier offer.
There's always seems to be an outlying offer here of their every time, we recruit but again you know that's not how we recruit would give a competitive package.
Often not the highest and stick to it again the results within the tremendous so I can't say.
Picked up a while ago and I can't say I've seen any difference in the last couple of quarters.
Okay terrific and then just to follow up on acquisitions of note a fair amount of color here. This morning, but as you think about some of the other types of acquisitions and wealth management, the baby aren't as traditional just buying financial adviser franchise or are there other.
Areas that could be interesting that you guys are looking at whether it be technology that accelerates growth uhm.
And a new way or additional product capabilities are there other types of things that you guys are looking at that I know or maybe a bit non traditional for Raymond James but just to kind of also strategically aligned with the M&A with with the M&A opportunity you know it it feels like there's maybe the more to do the historically.
There has been some I'm curious what you guys are on that front as well.
Yeah, I would say the vendors absolutely we're looking at a lot of things 1 of the categories is.
Firms that are.
Offer new services of products that are extensions of what we do it in the V. P. S.
An example of that but also looking at technology.
Firms that utilize technologies that really you know kind of of propelled the businesses were.
And we've been very active in that too so it's.
You know it takes a lot of the time because you have to find them and then really understand how that technology works sits and how it will really benefit of our businesses, whether it be complementary or maybe it'd be great to find something that.
Automated of revolutionized the part of the business, but those are are fine, but we're looking a lot of what I call technology backed her technology firms in our spaces that we think we could utilize the technology to be the <unk>.
Strategic client advantage and to make us more efficient and more electronics so the amp.
Yes, we've been looking.
The heart of the number of opportunities again, we've been.
On the M&A focus much more focused over the last year or 2 on the on those types of opportunities.
Okay great.
And if I can just the squeeze 1 more in here uhm on the fixed income brokerage business in the capital market segment obviously.
It's been a very good environment for that business is there any way to give us any more context around kind of of the growth of that franchise. So your revenues have been expanding very good fiscal 2020.
You could start to fiscal of 2021, and I think you we of questions around the sustainability or kind of what normal no normalized looks like and I know that's not necessarily easy to answer but is there any frameworks around kind of how that business of scaled. So you know the pie is expanding of the bars of the tire.
<unk> because you know just the bigger there's of say that it was 2 or 3 years ago.
There's been unusual environment, where both fixed income of equities you know produce record so it's.
You know you've been going back in history of you can't find many windows like that but the they've expanded both of the products you know on the debt capital markets business over the.
Last few years and in other areas and we still continue to look in areas of the fixed income and.
And our sales and trading business, where we have strong client basis, but not offering certain products and services and I really don't want to go into.
The what those are but we continued to look in and around the nose out and that's been part of the growth too besides the robust markets and.
Didn't have a record of quarter, but they had a very strong quarter.
Chasing when you're chasing records all the time, you don't always set of record, but you know, we're really pleased with what they've done in the franchise's continued.
To grow and prosper. So yeah, we we think of all of our businesses are investment opportunities in the summer.
Some are harder to find the others, but we continue to look.
And.
I think there is room to growth.
Yeah, Okay <unk>.
Perfect. Thank you very much.
Thank you.
And will proceed with our final question for today. There's another follow up question of the line of Bill Cats from Citigroup prescribed ahead.
Okay. Thank you so much for taking the extra question I guess circling back to the investment bank sort of momentum seems very strong in the your commentary on qualitatively around the outlook also is very strong.
The impact that a little bit more just in terms of just like the environment versus some of the added capabilities that you've had also I think if you're invested day recently, you mentioned sort of getting to the aspirational goal of of a billion dollars of on the equity centric side. It seems like it might already be there just given the pacing here, but the how to think about maybe the incremental opportunity from here.
Versus maybe some of the cyclical Ah, but if it were getting from the robust market backdrop. Thank you.
Yeah, So it's been a.
Very strong.
Market certainly of both for us and our competitors in the environment of.
Load the cost.
Hi.
And a lot of privately held firms are invested firms that you know their portfolios of trade to the backdrops been very very strong but in addition to that as of the gym Bun said, well, you know where where do it well, but the market as well, but I said, you're not giving yourself enough credit for positioning for that growth. So not only is the.
Been in greater of recruiting and building of the teams, but we continue to do that so you see financo, which just joined US which is already you know.
Scored a few deals of good size in the very short period of time of with US and you know.
So they're not you know they're run rates really not online.
We're very excited about to be on the.
Growth business and there are a few other verticals.
We're not well positioned in that we're looking to do the same things and so it's partly of market story, but you know of giving that team credit. It's also been a market positioning and share game, which they have made.
And some could argue or under size for the size.
True, but the.
There are certainly building and doing a great job and I think Ah continue to plan to do that the market has just been of a big added bonus to their plan.
Okay. Thank you very much the the extra time.
Thank you.
Thank you very much then.
Actually we have no further questions on the line must arrive at all what kind of back to you for the of closing remarks.
Great. So thank you all for joining us obviously of strong quarter, good markets and I think you know given if there's not any shots of the system. We feel good about this quarter and we will give you more information as we can Charles Stanley, but again very strict you know anti takeover provision.
Rules and disclosures in the public companies in the UK. So.
Once we can and we will give you more information, but we're very excited about the opportunity. Thanks.
Thanks for joining us the.
We'll talk to you soon.
Thank you very much and does that conclude the conference call for today. We thank you for your participation ask the disconnect the lines have good day.
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