Q4 2023 Raymond James Inc Earnings Call

Good afternoon, and welcome to Raymond James Financial's fourth quarter and fiscal 2023 earnings call. This call is being recorded and will be available for replay on the company's Investor Relations website, I'm Christy was senior Vice President of Investor Relations and thank you for.

Yesterday.

With us on the call today are Paul Reilly Chair, and Chief Executive Officer, and Pulse you agree Chief Financial Officer. The presentation being reviewed today is available on our Investor Relations website. Following the prepared remarks, the operator will open the line for questions.

Call your attention to slide two please note certain statements made during this call may constitute forward looking statements. These statements include but are not limited to information concerning future strategic objectives business prospects financial results anticipated in timing and benefits of our acquisitions and our level of success integrating.

Acquired businesses divestitures anticipated results of litigation and regulatory developments or general economic conditions and.

In addition words such as May will could anticipates expects believes or continue our negative of such terms or other comparable terminology as well as any other statement that necessarily depends on future events are intended to identify forward looking statements.

Please note there can be no assurance that actual results will not differ materially from those expressed in these statements.

We urge you to consider the risks described in our most recent Form 10-K, and subsequent forms 10-Q and forms 8-K, 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 of ongoing business performance. A reconciliation of these non-GAAP measures to the most comparable GAAP measures maybe found in the schedules accompanying our presentation and press release.

Now I'll turn the call over to chair and CEO, Paul Reilly Paul.

Good evening and.

And thank you for joining us today.

Been a lot of time in these last few weeks in front of our advisors first traveling with our top producing independent advisers on a great trip.

To see the success in their business and the positive nature of how they feel about the firm.

And then attending our Rcs conference or a division and clearing firms again that divisions over 10% of our private client group assets now and it's great to see the growth and the enthusiasm there also.

Yeah.

Now turning to our results.

Despite the challenging environment, which included a regional banking crisis heightened volatility and rapidly rising interest rates, we generated record net revenues and earnings for the last fiscal year.

It's our third consecutive year of record results and very different market environments was achieved by staying true to our core.

We put clients first we act with integrity, we value independents and think long term.

These core values are more than words on a page.

There lived day in and day out by our advisors and associates.

This dedication and focus provides stability during tough economic times and what makes me confident about our continued success in the future.

Reviewing fourth quarter results starting on slide four the firm reported record quarterly net revenues of $3.05 billion and net income available to common shareholders of $432 million or $2.02 per diluted share.

Excluding expenses related to acquisitions adjusted net income available to common shareholders was $457 million or $2 <unk> 13 cents per diluted share.

The increase in asset management revenues and interest related revenues drove significant revenue growth over the prior year with net revenues increasing 8%.

Quarterly results were negatively impacted by elevated provisions for legal and regulatory matters, including an incremental 55 million dollar provision related to the previously disclosed S. E C industry sweep on off platform communications.

This provision resulted in an impact during the quarter of 26 cents per diluted share.

We generated strong returns for the fiscal fourth quarter with an annualized return on common equity of 17.3% and annualized adjusted return on tangible common equity of 22.2% or.

A great result, particularly given our strong capital base.

Moving on to slide five.

The year over year client asset growth was strong driven by organic growth in all of our affiliation options along with market appreciation.

We ended the quarter with a total client assets under administration of 1.26 trillion dollars P. C. G based assets and fee based accounts of 683 billion and financial assets under management of 196 billion.

With our continuing focus on retaining supporting and attracting high quality financial advisers.

P C G consistently generate strong organic growth, which was evident again this year with domestic net new assets of $14.2 billion in the fiscal fourth quarter, representing a 5% annualized growth rate on beginning of the period domestic P. C G assets.

For the fiscal year domestic net new assets of $73 billion reflected a 7.7% annual growth rate, which is a leading result in the industry.

During the fiscal year, we recruited to our domestic independent contractor and employee channels financial advisors with approximately $250 million of trailing 12 production and nearly 38 billion of client assets of their previous firms.

These results do not include our R. A a and custody services business Rcs, which had another strong year and recruited results.

More importantly, we continue to maintain a very low accretable attrition levels of financial advisors at about 1%.

These factors contributed to our annual N N a growth of 7.7%.

Total clients domestic sweep and enhanced savings program balances ended the quarter at $56 billion down 3% compared to June of 2023.

The enhanced savings program with its competitive rate and robust FDIC insurance coverage continued to attract significant cash this quarter, partially offsetting a decline in client suite balances largely due to quarterly fee billings and cash sorting activity.

Total bank loans increased 1% from the preceding quarter to $44 billion, reflecting muted loan demand to our target markets, giving rising rates and the macro economic uncertainty.

Moving on to slide six private client group generated record results with quarterly net revenues of $2.27 billion and pretax income of $477 million.

Year over year results were lifted by strong asset based revenues and the benefit of higher interest rates on interest related revenues and fees.

The capital markets segment generated quarterly net revenues of 341 million and a pretax loss of $7 million Rev.

Revenue declined 15% compared to the prior year quarter, mostly driven by lower fixed income brokerage and investment banking revenues. However, we were pleased to see a sequential improvement in M&A and advisory revenues this quarter.

Additionally, our public finance business had improved results with debt underwriting growing 32% sequentially.

The extremely challenging market environment, particularly for investment banking has strained the near term profitability of segment results.

And as we explained previously the segment results are negatively impacted by amortization of share based compensation from prior years.

As well as growth investments.

We remain focused on managing controllable expenses as near term revenues are depressed.

The asset management segment generated pretax income of 100 million on net revenues of $236 million.

The increases in net revenues and pretax income over the preceding quarter were largely the result of higher assets and P. C. G fee based accounts at the beginning of the quarterly billing period and strong net flows and Raymond James investment management, which generated $920 million of net.

Inflows during the fiscal fourth quarter, and 2.2 billion of net inflows in the fiscal year.

The bank segment generated net revenues of 451 million and pre tax income of $78 million.

Fourth quarter NIM for the bank segment, a 2.87% declined four basis points compared to a year ago quarter, and 39 basis points compared to the preceding quarter, primarily due to a higher cost mix of deposits.

We continued to add diverse higher cost funding sources with our enhanced savings program.

And consequentially shifted more of our lower cost sweet funding to third party banks in a few minutes Paul Shoukri will discuss this further.

While this negatively impacted the bank segment them, there is an offset and higher R. J B D. P. Third party bank fees, so still a net positive for the firm overall, while also providing advisors and attracted a positive alternative to offer their clients.

Yeah.

Looking at fiscal 'twenty twenty-three results on slide seven we generated record net revenues of $11.6 billion and record net income available to common shareholders of $1.7 billion up 6% and 15% respectively over the prior year's records.

Additionally, we generated strong returns on common equity of 17.7% and adjusted returns on tangible common equity of 22.5% for the fiscal year.

On slide eight the strength of the P. C. G in bank segments for the fiscal year, primarily reflects the benefit of strong organic growth in the private client group.

The successful integration of Tristate capital and the benefit from higher short term interest rates.

When compared to the record activity levels in the year ago period weaker capital markets results reflect the challenging environment for investment banking and fixed income brokerage revenues. Despite incremental revenues from the summer of <unk> acquisition, which we completed in June of 2022.

And now I'll turn it over to Paul Shoukri for a more detailed review of our fourth quarter results Paul.

Thank you Paul.

Starting on slide 10.

Consolidated net revenues were a record $3.05 billion in the fourth quarter up 8% over the prior year and 5% sequentially.

Asset management and related administrative fees grew 12% compared to the prior year quarter, and 5% sequentially due to the higher assets and fee based accounts at the end of the preceding quarter.

This quarter fee based assets declined, 2%, which will be a headwind for our asset management and related administrative fees in the fiscal first quarter of 2024.

Brokerage revenues of $480 million were flat year over year and increased 4% sequentially.

Year over year, the lower fixed income brokerage revenues in the capital markets segment were offset by higher brokerage revenues and P. C. G.

I'll discuss accountant service fees and net interest income shortly.

Investment banking revenues of $202 million declined 7% year over year sequentially that 34% increase was driven predominantly by higher M&A and advisory revenues as well as a solid quarter for public finance.

We are cautiously optimistic that the environment for M&A is improving and we continue to see a healthy investment banking pipeline and solid new business activity.

However, there remains a lot of uncertainty and the pace and timing of deals launching in closing given the heightened market volatility and geopolitical concerns.

So while we may not see significant improvement in the next fiscal quarter.

We are hoping for better results over the next six to 12 months.

Other revenues of $54 million were down 33% compared to the prior year quarter, primarily due to lower revenues from affordable housing investments.

The pipeline for that business remains strong.

But several closings slipped to fiscal 2024 due to higher interest rates.

Moving to slide 11.

Clients' domestic cash sweep and enhanced saving program balances ended the quarter at $56.4 billion.

Down, 3% compared to the preceding quarter, and representing 5.1% of domestic P. C G client assets.

Advisers continue to serve their clients effectively.

Leveraging our competitive cash offerings.

The enhanced savings program grew approximately $2.4 billion in deposits this quarter.

A large portion of the total cash coming into ESP has been new cash brought to the firm by advisors Hi.

Highlighting the attractiveness of this product and Raymond James being viewed as a source of strength and stability.

As many eligible clients have now taken advantage of this product the pace of flows into the enhanced savings program has understandably decelerated.

Through Monday of this week sweep in E. S. P balances are down approximately $620 million for the month of October.

As growth in E. S. P balances was more than offset by the quarterly fee billings as expected.

We continue to believe we are closer to the end of the cash sorting dynamic than we are to the beginning.

However until rates stabilize we would not be surprised to see further yield seeking behavior by clients.

Sweep balances with third party banks were $15.9 billion at the quarter end.

Giving us a large funding cushion when attractive growth opportunity surface.

The strong growth of enhanced savings program balances at Raymond James Bank has allowed for more balances to be deployed off balance sheet.

While this dynamic has negatively impact the bank segments NIM because of the geography of the lower cost sweep balances being swept off balance sheet. It ultimately provides clients with an attractive deposit solution. While also optimizing the firm's funding flexibility.

Looking forward, we have ample funding and capital to support attractive loan growth.

Turning to slide 12.

Combined net interest income and RJ BD P fees from third party banks was $711 million nearly flat from the immediately preceding quarter as a sequential decrease in firm wide net interest income.

It was offset by higher R. J B D P fees from third party banks.

If you recall on our last earnings call, we anticipated a 5% sequential decline and these interest related revenues. So we are pleased with the better than expected result.

Which was partly a function of higher than anticipated yields on RJ BD P third party balances.

The bank segments net interest margin decreased 39 basis points sequentially to 2.87% for the quarter.

The average yield on our JBT P balances with third party banks increased 23 basis points to 3.6%.

While there are many variables that will impact actual results.

Absent any changes to short term interest rates. We currently expect combined net interest income and RJ BD P fees from third party banks to be around 5% lower than the fiscal first quarter as compared to the fiscal fourth quarter.

And that's just based on spot balances after the fee billings this quarter.

As experienced over the past two quarters. This guidance may prove to once again be conservative if cash sweep balances stabilized around current levels and or if the bank assets grow more than anticipated during the rest of the quarter.

But as we have always said instead of concentrating on maximizing NIM over the near term we are more focused on preserving flexibility and growing net interest income and our J B D. P fees over the long term, which.

Which we believe we are still well positioned to do.

As many of you may recall, our expectation has always been that the industry would over earn an interest income early on in a rising rate environment, and then experienced some normalization of interest earnings as clients redeploy their cash to higher yielding alternatives.

Moving to consolidated expenses on slide 13.

Compensation expense was $1.89 billion and the total compensation ratio for the quarter was 62%.

The adjusted compensation ratio was 61.4% during the quarter, which we are very pleased with especially given the challenging environment for capital markets.

Non compensation expenses of $576 million increased 1% sequentially.

As Paul Reilly mentioned earlier, the fiscal fourth quarter included the incremental provision related to the previously disclosed SEC industry sweep on off platform communications a $55 million.

Resulting in an impact during the quarter of 26 cents per diluted share.

Combined with the provision in the fiscal third quarter. We are confident that we are now fully reserve for this matter.

The bank loan provision for credit losses for the quarter of $36 million increased $2 million over the prior year quarter and decreased $18 million compared to the preceding quarter.

I'll discuss more related to the credit quality in the bank segment shortly.

In summary.

While there has been some noise with elevated provisions for legal and regulatory matters. This year.

Adjusted non compensation expenses, excluding loan loss provision and those legal and regulatory provisions.

Came in very close to our annual expectation of $1 $7 billion.

Reinforcing that we remained focused on managing expenses, while continuing to invest in growth and ensuring high service levels for advisors and their clients.

Slide 14 shows the pretax margin trend over the past five quarters.

In the current quarter, we generated a pretax margin of 19, 2% and adjusted pretax margin of 23% a strong result, given the industry wide challenges impacting capital markets in the aforementioned legal and regulatory provision.

On slide 15 at quarter end.

Unknown Executive: Good afternoon, and welcome to Raymond James Financial's fourth quarter and fiscal 2023 earnings call. This call is being recorded and will be available for replay on the company's investor relations website.

Total assets were $78.4 billion, a 1% sequential increase.

Liquidity and capital remain very strong.

Kristina Waugh: I'm Kristina Waugh, Senior Vice President of Investor Relations, and thank you for joining us today. Following the prepared remarks, the operator will open the line for questions. Call your attention to slide two.

RJ F corporate cash at the parent ended the quarter at $2.1 billion, well above our $1.2 billion target.

The tier one leverage ratio of 11, 9% and total capital ratio of 22, 8% are both more than double the regulatory requirements to be well capitalized.

Kristina Waugh: Please note certain statements made during this call may constitute forward-looking statements. These statements include but are not limited to information concerning future strategic objectives, business prospects, financial results, anticipated entiming, and benefits of our acquisitions, and our level of success integrating acquired businesses, divestitures, anticipated results of litigation and regulatory developments, or general economic conditions. In addition, words such as may, will, could, anticipates, expects, believes, or continue, or negative of such terms or other comparable terminology, as well as any other statement that necessarily depends on future events are intended to identify forward-looking statements.

The 11.9% tier one leverage ratio reflects nearly $1.5 billion of excess capital above our conservative, 10% target, which would still be two times more than the regulatory requirements to be well capitalized.

Our capital levels continue to provide significant flexibility to continue being opportunistic and invest in growth.

We also have significant sources of contingent funding.

We have a $750 million revolving credit facility.

And nearly $9 $5 billion of FHL be capacity in the bank segment.

Kristina Waugh: Please note there can be no assurance that actual results will not differ materially from those expressed in these statements. We urge you to consider the risks described in our most recent form 10K and subsequent forms 10Q and forms 8K, which are available on our investor relations website. During today's call, we will also use certain non-gap financial measures to provide information pertinent to our management's view of ongoing business performance. A reconciliation of these non-gap measures to the most comparable gap measures may be found in the schedules accompanying our presentation and press release.

Slide 16 provides a summary of our capital actions over the past five quarters.

During the fiscal year, the firm repurchased 835 million shares of common stock for $788 million, an average price of $94 per share.

As of October 25th 2023, approximately $750 million remained available under the board's approved common stock repurchase authorization.

While we didnt complete any repurchases in the fourth quarter due to self imposed restrictions just to be prudent given our knowledge of the aforementioned SCC up platform matter, we remain committed to our planned repurchases to offset dilution from the tristate capital acquisition and the share.

Paul Reilly: Now I'll turn the call over to Chair and CEO Paul Reilly. Paul?

Paul Reilly: Good evening, and thank you for joining us today. I've spent a lot of time in these last few weeks in front of our advisors. First, traveling with our top-producing independent advisors on a great trip, great to see the success in their business and the positive nature of how they feel about the firm. And then attending our RCS conference are RAA division and clearing firms. Again, that division is over 10% of our private client group assets now, and it's great to see the growth and the enthusiasm there also.

Compensation as we previously discussed.

Lastly on slide 17, we provide key credit metrics for our bank segment, which includes Raymond James Bank in Tristate Capital Bank.

The credit quality of the loan portfolio is solid.

Criticized loans as a percentage of total loans held for investment ended the quarter at 1.17%.

Paul Reilly: Now turning to our results. Despite the challenging environment, which included a regional banking crisis, heightened volatility, and rapidly rising interest rates, we generated record net revenues and earnings for the last fiscal year. That's our third consecutive year of record results in very different market environments, was achieved by staying true to our core. We put clients first, we act with integrity, we value independence, and think long-term. These core values are more than words on a page. They are lived day in and day out by our advisors and associates. This dedication and focus provides stability during tough economic times, and what makes me confident about our continued success in the future.

The bank loan allowance for credit losses, as a percentage of total loans held for investment ended the quarter at 1.07%.

The bank loan allowance for credit losses on corporate loans as a percent of total corporate loans held for investment was two point or 3% at quarter end.

We believe this represents an appropriate reserve, but we are continuing to closely monitor any impacts of inflation supply chain constraints higher interest rates and a potential recession on our corporate loan portfolio.

Given industry wide challenges, we continue to closely monitor the commercial real estate portfolio and more specifically the office portfolio.

We are prudently limited the exposure to office loans, which represents just 3% of the bank segments total loans.

Paul Reilly: Reviewing fourth quarter result, starting on slide four, the firm reported record quarterly net revenues, a $3.05 billion, and that income available to common shareholders of $432 million, or $2.02 per deluded share. The increase in asset management revenues, and interest-related revenues, drove significant revenue growth over the prior year, with net revenues increasing 8%. Quarterly results were negatively impacted by elevated provisions for legal and regulatory matters, including an incremental $55 million provision, related to the previously disclosed SEC Industry Sweep on off-products.

Now I'll turn the call back over to Paul Reilly to discuss our outlook.

Paul.

Thank you Paul.

As I said from the start of the call I am pleased with our results for the fiscal 'twenty twenty-three and our ability to generate record earnings even in challenging market conditions.

The record results this fiscal year once again highlight the strength of our diverse and complementary businesses.

And while there is still near term economic uncertainty I believe we are in a position of strength and are well positioned to drive growth over the long term across all of our businesses.

In the private client group next quarter results will be negatively impacted by the 2% sequential decline in assets and fee based accounts.

Near term, we expect some headwinds to interest sensitive earnings at both P. C. G. In the bank segment, given ongoing cash sorting activity.

Paul Reilly: This provision resulted in an impact during the quarter of 26 cents per deluded share. We generated strong returns for the fiscal fourth quarter, with an annualized return on common equity of 17.3% and annualized adjusted return on tangible common equity of 22.2%. A great result, particularly given our strong capital base.

However, I am optimistic we will continue delivering industry, leading growth as current and prospective advisers are attracted to our client focus values and leading technology and product solutions.

Our advisor recruiting activity has picked up significantly over the last two months with record numbers of large teams in the pipeline.

And the capital market segment.

Paul Reilly: Moving on to slide five, the year-over-year client asset growth was strong, driven by organic growth and all of our affiliation options, along with market appreciation. We ended the quarter with a total client assets under administration of $1.26 trillion, PCG-based assets, and fee-based accounts of $683 billion, and financial assets under management of $196 billion. With our continuing focus on retaining, supporting, and attracting high-quality financial advisors, PCG consistently generates strong organic growth, which was evident again this year, with domestic net new assets of $14.2 billion in the fiscal fourth quarter, representing a 5% annualized growth rate on beginning of the period domestic PCG assets.

As we saw this quarter there are some signs of improvement in investment banking and we continue to have a healthy M&A pipeline and good engagement levels.

But while there is still reason for optimism.

We expect the pace and timing of transactions to be heavily influenced by market conditions and would expect activity to likely pick up over the next six to 12 months.

And in the fixed income space the dynamics of last year persist depository clients are experiencing declining deposit balances and have less cash available for investing in securities putting pressure on our brokerage activity.

We hope once rates and cash balances stabilize we can start to see an improvement.

So while there are some near term challenges, we believe the capital markets business is well positioned for growth given the investments we've made over the past five years, which have significantly increase our productive capacity and market share.

Paul Reilly: For the fiscal year, domestic net new assets of $73 billion reflected a 7.7% annual growth rate, which is a leading result in the industry. During the fiscal year, we recruited to our domestic independent contractor and employee channels, financial advisors with approximately 250 million of trailing 12 production, and nearly 38 billion of client assets of their previous firms. These results do not include our RAA and custody services business, RCS, which had another strong year in recruited results.

And the asset management segment financial assets under management are starting to fiscal quarter down, 2% compared to the preceding quarter, which should create a headwind to revenue.

We remain confident that strong growth of assets in fee based accounts in the private client group segment will drive long term growth of financial assets under management.

In addition.

We expect Raymond James investment management to help drive further growth through increased scale distribution operational and marketing synergies.

Paul Reilly: More importantly, we continue to maintain a very low, regrettable attrition levels of financial advisors at about 1%. These factors contributed to our annual NNA growth of 7.7%. Total clients, domestic sweep, and enhanced savings program balances ended the quarter at $56 billion. Down 3% compared to June of 2023. The Enhanced Savings program, with its competitive rate and robust FDIC insurance coverage, continued to attract significant cash this quarter, partially offsetting a decline in client suite balances largely due to quarterly fee billing and cash sorting activity. Total bank loans increased 1% from the preceding quarter to $44 billion, reflecting muted loan demand to our target markets, giving rising rates and the macro economic uncertainty.

And the bank segment, we remain focused on fortifying the balance sheet with diversified funding sources and prudently growing assets to support client demand.

We have seen securities based loan payoffs decelerate and are starting to experience growth.

We expect demand for these loans to recover as clients get comfortable with the current level of rates.

With little activity in the market corporate loan growth has been tepid, however, spreads have improved and with ample cash sitting on third party banks and lots of capital we are well positioned to land once activity increases.

In closing.

Entering fiscal 'twenty 'twenty four we believe our strong competitive positioning in all of our businesses along with our ample capital and liquidity has us well positioned to drive future growth.

I want to thank our advisors and associates for their continued perseverance and dedication to providing excellent service to their clients each and every day, especially in uncertain times when clients need trusted advice the most.

Paul Reilly: Moving on to slide 6, private client group generated record results with quarterly net revenues of $2.27 billion and pre-tax income of $477 million. Year over year, results were lifted by strong asset based revenues and the benefit of higher interest rates on interest related revenues and fees. The capital market segment generated quarterly net revenues of $341 million and a pre-tax loss of $7 million. Revenue declined 15% compared to the prior year quarter, mostly driven by lower fixed income brokerage and investment banking revenues.

Thank you for all you do.

That concludes our prepared remarks, operator will you open the line for questions.

Thank you.

In order to ask a question. Please press Star then the number one on your telephone keypad.

Our first question comes from Dan Fannon with Jefferies. Your line is open.

Hi, Thanks, I was hoping you could expand upon the record backlog you talked about for advisers, joining your platform, maybe some context around the size and scope of that and also it seems like there is more industry movement, you've mentioned attrition being very low for the year just.

Paul Reilly: However, we were pleased to see a sequential improvement in M&A and advisory revenues this quarter. Additionally, our public finance business had improved results with debt underwriting growing 32% sequentially. The extremely challenging market environment, particularly for investment banking, has strained the near-term profitability of segment results. And as we explained previously, the segment results are negatively impacted by amortization of share-based compensation from prior years, as well as growth investments. We remain focused on managing controllable expenses as near-term revenues are depressed.

Wondering if youre seeing any uptick in terms of attrition across your platform more recently as you mentioned more advisor movement.

That's the industry.

Okay.

Good question I think that first the attrition has still stayed around 1%.

It is slightly up from last year.

The same ballpark kind of rounding so we're happy to see that given the market's been very very competitive if you look at industry data.

Paul Reilly: The asset management segment generated pre-tax income of $100 million on net revenues of $236 million. The increases in net revenues and pre-tax income over the preceding quarter were largely the result of higher assets in PCG fee-based accounts at the beginning of the quarterly billing period, and strong net flows in Raymond James' investment management, which generated $920 million of net inflows during the fiscal fourth quarter, and $2.2 billion of net inflows in the fiscal year.

Is there movement is down about 15% industry wide do you believe the data.

But what we're seeing in terms of what we're not seeing a number of advisors, we're seeing in size of the team.

So just last month, we added a bank platform of 3 billion in assets 27 advisors.

And when we look at the backlog, especially in last two months.

The number of teams that are generating $10 million to $20 million.

Revenue, we've never had so many come through it so.

That has been a really big pickup.

And the pipeline not saying, we're going to close them all but we've never had this many at one time.

Paul Reilly: The bank segment generated net revenues of $451 million and pre-tax income of $78 million. Fourth quarter, NIMM for the bank segment of 2.87% declined for basis points compared to a year ago quarter, and 39 basis points compared to the preceding quarter, primarily due to a higher cost mix of deposits. We continued to add diverse higher-cost funding sources with our Enhanced Savings Program, and consequently shifted more of the lower-cost sweep funding to third-party banks.

We're down to the final kind of.

Negotiating lines, so as well as people that have committed we haven't announced so.

Been a pick up from a little slower activity, but I would say that between last year and this year. It's just last year was larger teams at the end of this year, it's just inefficient number.

Very large teams.

That are in the pipeline.

Thanks, that's helpful.

And then just a question as you think about this coming fiscal year and expenses if the capital markets activity remained somewhat depressed.

Paul Reilly: In a few minutes, Paul Schuchre will discuss this further. While this negatively impacted the bank segment, NIMM, there is an offset in higher RJBDP third-party bank fees, so still, a net positive for the firm overall, while also providing advisors an attracted to positive alternative to offer their clients.

Or around these levels should we think about non comp expense.

Or I guess, how should we think about non comp expense levers that you think are youre looking to pull to potentially improve the profitability and or even maintain profitability in a more challenged revenue environment.

Paul Reilly: Looking at fiscal 2023 results from slide 7, we generated record net revenues of $11.6 billion and record net income available to common shareholders of $1.7 billion, up 6% and 15% respectively over the prior year's records. Additionally, we generated strong returns on common equity of 17.7%. On slide 8, the strength of the PCG and bank segments for the fiscal year primarily reflects the benefit of strong organic growth in the private client group, the successful integration of tri-state capital, and the benefit from higher short-term interest rates.

Yes, I mean for capital markets, specifically most of the expenses are comp expenses.

We have continued to invest in that business even through this difficult environment, we were opportunistic.

As we explained at our analyst day and adding.

So it doesn't Mds.

Particularly to our healthcare group and other groups. So we're still investing in the business long term, we think it's attractive we have a great platform. There really if you look at.

Paul Reilly: When compared to the record activity levels in the year ago period, we could capital mark the growth of the fiscal year.

Losses at the jet segment generated this year.

$50 million of at $135 million of it or so was related to growth expenses and retention expense and deferred comp.

Expenses, our advertising throughout the year, so more than the entire loss of this segment was really growth related to our deferred comp related.

Overall for the firm non compensation expenses, we expect we will continue to grow we manage them very well this year.

I talked about.

Excluding the legal and regulatory and that the loan loss provision very close to that $1 $7 billion target, we laid out a year ago and we expect it to continue growing from this level because a lot of those costs or growth expenses, whether it be the FDIC insurance expense as we continue.

Paul Shoukry: And now, I'll turn it over to Paul Shoukry for a more detailed review of our fourth quarter results. Paul?

Paul Shoukry: Thank you, Paul. Starting on slide 10, consolidated net revenues were a record $3.05 billion in the fourth quarter, up 8% over the prior year and 5% sequentially. Asset management and related administrative fees grew 12% compared to the prior year quarter and 5% sequentially due to the higher assets and fee-based accounts at the end of the preceding quarter.

To put more deposits at the bank.

Ink et cetera. So they were negatively impacted this year by the legal and regulatory after a very benign year last year, but net net we would continue to expect non compensation expenses to grow while also being very focused on managing the controllable expenses that we can manage.

Paul Shoukry: This quarter, fee-based assets declined 2%, which will be a headwind for our asset management and related administrative fees in the fiscal first quarter of 2024, brokerage revenues of $480 million were flat year over year and increased 4% sequentially. Year over year, the lower fixed income brokerage revenues in the capital market segment were offset by higher brokerage revenues in PCG.

While still ensuring high support levels for advisers and their clients.

Great. Thank you.

Our next question comes from Kyle Voigt K B W. Your line is open.

Hi, good evening.

So just with the nearly $1 5 billion of excess capital above that 10% target.

You mentioned the suspension of repurchases in the quarter did in knowing about the regulatory matter I guess, when we think about the pace of repurchases in fiscal 2024.

Paul Shoukry: I'll discuss accountant service fees and net interest income shortly.

Paul Shoukry: Invest in banking revenues of $202 million declined 7% year over year. Sequentially, the 34% increase was driven predominantly by higher M&A and advisory revenues as well as a solid quarter for public finance. We are cautiously optimistic that the environment for M&A is improving and we continue to see a healthy investment banking pipeline and solid new business activity. However, there remains a lot of uncertainty in the pace and timing of deals launching and closing given the heightened market volatility and geopolitical concerns.

Paul should we still think about that $300 million to $350 million per quarter run rate or should we expect a little bit of a catch up.

Given there were no repurchases last quarter.

And given how much excess capital you have on the balance sheet.

Yes, I think when you think about excess capital I would just start with capital prioritization framework.

Paul Shoukry: So while we may not see significant improvement in the next fiscal quarter, we are hoping for better results over the next six to 12 months.

We've been following almost since our inception, really which is first and foremost to use the excess capital to invest in growth.

Paul talked about the prospects that we have for organic growth, which we're pretty bullish on right now just given the pipelines not only <unk>, but really across our businesses.

And then we're also active on the acquisition front looking at opportunities.

A good cultural fit first and foremost, but that would also be good strategic fits.

Paul Shoukry: Other revenues of $54 million were down 33% compared to the prior year quarter, primarily due to lower revenues from affordable housing investments.

And pricing across all M&A right now is challenging because there are gaps between buyers and sellers, but we.

Paul Shoukry: Economics. The pipeline for that business remains strong, but several closing slipped to fiscal 2024 due to higher interest rates. Moving to slide 11, Client's domestic cash sweep and enhanced saving program balances ended the quarter at $56.4 billion, down 3% compared to the preceding quarter and representing 5.1% of domestic PCG client assets. Advisors continue to serve their clients effectively, leveraging our competitive cash offerings. The enhanced savings program grew approximately $2.4 billion in deposits this quarter.

So we feel like we can continue.

Continued dialogue find good opportunities there overtime.

And to the extent that.

We can't invest that capital in growth and we have our ongoing dividend, which is 20% to 30% of earnings.

And then buybacks.

And we do have to play some catch up on the buybacks since we didn't do any this quarter I think we have about 250 million more to offset the issuance associated with Tri State acquisition and two years of share based compensation.

We'll get back to doing that and then we have a commitment to offset dilution going forward, which is about $200 million of.

For the year.

But if we have the excess capital, which we currently have and we.

Paul Shoukry: A large portion of the total cash coming into ESP has been new cash brought to the firm by advisers, highlighting the attractiveness of this product, and Raymond James being viewed as a source of strength and stability. As many eligible clients have now taken advantage of this product, the pace of flows into the enhanced savings program has understandably decelerated.

The price to be attractive then we would obviously be opportunistic above and beyond.

Offsetting the dilution.

Great. Thank you.

And then just for a follow up just to touch on the admin comp line within within the <unk> segment move lower sequentially in the quarter came in a bit lower than expected I guess, if we take a step back and look at the full year that admin comp grew by more than 15%, which is a similar rate to fiscal 2022.

Paul Shoukry: Through Monday of this week, sweep and ESP balances are down approximately $620 million for the month of October. As growth in ESP balances was more than offset by the quarterly fee billings as expected. We continue to believe we are closer to the end of the cash sorting dynamic than we are to the beginning.

Although I think there were some acquisitions in there and some unusual or higher than expected raises I wonder in fact over that period I guess as we look out to fiscal 2024 or over the medium term is how should we think about growth in that admin comp line on a normalized basis.

Paul Shoukry: However, until rates stabilize, we would not be surprised to see further yield seeking behavior by clients. Sweep balances with third-party banks were $15.9 billion at the quarter end, giving us a large funding cushion when attractive growth opportunity surface. The strong growth of enhanced savings program balances at Raymond James Bank has allowed for more balances to be deployed off balance sheet. While this dynamic has negatively impact the bank segments name because of the geography of the lower cost sweep balances being swept off balance sheet, it ultimately provides clients with an attractive deposit solution while also optimizing the firm's funding flexibility.

Hey.

You touched on it between that 16% growth in PC admin comp does include.

Growth investments Charles full year of Charles Stanley's in there as well as all of the support staff.

Advisers that we bring onboard there.

There are compensation that goes into the admin comp as well so.

Yes.

Invest in.

And the platform.

This year, we had on top of that as you pointed out we are very generous in passing on.

The success of the financial success with associates in the form of higher raises last year and that's reflected in these numbers as well.

Going forward.

We are focused on.

Paul Shoukry: Looking forward, we have ample funding in capital to support attractive loan growth. Turning to slide 12, combined net interest income in RJBDP fees from third-party banks was $711 million, nearly flat from the immediately preceding quarter, as a sequential decrease in firm-wide net interest income was offset by higher RJBDP fees from third-party banks. If you recall, on our last earnings call, we anticipated a 5% sequential decline in these interest-related revenues, so we are pleased with the better than expected result, which was partly a function of higher than anticipated yields on RJBDP third-party balances. The bank's segments net interest margin decreased 39 basis points sequentially to 2.87 percent for the Carter, while the average yield on RJBDP balances with third party banks increased 23 basis points to 3.6%.

While expected continued growth in this line item certainly would expect it to.

Be a reduction in the growth rate from what we experienced this year given the aforementioned factors.

Great. Thank you.

Our next question comes from Brennan Hawken with UBS. Your line is open.

Hi, This is Ben Rubin filling in for Brennan. Thank you for taking my question.

I first wanted to ask about the composition of the loan book, we did see some growth in the loan book and the balance sheet for the first time in several quarters.

My first question is how are you thinking about balance sheet growth on the loan side.

Full year 2024, maybe on commercial versus consumer underwriting and then also what type of balance sheet growth does your NII guide.

Interpret it as we look to next quarter. Thank.

Thank you.

Yes, the near term NII guide.

Factors and very modest loan growth just given.

The environment is still being pretty intense.

Paul Shoukry: While there are many variables that will impact actual results, absent any changes to short-term interest rates, we currently expect combined net interest income in RJBDP fees from third party banks to be around 5% lower in the fiscal first quarter as compared to the fiscal fourth quarter. And that's just based on spot balances after the fee billings is quarter. As experience over the past two quarters, this guidance may prove to once again be conservative if cash-weap balances stabilize around current levels and or if the bank assets grow more than anticipated during the rest of the quarter.

Demand being pretty muted, particularly on the corporate side now, but we were pleased to see the growth during the quarter and a lot of a lot of it was driven by securities based loans and residential mortgages and while we expect mortgage volume to decelerate given much higher rates now.

We are optimistic about the securities based loan portfolio in both Raymond James Bank and Tri State as we look forward over the next 12 months.

Based on two factors the first is.

The payment the repayments.

Those balances really stabilized.

Paul Shoukry: But as we have always said, instead of concentrating on maximizing them over the near term, we are more focused on preserving flexibility and growing net interest income in RJBDP fees over the long term, which we believe we are still well positioned to do.

As you would expect accelerated significantly as rates were rising almost doubling in some cases.

The last 12 months.

So that is stabilized and we are starting to see new origination and on the tristate capital side a lot of.

Benefits from what they call transitions are essentially existing clients, bringing on.

Paul Shoukry: As many of you may recall, our expectation has always been that the industry would over earn an interest income early on in a rising rate environment and then experience some normalization of interest earnings as clients redeploy their cash to higher yielding alternatives. Moving to consolidated expenses on slide 13, compensation expense was $1.89 billion and the total compensation ratio for the quarter was 62%. The adjusted compensation ratio was 61.4% during the quarter, which we are very pleased with, especially given the challenging environment for capital markets. Non-compensation expenses of $576 million increase one percent sequentially.

Recruiting new advisors. So we are optimistic about that portfolio going forward over the next 12 months.

I would just add we are open for business.

We have more than adequate cash buffer certainly the capital and its really just the loan demand. So hopefully the spl's continue to go from being repaid.

Starting to grow as we saw the indication last quarter.

The mortgage businesses, obviously slow.

The commercial loans, we're open to it but it's a very slow market.

Spreads are widening for the deals that are coming out but again it is.

More of a muted market. So you saw this quarter were open for business. We just have to find the loans we're.

We're comfortable with.

Great. That's very helpful. And then for my follow up I'll kind of touch back on what Dan's first question about net new assets, So net new asset growth in the quarter was 5%.

Paul Shoukry: As Paul Riley mentioned earlier, the fiscal fourth quarter included the incremental provision related to the previously disclosed SEC industry sweep on off-platform communications of $55 million. Resulting an impact during the quarter of 26 cents per deluded share.

A bit below the high single digit percentages you guys have been printing in recent years I was just wondering if you can give me some color. If there was any noise any advisor departures that were lumpy that may have impacted the quarter and why theyre not this.

Paul Shoukry: Combined with the provision in the fiscal third quarter, we are confident that we are now fully reserved for this matter. The bank loan provision for credit losses for the quarter of $36 million increased $2 million over the prior year quarter and decreased $18 million compared to the preceding quarter.

Call It mid single digit range is.

A more appropriate or should we kind of or is it some revert back to the high single digits. Once the advisor market. If it does improve from here. Thank you.

I think for the quarter.

It's been a dynamic year and a lot of ways in terms of as you look at adviser Count I think we had one program that we previously talked about that we exited from the platform. We've got 60% of the advisor is 40% less than it costs us $4 six.

Paul Shoukry: I'll discuss more related to the credit quality in the bank segments shortly. In summary, while there has been some noise with elevated provisions for legal and regulatory matters this year, adjusted non-compensation expenses, excluding loan loss provision and those legal and regulatory provisions came in very close to our annual expectation of $1.7 billion. Reinforcing that we remain focused on managing expenses while continuing to invest in growth in ensuring high service levels for advisors and their clients.

A billion in assets 60 advisers, but we think from a profitability and long term it was the right program.

If you look just this month again, adding a $3 billion bank program in 'twenty Southern advisors just recruit.

A lot of big projects like that so.

We're still optimistic whether we can do.

Just to double digits, we had a couple of quarters as you know that's a big number.

Depending on the markets, but.

Paul Shoukry: Slide 14 shows the pre-tax margin trend over the past five quarters. In the current quarter, we generated a pre-tax margin of 19.2% in adjusted pre-tax margin of 20.3%, a strong result given the industry-wide challenges impacting capital markets in the aforementioned legal and regulatory provision. On slide 15, at quarter end, total average assets were 78.4 billion dollars, a 1% sequential increase. Liquidity and capital remain very strong. RGF corporate cash at the parent in the more than double the regulatory requirements to be well capitalized.

We expect to do very very well, but that will be up to kind of recruiting and what happens to the capital markets.

Hello, actually I think that talk.

Oh, great. Thanks for taking my questions.

Our next question comes from Steven <unk> with Wolfe Research Your line is open.

Good afternoon, Paul and Paul.

Hey, Jamie.

Hey, so wanted to start off with a question on spread revenue came in better than your guidance in the quarter. It also trended better than what we saw at some of your peers and given you have a larger proportion of client cash that swept to third party banks.

To what extent extended the spread revenue benefited from improved pricing.

From those partner banks provide any incremental boost we know banks are seeking out alternative sources of liquidity. There's a lot of demand for that whether you benefited for many improved pricing on some of those third party sweeps.

Paul Shoukry: The 11.9% Tier 1 leverage ratio reflects nearly 1.5 billion dollars of excess capital above our conservative 10% target, which would still be two times more than the regulatory requirement to be well capitalized. Our capital levels continue to provide significant flexibility to continue being opportunistic and invest in growth.

I think our better performance than many peers is really just a reflection of our long term focus.

Kind of maintaining a flexible.

<unk> approach.

Focus on giving clients as much FDIC insurance as possible and you see that with the.

The growth in enhanced savings program balances, which gave us more flexibility in that dry powder that.

Paul Shoukry: We also have significant sources of contingent funding. We have a $750 million revolving credit facility and nearly $9.5 billion of FHLB capacity in the bank segment.

Effectively puts more sweet balances with third party banks as we.

Wait growth of the bank's balance sheet as Paul discussed earlier.

Paul Shoukry: Slide 16 provides a summary of our capital actions over the past five quarters. During the fiscal year, the firm repurchased 8.35 million shares of Common Stock for $788 million, an average price of $94 per share. As of October 25, 2023, approximately $750 million remained available under the Board's approved Common Stock Repurchase Authorization.

And that's in that dynamic as you pointed out Steve is absolutely correct that the banks the demand from third party banks.

Only increasing by the week.

Contracts for new.

We are able to renew at more favorable terms. So that played a role but bigger picture of what really played a role was us just maintaining that sort of long term flexible approach to managing the balance sheet and operating clients as much FDIC coverage as we possibly can.

Paul Shoukry: While we didn't complete any repurchases in the fourth quarter due to self-imposed restrictions just to be prudent given our knowledge of the aforementioned SEC off-platform matter, we remain committed to our planned repurchases to offset delusion from the Tri-State Capital Acquisition and the share-based compensation as we previously discussed.

Various products.

That's great and for my follow up wanted to drill down into some of the October deposit trends Paul that you had cited.

Given the sensitivity of spread revenue to changes in deposit mix I was hoping you could provide some additional granularity disaggregated this sweep and ESP deposit levels and maybe help size the impact of the advisor payout.

Paul Shoukry: Lastly, on Slide 17, we provide key credit metrics for our bank segment, which includes Raymond James Bank and Tri-State Capital Bank. The bank loan allowance for credit losses on corporate loans as a percent of total corporate loans held for investment was 2.03% at quarter end.

Indeed.

When you say the advisor payout are you referring to the.

Quarterly fee billings or what are your quarterly fee billings, which honestly I care less about that I really just was hoping to get the ESP and sweep deposit levels disaggregated given the sensitivity.

Got it.

Yes. So we were we were down a couple of days ago $600 million, but this does bounce around from day to day I mean, we added $200 million positive day.

Yesterday, so at quarter end, we had a $500 million.

So the balances are at numbers, we're not used to high and low coming in and out.

Paul Shoukry: We believe this represents an appropriate reserve, but we are continuing to closely monitor any impacts of inflation, supply chain constraints, higher interest rates, and a potential recession on our corporate loan portfolio. Given industry-wide challenges, we continue to closely monitor the commercial real estate portfolio, and more specifically the office portfolio. We have prudently limited the exposure to office loans, which represents just 3% of the bank's segments total loans.

But the enhanced savings program is up probably 200 $300 million so far this month.

And so the net.

Offsetting that would obviously be the sweep balances, which frankly are doing much better than we would have expected given that we had quarterly fee billings earlier this month as well so net net cash to be down 500, 600, when you add those two components, considering the $1 $2 billion.

Paul Reilly: Now, I'll turn the call back over to Paul Reilly to discuss our outlook. Paul? Thank you, Paul.

Quarterly fee billings were pretty pleased with our situation right now, but again, it's day to day to change today Tomorrow. So we are going to monitor it closely.

Paul Reilly: As I said from the start of the call, I am pleased with our results for the fiscal 2023 and our ability to generate record earnings even in challenging market conditions. The record results this fiscal year once again highlight the strength of our diverse and complementary businesses. And while there is still near-term economic uncertainty, I believe we are in a position of strength and are well positioned to drive growth over the long term across all of our businesses.

Alright.

Important thing for Us I mean, just not on earnings.

The fact that we have so much money to third party banks that we could use as we wanted it.

And nobody really.

Very important.

Haven't been borrowing so we have a lot of comfort to be able to go ahead and still have all the flexibility we need.

That's been the mix change with ESB.

Paul Reilly: In the private client group, next quarter results will be negatively impacted by the 2% sequential decline in assets and fee-based accounts. Near-term, we expect some headwinds to interest sensitive earnings at both PCG and the bank's segment, given ongoing cash sorting activity. However, I am optimistic we will continue delivering industry-leading growth as current and prospective advisors are attracted to our client-focused values and leading technology and product solutions. Our advisor recruiting activity has picked up significantly over the last two months, with record numbers of large teams in the pipeline.

With higher deposit costs, that's what you've been saying.

Yes.

Got it that's helpful color. Thanks for taking my questions.

Thanks, Steve.

Our next question comes from Mark Mclaughlin with Bank of America. Your line is open.

Hi, Thanks for taking my question I was hoping you could provide us with some more color around deposit costs mix and specifically the pickup in money market and savings account yield.

Yes, so I think we just sort of covered.

Growth in enhanced savings program balance for us I mean in terms of the deposit cost that is the biggest factor because that those costs.

Paul Reilly: In the capital market segment, as we saw this quarter, there are some signs of improvement in investment banking, and we continue to have a healthy M&A pipeline and good engagement levels. But while there is still a reason for optimism, we expect the pace and timing of transactions to be heavily influenced by market conditions and would expect activity to likely pick up over the next 6-12 months.

Somewhere around 5% so to the extent that the mix of the total client cash balances shift to those savings program balances.

Youre picking up probably 350, or so three five percentage points of the cost.

Effectively.

So I would say that's probably the biggest factor.

The higher deposit cost.

Paul Reilly: And in the fixed-income space, the dynamics of the last year persist. Depository clients are experiencing declining deposit balances and have less cash available for investing in securities, putting pressure on our brokerage activity. We hope once rates and cash balances stabilize, we can start to see an improvement. So while there are some near-term challenges, we believe the capital market's business is a whole position for growth, given the investments we've made over the past 5 years, which have significantly increased our productive capacity and market share.

And why you saw the NIM really contracts sequentially was largely due to intentionally growing the higher cost deposits, but again a lot of.

A lot of that is geography, because effectively what we've done is raise the higher cost deposits in the bank segment.

Savings program and then.

Essentially shifted more of the lower cost sweet balances to third party banks and so that shows the NIM at the bank segment contracting sequentially, but you see the corresponding benefit to.

The firm with third party fees, which shows up in the <unk> segment and Thats why as Steve pointed out we were able to generate better than expected and better than industry trends at least on a.

Paul Reilly: In the asset management segment, financial assets under management are starting the fiscal quarter down 2%, compared to the preceding quarter, we should create a headwind or revenue. We remain confident that strong growth of assets in fee-based accounts and a private client group segment will drive long-term growth of financial assets under management.

A sequential basis.

Yes, very clear I appreciate that context.

Also for my follow up how is feedback and adoption for Rcs, Ben just curious on what the mix between outside advisers, joining the platform was versus the transition of existing advisers on the platform.

Paul Reilly: Management. In addition, we expect Raymond James Investment Management to help drive further growth through increased scale, distribution, operational, and marketing synergies.

I think that the.

Growth has been great.

Paul Reilly: In the bank segment, we remain focused on fortifying the ballot sheet with diversified funding sources and prudently growing assets to support client demand. We have seen securities based loan payoffs decelerate and are starting to experience growth. We expect demand for these loans to recover as clients get comfortable with the current level of rates.

Over 10% now of our assets and the Rcs Division.

When we first probably opened up we had a bigger movement of internal people who wanted to go.

Just switch platform.

Again, thats part of the noise that advisor count.

Advisors move from our employer independent Division, we count them as advisors and what sort of in the Rcs.

Theyre not registered.

Paul Reilly: With little activity in the market, corporate loan growth has been tepid. However, spreads have improved and with ample cash sitting on third party banks and lots of capital, we are well positioned to lend once activity increases.

So one firm right. So we drop about of the advisor count so, but the assets that state I think the proof point and that is the growth.

<unk> assets, which I think for the year and for the quarter have been above most of the players in the market.

Paul Reilly: In closing, entering fiscal 2024, we believe our strong competitive positioning in all of our businesses, along with our ample capital and liquidity, has us well positioned to drive future growth. I want to thank our advisors and associates for their continued perseverance and dedication to providing excellent service to their clients, each and every day, especially in uncertain times when clients need trusted advice the most. Thank you for all you do.

It's.

Bead in the recruiting outside has picked up to now.

<unk> gotten the platform much more robust.

Kris the technologies.

<unk>.

Hopefully the long term growth will come.

From the outside but we do have.

People here, if they want to operate in the raw mats are welcomed switch affiliation options, but that has slowed down over the last couple of years from the initial opening of it.

Okay.

I appreciate the color thanks, guys.

Unknown Executive: That concludes our prepared remarks.

Our next question comes from Jim Mitchell with Seaport Global Your line is open.

Unknown Executive: Operator, will you open the line for questions? Thank you. In order to ask a question, please press star then the number one on your telephone keypad.

Thanks, Good afternoon, guys maybe.

Maybe Paul I mean, you talked a lot about.

Dan Hannon: Our first question comes from Dan Hannon with Jeffries. Your line is open. Thanks.

Sorting I guess, starting to decelerate ESP growth decelerating you have some pricing benefit on.

Paul Reilly: It was hoping you could expand upon the record backlog you talked about for advisors joining your platform, maybe some context around the size and scope of that. Also, it seems like there is more industry movement. You mentioned attrition being very low for the year, just wondering if you're seeing any uptick in terms of attrition across your platform more recently, as you mentioned, more advisor movements across the industry. Good question. I think that first, the attrition still stayed around 1%, that's slightly up from last year, but it's the same ballpark kind of rounding.

On third party sweeps, if we look beyond the first quarter or next quarter in terms of the guidance on rate sensitive revenue do you start to see things stabilizing I guess I'm not asking for specific guidance, but if you kind of help us think through the puts and takes on when we start to see those revenues may be.

<unk> potentially stabilize.

I don't think anyone can really tell you exactly when cash sorting will fully stabilize across the industry I know a lot of firms have and try to convince you of that for the last 12 months to 18 months, but we've tried to be pretty transparent with you guys and so what we have said in the last three months at least is that we feel like.

Paul Reilly: So we're happy to see that given the market's been very competitive. If you look at industry data, advisor movements found about 15% industry-wide if you believe the data. But what we're seeing in terms, what we're not seeing a number of advisors, we're seeing in size of teams. So just last month, we added a bank platform and freed bay in an asset 27 advisors. And when we look at the backlog, especially in the last two months, the number of teams that are generating 10 to 20 million dollars of revenue, we've never had so many come through it once.

We're closer to the end of the sorting dynamic than the beginning.

You are seeing that in the numbers.

But we're not going to sort of declare that dynamic until we have several months.

Data to support that.

But to your point longer term, we are excited about the position that we're in now with the strong capital position with the $16 billion almost of cast with third party banks that gives us a lot of dry powder to really grow the balance sheet when the attractive opportunities come and we think we'll be in a position of strength.

Paul Reilly: So that has been a really big pick-up that's in the pipeline, not saying we're going to close them all, but we've never had this many at one time where we're down to the final kind of.., of Negotiating Line. So, as well as people that are half committed, we haven't announced. So, it's been a pick up from a little slower activity, but I would say that between last year and this year is just last year with larger teams that the end this year is just a significant number of very large teams that are in the pipeline.

There because not a lot of other firms in our space, we will have the capital and funding too.

Pursue attractive growth so we're in a great position again.

It's a reflection of that long term client focus the flexible balance sheet that we have always strived to maintain even when being criticized for it.

Over the last few years, but it puts us in a pretty good position now I think Jim I think for us to really be able to call it and thats really what that is.

Just rates stabilize if the fed was starting to raise rates again that ultimately have securities money market funds that you have a higher rate of competitors you have to raise rates.

Unknown Executive: Thanks, it's helpful.

Paul Reilly: And then just a question as you think about this coming fiscal year and expenses, if the capital market's activity remains somewhat depressed or around these levels, should we think about non-copic expense or how should we think about non-copic expense and levers that you think or you're looking to pull to potentially improve the profitability and or even maintain profitability in a more challenged revenue environment. Yeah, I mean, for capital market specifically, most of the expenses or comp expenses, we had continued to invest in that business.

That's really the dynamic.

And it appears that the fed is closer to the end of the cycle of doing that and rates stabilize I think sorting will stabilize also.

Alright, that's fair and maybe just as a follow up on the on the credit side.

Some pretty big additions to reserves, you said you feel comfortable.

I guess, what what changes that.

You mentioned macro just trying to think through how you are feeling about the credit provision story, there given that loan growth has been pretty flattish.

We think credits or <unk>.

The profile, we like the risk we've always.

Paul Reilly: Even through this difficult environment, we were opportunistic as we explained in our analyst day and adding about a dozen MDs, particularly to our healthcare group and other groups. So, we're still investing in the business long term. We think it's attractive. We have a great platform there. Really, if you look at the losses that the segment generated this year, about 150 million of it, 135 million of it or so was related to growth expenses and retention expenses that were advertising throughout the year.

Try to be proactive on adding to reserves to make sure we're well reserved.

Often our head.

Head of movements.

One thing we don't control some times as our models some of our macroeconomic models are based on movies that they changed their outlook the impact to us.

But we try to stay ahead of the credit Mark.

As you can see in <unk> through a very tough credit period, we did pretty well, but we're pretty credit tough.

Maybe what's different this cycle starting in Covid.

We have sold off loans, so we didn't like the credit yield.

Paul Reilly: So, more than the entire loss of the segment was really growth related or deferred, comp related. So, overall, for the firm, non-compensation expenses, we expect will continue to grow. We manage them very well this year. When we talked about excluding the legal and regulatory and the long-lost provision, very close to that $1.7 billion target we laid out a year ago, and we expected to continue growing from this level because a lot of those costs are growth expenses.

Trade off and risk tradeoffs.

To do that kind of a one off basis. So thats been an extra tool that we've used to manage credit. So we're feeling pretty good now the economy spins out of control.

We've got other issues, but it seems like even if things slow down which they may.

As long as people are employed and buying.

We think we will get through it pretty well.

Alright, so the additions are more macro.

Driven rather than specific concerns internally.

Paul Reilly: Whether it be the FDIC insurance expenses, we continue to put more deposits at the bank, et cetera. So, they were negatively impacted this year by the legal and regulatory after a very nine year last year, but net, net we would continue to expect a non-compensation expenses to grow while also being very focused on managing the controllable expenses that we can manage while still ensuring high support levels.

Yes, I would say the addition this quarter.

A number of items specific loans, where we also have tried to get in front of it with.

Unknown Executive: Thank you.

All reserves when possible. There are also modest amount I think charge offs were flat sequentially.

Nothing dramatic.

Good about the portfolio overall.

I'm trying to get ahead of things, especially when the market environment.

Perfect.

Predictable as it is as Paul said, we're last quarter. The macro has a bigger impact this quarter wasn't a big macro outlook change this quarter.

Kyle Voigt: Our next question comes from Kyle Voight with KVW.

Yeah.

Okay, great. Thank you very much.

Kyle Voigt: Your line is open.

Kyle Voigt: Hi, good evening. So, just with the nearly 1.5 billion of excess capital above that 10% target, you mentioned the suspension of repurchases in the quarter due to knowing about the regulatory matter. I guess when we think about the pace of repurchases in fiscal 2024, polish would be still thinking about that 300 to 350 million per quarter run rate, or should we expect a little bit of a catch up given there were no repurchases last quarter and given how much excess capital you have on the balance sheet.

Our next question comes from Devin Ryan with JMP Securities. Your line is open.

Okay, great. Thanks, Paul Paul.

Most have been covered here, but.

Do you want to just touch on the fixed income businesses.

Briefly so that underwriting obviously had its best quarter in some time it can be a little bit of seasonality there, but did have a better result than some peers. So just curious whether that's some idiosyncratic deals or if you're actually seeing the conditions for that business, maybe starting to improve a little bit from depressed levels and then I guess Conversely to fixed income.

Paul Reilly: I think when you think about excess capital, I would just start with the capital prioritization framework that you know we've been following you know almost since our inception really which is first and foremost to use the excess capital to invest in growth. We're looking at opportunities you know that are good cultural fits first and foremost but that would also be good strategic fits and pricing across all M&A right now is challenging because there are gaps between buyers and sellers but you know we feel like we can you know through continued dialogue finds good opportunities there over time.

Brokerage.

Business took a little bit of a step lower from already a pretty tough level. So just whether you see any catalysts on the horizon that could drive better results there as well.

I think the fixed income debt certainly the activity was up we did have a pretty big deal in the quarter also so that was part of the pickup.

And its long term client, where we are in the rotation that would be.

<unk>.

Our term for kind of the big underwriting. So so it's a little bit of both I would say, but certainly the big deal had an impact.

I just.

The lack of interest rate kind of is.

Paul talked about with the depository.

Without excess cash there waiting for stabilized them to so that part of our franchise has certainly been slow and I think in general the trading has been.

Paul Reilly: And then to the extent that you know we can't invest the capital in growth and we have this you know our ongoing dividend which is 20 to 30% of earnings and then buybacks and we do have to play some catch up on the buybacks since we didn't do any this quarter I think we have about 250 million more to offset the issuance associated with tri state acquisition in two years of share base compensation. So we'll get back to doing that and then you know we have a commitment to offset delusion going forward which is about 200 million dollars a year but if we have the excess capital which we currently have and we deem the price to be attractive then we would obviously be opportunistic above and beyond that offsetting of delusion.

If you look at spreads whether in AAA munis or mortgage securities or stuff, that's up very high spreads right now people are just.

Waiting for rates to pick up because certainly the spreads there are higher than they've been in a while but the activity is not way up so.

I think people are waiting to feel like they know where interest rates are going to stabilize and until then that's going to be a tough business, maybe a little better it's hard for to get a lot lower.

Not impossible.

But.

When it really picks up as I think youre going to have to see more of a stabilized outlook and interest rates.

Got it okay.

Paul Shoukry: Great thank you and then just for follow up so I touched on the admin comp line within within the PCG segment move lower sequentially in the quarter came in a bit lower than expected. I guess we take a step back and look at the full year that admin comp grew by more than 15% which is a similar rate to fiscal 2022 although I think there were some acquisitions in there and some unusual or higher than expected raises.

The Big AD has been some rich has done extremely well since joining us.

They've been a great addition, and well ahead of.

What we would expect the traditional business.

But at Loews, given this interest rate environment.

Yes.

Got it okay. Good color there and then just follow up briefly just on kind of corporate M&A here.

Here, all the comments around growth opportunities with capital and obviously.

Paul Shoukry: I wanted to affect over that period I guess as we look out to fiscal 2024 or over the medium term is how should we think about growth in that that admin comp line on a normalized basis. Hey you you touched on it but I mean that's 16% growth in PCG admin comp does include growth investments Charles full year of Charles families in there as well as all of the support staff for all of the advisors that we bring on board.

The opportunistic buybacks, but just more broadly how you would just characterize the flow of deals youre seeing across the firm right now.

And then just where the appetite is at the moment, just given the higher cost of capital.

How much of that calculation, maybe appetite for M&A has changed because you guys clearly have been acquisitive over the last several years here.

I think that first.

Cost of capital is impacting deals.

Paul Shoukry: That their compensation that goes into the admin comp as well so you know we invest in the in the platform and in this year we had on top of that as you pointed out we are very generous in passing on you know the success of the financial success with associates in the form of higher raises last year and that's reflected in these numbers as well. Looking forward we are again focused on well expected continued growth in this line item certainly would expect it to sort of be a reduction in the growth rate from what we experienced this year given the aforementioned factor.

Two things first it's pricing so with the buyers the cost of capital, saying well this is significantly higher.

Pricing has been slower to come down which isn't unusual in other M&A cycles that I've lived through.

Prices slowest to adjust.

So.

We have empathy for our M&A bankers, we'd look effects too we have the same thing with you looked at.

Unknown Executive: Thank you.

That was free and then you layer on a seven or eight or whatever the cost rate is especially for a lot of M&A firms, where its more higher risk that impacts.

Impacts to pricing just asked.

So.

We see that both in the M&A business is back up so you can see people do.

Doing deals now in the fourth quarter, we don't expect next quarter to be a lot different but backlog is good people are waiting but.

Brennan Hawken: Our next question comes from Brennan Hawken with UBS. Your line is open. Hi, this is Ben Rubin, filling in for Brennan. Thank you for taking my question. I first want to ask about the composition of the loan book. We did see some growth in the loan book and the bounty for the first time into several quarters.

That gap, which I think a lot of its lending pricing.

Cost of capitals impacting as you can see it.

All of the firms.

And I'd say the same thing when we run numbers that has an impact even with our excess capital we assume we have to replace it.

Paul Shoukry: I guess my first question is how are you thinking about balance sheet growth on the loan side in fiscal year 2024, maybe on commercial versus consumer underwriting, and then also what type of balance sheet growth does your NII guide interpret as we look to the next quarter. Thank you. Yeah, the near term NII guide factors in very modest loan growth just given the environment still being pretty in terms of the demand being pretty muted, particularly on the corporate side now.

It makes it tougher most prices most prices adjust a little bit.

Our cost of capital falls, that's going to be harder.

People, just waited out long enough ago, okay to lower prices the new price.

It's going to take one of those factors were to really pick up. So that's why we gave more of a six to 12 months.

Outlook in our M&A business, we think that the markets starting to see that but let's see if that adjusts or not.

Don't think it's going to happen overnight.

Paul Shoukry: But we were pleased to see the growth during the quarter and a lot of it was driven by securities baselones and residential mortgages. And while we expect mortgages volume to decelerate given much higher rates now, we are optimistic about the securities baselone portfolio. And both Raymond James Bank and Tri State as we look forward over the next 12 months. And that's based on two factors. The first is the repayments of those balances have really stabilized as they as you would expect accelerated significantly as rates were rising, you know, almost doubling in some cases over the last 12 months.

Okay, that's great I'll leave it there thanks, guys alright, thanks Ed.

Our final question comes from Michael Cyprus with Morgan Stanley. Your line is open.

Hey, good evening. Thanks for squeezing me in here just a question on the bank capital rules, we've seen some proposals from the banking regulators, including the Basel III and gained proposal just curious how you see that impacting the opportunity set for your capital markets business given your under the 100 billion asset threshold. Just curious how you think about the opportunity set for yourselves, but Dennis.

Look out.

Over the coming years Im sure. Eventually you would probably help you cross a $100 billion and grow to that level, just how do you think about that impacting potentially.

Paul Shoukry: And so that is stabilized. And we are starting to see new originations. And on the Tri State capital side, a lot of benefit from what they call transitions are essentially existing clients bringing on and recruiting new advisors. So we are optimistic about that portfolio going forward over the next 12 months. I would just add, you know, we are open for business. We have more than adequate cash and offer certainly the capital. And it's really just the loan demands. So hopefully the SPLs continue to go from being repaid to starting to grow as we saw the indication last quarter.

Your capital markets business, which areas you think might be more impacted and how do you think about preparing for that.

Well a couple of things first.

78 billion and 1% growth.

It's going to take a lot of course, a lot of time does that 100.

Think people forget that one of the big jumps in our assets because of the Tri State acquisition.

We have no plans to acquire another bank.

In fact, it took us five years, we're looking to acquire Tri state, which was the perfect fit joining the family but.

But we're not looking for another banking franchise.

Anything else we do.

Typically drive our asset size.

Paul Shoukry: The mortgage business is obviously slow. And the commercial loans were open to it, but it's a very slow market. And spreads are widening for the deals that are coming out. But again, it's more of a muted market. So you've filed this quarter. We're open for business. We just have to find the loans that we're comfortable with. So. Great. That's very helpful.

So we think we've got it.

Certainly.

I would say five years.

Across and then.

Did you get a year to comply so.

It could be much longer so.

Most of all the rules as excited there was the $100 million and so I think we have time to do that having said that we're already in internally doing studies on the impact.

Paul Reilly: And then for my follow up, I'll kind of touch back on what Dan's first question about net new asset. So net new asset growth in the quarter was 5%. It's a bit below the high single digit percentages you guys have been printing in recent years. I was just wondering if you can give me some color. If there was any noise, any advisor departures that were lumpy, that may have impacted the quarter.

Reporting requirements the capital requirements.

The technology.

Everything thats going to be impacted.

Regulatory expectations, which do change.

<unk> 100 billion, so we have both inside and outside.

We've been hiring some people and this is.

Paul Reilly: And why they're not this, let's call it mid single digit range is a more appropriate or should we kind of, is it some revert back to the high single digits once the advisor market, if it does improve from here. Thank you. I think for the quarter, I mean, we've, it's been a dynamic year in a lot of ways in terms of, as you look at advisor count, I think that, you know, we had one program which we previously talked about that we existed from the platform, we kept 60% of the advisors 40% left and it cost us 4.6, you know,[inaudible] drill down into some of the October deposit trends, Paul that you had cited.

Kind of five years in advance so we're not we're not taking it for granted we know it will grow.

But as you said almost $100 billion type became the old $500 billion before they changed the rule within $250 billion. So that has brought a lot of those rules down.

For us significantly.

Higher and.

Higher lift, but I think right now.

That's in the future for us is still a ways.

Just add one thing to that timeline.

The reason it will be we expect to be around that long is because.

One of the things we did during COVID-19.

<unk> really accommodated client cash balances on the balance sheet the securities portfolio and so we expect over the next year for example for a lot of the banks loan growth to be essentially funded with securities that mature out of that portfolio. So you don't get as much net growth.

EBIT from.

The loan growth because it is a repositioning of those assets.

Thanks, Paul that's a good clarification, because we still expect to grow the bank loan portfolio.

That's being funded on balance sheet and off balance sheet.

Great and just a follow up on that point as banks that are impacted by the rules either pull back in certain areas or reprice certain products. How do you think about the opportunity set for you guys to step in and given that the rules apply for you for many years, where do you see the biggest opportunity set for your capital markets business or more.

Broadly from these rules impacting a lot of banks.

I think if you looked at acquiring capital markets businesses are fixed income businesses or asset management business is really doing it.

Significantly impact our asset size so.

No.

What would really impact us acquiring a bank because you're acquiring balance sheet those businesses, especially the M&A.

Fixed income.

Even today we operate.

With Morgan Keegan joined Us seven or eight years ago, we had $1 billion of inventory.

Inventory of today, we have less we've operated well under 1 billion that inventory so high.

We think theres a lot of room to acquire a lot of business those businesses in that space without really.

Altering.

Sure trajectory I talked about to a $100 billion.

Banking side, the impacts of the balance sheet.

And thats not our focus.

Okay. Thank you.

This.

<unk>, our Q&A session I will now turn the call back to Paul Reilly for closing remarks.

So first I appreciate the time, it's Ben.

It really outside of kind of a regulatory charge it would've been a really outstanding quarter that still is a very good quarter.

So we're focused still going into an uncertain market.

We've always I think.

And our business have outperformed because of our capital and cash, especially in down markets would be nice to be enough capital markets at us.

Interest rates to come in and then it will be.

I have an easy year, but we always assume we have to work hard every year market is competitive so.

Just doing what we've done we've been managing expenses a lot of people said what are you going to do to manage expenses, we have been doing that especially over the last few quarters.

Paul Shoukry: We're going to, we're going to, we're going Given the sensitivity of spread revenue to changes in deposit mix, I was hoping you could provide some additional granularity, disaggregating the sweep and ESP deposit levels, and maybe help size the impact of the advisor payout. When you say the advisor payout, are you referring to the quarterly fee billings or what do you, the quarterly fee billings? Which honestly, I care less about that. I really do.

And plan to continue to do that so.

We can see.

Growth to support those so I appreciate you joining the call and all the time spent with us.

We'll talk to you soon.

This concludes today's conference call. Thank you for your participation you may now disconnect.

Please wait the conference will begin shortly.

[music].

Paul Shoukry: We're hoping to get the ESP and sweep deposit levels, this aggregated, given the sensitivity. Yeah, so we were down, as a couple days ago, 600 million, but this does bounce around from day to day. I mean, we had a 200 million positive day yesterday. So the quarter end, we had 500 million dollars, you know, so the balances are at numbers. We're not used to high end low coming in and out. But we, the enhanced savings program is probably 200 to 300 million dollars so far this month.

Yes.

Yes.

Yes.

Yes.

[music].

Paul Shoukry: And so the net and the offset to that would obviously be the sweet balances, which frankly are doing much better than we would have expected, given that we had, you know, the quarterly fee billings earlier this month as well. So net net for cash to be down 500 to 600 when you add those two components, considering the one point. $2 billion of quarterly fee billings were pretty pleased with our situation right now.

Paul Shoukry: But again, the day to day, you can change today or tomorrow. So we're going to monitor it closely. No, thank you for making sure you can do that. The important thing for us, I mean, just not on earnings, but the fact that we have so much money to third party back so we could use if we wanted it. And, you know, and we really haven't been borrowing. So we have a lot of comfort to be able to go ahead and still have all the flexibility we need. But there has been the mix change with ESB with higher deposit costs, that's what you've been seeing that net net. That's helpful color. Thanks for taking my questions.

Mark Mclaughlin: Our next question comes from Mark McLaughlin with Bank of America. Your line is open. Hi, thanks for taking my question.

Paul Shoukry: I was hoping you could provide us with some more color around deposit costs next, and specifically the pickup and money market and savings account yield. Yeah, so I think, you know, we just sort of covered the growth and then hand savings program balance for us. I mean, in terms of the deposit cost, that is the biggest factor because that those costs somewhere around 5%. And so to the extent that the mix of the total client cash balances shift to those enhanced staming program balances, you know, you're picking up probably 350 or so 3.5 percentage points of cost effectively.

Paul Shoukry: So I would say that's probably the biggest factor and the higher deposit costs. And why you solving them really contracts. Sequentially was largely due to us intentionally growing the higher cost deposits, but again a lot of that is geography because effectively what we have done is raise the higher cost deposits, the bank segment to the hand savings program and then essentially shifted more of the lower cost sweet balances to third party banks and so that shows the name at the bank segment contracting sequentially but you see the corresponding benefit to the firm with third party fees which shows up in the PCG segment and that's why as Steve pointed out we were able to generate you know better than expected and better than industry trends at least on this you know so this is Quential Nations.

Paul Reilly: Yep very clear I appreciate that context also for my follow up how is feedback and adoption for RCS Ben was curious on what the mix between outside advisors joining the platform was versus the transition of existing advisors on the platform. I think that the growth has been great you know we're over 10% now our assets in the RCS division. When we first probably opened it we had a bigger movement of internal people who wanted to go RAA that just switched platform which again as part of the noise and advisor count when advisors move from our employer independent division we count them as advisors and once we're in the RCS they're not registered there are a so they're one firm right you know so we drop them out of the advisor count.

Yes.

No.

Paul Reilly: So the assets of state I think the proof point in that is the growth the NNA and assets which I think for the year and for the quarter of and above you know most of the players in the market it's the speed and the recruiting outside is picked up to now that we've gotten the platform much more robust and increased the technology significantly you know hopefully the long term growth will come from the outside but we do have a lot of time. People here if they want to operate in the RAA format they're welcome switch affiliation options but that has slowed down over the last couple of years from the initial opening of it where more people came over. Appreciate the color thanks.

Paul Reilly: Our next question comes from Jim Mitchell with seaport global your line is open. Thanks good afternoon guys maybe Paul I mean you talked a lot about sorting I guess starting to decelerate ESP growth decelerating you have some pricing benefits on on third party sweeps if we look beyond the first quarter or our next quarter in terms of the guidance on rate sensitive revenue. Do you start to see things stabilizing I guess I'm not asking for specific guidance but if you kind of help us think through the puts and takes on when we start to see those revenues maybe potentially stabilize.

Paul Reilly: I don't think anyone can really tell you exactly when cash shorting will fully stabilize across the industry I know a lot of firms have been trying to convince you of that for the last 12 to 18 months but we've been trying to be pretty transparent with you guys. And so what we have said in the last three months at least is that we feel like we're closer to the end of the sorting dynamic in the beginning, are seeing that in the numbers.

Paul Reilly: But we're not going to sort of declare an end to that dynamic until we have several months of data to support that. But to your point, longer term, we are excited about the position that we're in now with the strong capital position, with the $16 billion almost of cash with third-party banks that gives us a lot of dry powder to really grow the balance sheet when the attractive opportunities come. And we think we'll be in a position of strength there because not a lot of other firms in our space will have the capital and funding to pursue that attractive growth.

Paul Reilly: So we're in a great position. Again, it's a reflection of that long-term client focus, the flexible balance sheet that we've always strived to maintain even when being criticized for it over the last few years. But it puts us in a pretty good position now. And I think, Jim, I think for us to really be able to call an end of this really when interest rates stabilize, if the Fed was starting to raise rates again, that ultimately hits securities and it hits money market funds and you have a higher rate competitors, you have to raise rates. I mean, that's really the dynamic. It appears that the Fed is closer to the end of the cycle of doing that and rates stabilize. I think sorting will stabilize also. Right, that's fair.

Paul Shoukry: And maybe just to follow up on the credit side, some pretty big additions to reserves you said you feel comfortable. I guess what changes that you mentioned macro just trying to think through how you're feeling about the credit provision story there given that long growth has been pretty flatish. We think credits are, we like the profile, we like the risk. We've always tried to be proactive on adding to reserves to make sure we're well reserved and often overhead, you know, head of movements.

Paul Shoukry: The one thing we don't control sometimes is our models, some of our macroeconomic models are based on movies that they change their outlook that has an impact to us. But we try to say an end of the credit and more as you could see in 09 through a very tough credit period, we did pretty well, but we're pretty credit tough. Maybe what's different this cycle and starting in COVID, we have sold off loans, so we didn't like the credit yield trade off and risk trade off.

Paul Shoukry: And we continue to do that kind of a one on basis. So that's been an extra tool that we've used to manage credits. So we're failing pretty good now economy spins out and control that you've got other issues, but it seems like even a thing slow down, which they may know as long as people are employed and buying. You know, we think we'll get through it pretty well. Right. So the additions are more macro driven rather than specific concerns internally.

Paul Shoukry: I would say the additions this quarter or sort of a number of item of specific loans, where we, as Paul said, try to get in front of it with, you know, additional reserves when possible. There are also a lot of some now that they charge us for flex sequentially. So we nothing somatic. We feel good about the portfolio overall, but we try to get ahead of things, especially when the market environment is as unpredictable as it is.

Paul Shoukry: Paul Zudden. For last quarter, the macro has a bigger impact than it did this quarter. Wasn't a big macro out with changes this quarter.

Unknown Executive: Okay, great. Thank you very much.

Devin Ryan: Our next question comes from Devin Ryan with JMP Securities. Your line is open. Great. Thanks, Paul. And most have been covered here.

Paul Shoukry: But do you want to just touch on the 16th and businesses? It is briefly. So it did underwriting. Obviously had its best quarter in some time. You know, it can be a little bit of seasonality there, but it did have a better result than some peers. So just curious whether that's some idiosyncratic deals or if you're actually seeing conditions for that business, maybe starting to improve a little bit from depressed levels.

Paul Shoukry: And then I guess conversely the fixed income brokerage business took a little bit of a step lower from already a pretty tough level. So just you know, whether you see any catalysts on the horizon, they could drive better results there as well. I think the fixed income debt certainly the activity was up. We didn't have a pretty big deal in the quarter also. So that was part of the pickup. And it's, you know, long term client, we're in the rotation.

Paul Shoukry: We happen to have a big, you know, our turn for kind of the big underwriting. So it's a little bit of both. I would say, but certainly the big deal had an impact. And I just, you know, the lack of interest. The interest rate kind of his Paul talked about with the depositories. Without XFF cash, they're waiting for stabilize in two. So that part of our franchise has certainly been slow. And I think in general, the trading has been, you know, as you look at spreads, whether in triple in unies or mortgage securities or stuff that have very high spreads right now, people are just, you know, waiting for rates to pick out.

Paul Shoukry: Because certainly the spreads there are higher than they've been in a while, but the activity's not way up. So I think people are waiting to feel like they know where interest rates are going to stabilize until then. It's going to be a tough business. Maybe a little better. It's hard for it to get a lot lower. Not impossible.

Paul Shoukry: But, you know, when it really picks up is, I think you're going to have to speak more of stabilized outlook and interest rates. Got it. Okay.

Paul Reilly: The big add has been some rich has done extremely well to join us. So they've been a great addition and well ahead of what we would expect in the traditional business. This, you know, been at lows, given this interest rate environment. Yeah. Got it. Okay. Good color there.

Paul Reilly: And then just follow up briefly just on kind of corporate M&A. You know, hear all the comments around growth opportunities with capital and obviously, you know, opportunistic buybacks, but just more broadly, how you would just characterize the slow deals you're seeing across the firm right now. And then just where the appetite is at the moment, just given the higher cost of capital, you know, how much of that calculation and maybe appetite for M&A has changed because you guys clearly have been acquisitive over the last several years here.

Paul Reilly: I think the first cost of capital is the packing deals. So it's two things. First, it's pricing. So with the buyers, the cost of capital is saying, well, this is significantly higher and pricing has been slower to come down, which isn't unusual in other M&A cycles that I would, through. The price is slow as to adjust. And so that, you know, we have empathy for M&A bankers because we look at things too, we have the same thing when you look at, you know, debt was free and you layer on a seven or eight or not, whatever the cost of rate is, especially for a lot of M&A firms where it's more virus debt.

Paul Reilly: I mean, it impacts the pricing, it just has to. So, you know, we see that both in the M&A business, it's backed up so you can see people doing deals now in the fourth quarter. We don't expect, you know, the next quarter to be a lot different, but backlogs good, people are waiting, but that gap, which I think a lot of it's from lending pricing and the cost of capitals, impacting it, you can see it in all the firms.

Paul Reilly: And, you know, and I'd say the same thing, when we run numbers, it has an impact, even with our excess capital, we assume we have to replace it. You know, it makes it tougher and the prices, most prices adjust a little bit, or cost the capital falls, it's going to be hard, or people just wait it out long enough and go, okay, the lower prices, the new price, it's going to take one of those factors to really pick up.

Paul Reilly: So, that's why we gave more of a six to twelve month. Outlook in our M&A business, we thank the markets, starting to see that, but let's see if that adjusts or not. I don't think it's going to happen overnight.

Unknown Executive: Okay, that's great.

Unknown Executive: I'll leave it there.

Unknown Executive: Thanks, guys.

Michael Cypress: Our final question comes from Michael Cypress with Morgan's family. Your line is open. Thank you, Dean. Thanks for squeezing me in here. Just a question on the bank capital rules. We've seen some proposals from the banking regulators, including the Basel III and game proposal. Just curious how you see that impacting the opportunity set for your capital markets business, giving you under the hundred billion asset threshold. Just curious how you think about the opportunities set for yourself.

Michael Cypress: But then as you look out, you know, over the coming years, I'm sure eventually you probably hope you cross a hundred billion and grow to that level, just how do you think about that impacting potentially your capital markets business, which areas you think might be more impacted? And how do you think about preparing for that?

Well, a couple of things. First, you know, at our, you know, 78 billion and 1% growth, it's going to take a lot of, you know, a lot of time to hit a hundred. And I think people forget that one of the big jumps in our assets is because of the tri-state acquisition. We have no plans to acquire another bank. In fact, it took us five years of looking to acquire tri-state, which was, you know, the perfect fifth to joining the family.

But we're not looking for other banking franchise. Unless anything else we do doesn't significantly drive our assets wise. So we think we've got to have certainly, you know, I'd say five years, you know, you have to cross, and then you get a year to comply. And it could be much longer. So I, most of all the roles as you cited there was a hundred billion. And so I think we have time to do that.

Now having said that, we're already internally doing studies on the impact of reporting requirements, the capital requirements, you know. The technology, you know, everything is going to be impacted in the regulatory expectations which do change. We're going to cross 100 billion, so we have both inside and outside hell, we've been hiring some people. This is kind of five years and a thing, so we're not taking it for granted, we know we'll grow.

But as she said almost, the 100 billion became the old 500 billion before they changed the rule of 9 250 billion. So it has brought a lot of those rules down for significantly, you know, higher, you know, higher lift, but I think right now that's in the future for us still always. And just to add one thing to that timeline, one of the reasons it'll be, we expect there to be around, you know, that long is because one of the things we did during COVID is really accommodated climb cash balances on the balance sheet to the securities portfolio.

And so we expect over the next year, for example, for a lot of the bank's loan growth to be essentially funded with securities that mature out of that portfolio. So you don't get as much net growth from, you know, the loan growth because it's the repositioning of those assets. That kind of follows a good clarification because we still expect to grow the bank loan portfolio. But it's just as being funded on balance sheet and off balance sheet.

Great. Just to follow up on that point, as banks that are impacted by the rules either pull back of certain areas or reprise certain products, how do you think about the opportunity set for you guys to step in given that the rules won't apply for you for many years? Where do you see the biggest opportunity set for your capital markets business or more broadly from these rules impacting a lot of banks?

I think that if you look at acquiring capital markets, businesses or fixed income businesses or asset management businesses really don't significantly impact our asset size. So, you know, what would really impact it is acquiring a bank because you're requiring balance sheet. Those businesses, especially the M&A, you know, fixed income, you know, even today we operate. You know, when we went work in Keegan, joined us seven or eight years ago, we had a beta inventory.

They had a beta inventory today. We have less, we've operated well under a beta inventory. So, I don't, you know, we think there's a lot of room to acquire a lot of business, you know, those businesses in that space without really, you know, altering the trajectory. I talked about 200 billion. It's the banking side that impacts the balance sheet really. And that's not our focus. Okay.

Thank you.

This concludes our Q&A session. I will now turn the call back to Paul Riley for closing remarks. So, first, I appreciate the time. It's been, you know, really outside kind of a regulatory charge. It would have been a really outstanding quarter. It still is a very good quarter. And so, we're focused still going into an uncertain market, but, you know.., and I, we've always, I think, in our business of outperform because of our capital and cash, and, you know, especially in down markets.

It'd be nice to be enough capital markets enough, and that interest rates to come in, and then it'll be, you know, kind of an easy year, but we always assume we have to work for it every year. Market is competitive, so we're just doing what we've done. We've been managing expenses, a lot of people say what are you going to do to manage expenses? We have been doing that, especially over the last few quarters. And plan to continue to do that. So, you know, we can see a growth to support those.

So appreciate you joining the call and all the time you spent with us, and we'll talk to you soon. This concludes today's conference call. Thank you for your participation. You may now disconnect. Please wait, the conference will begin shortly. Thank you.