Q4 2024 Raymond James Financial Inc Earnings Call
Good evening and welcome to Raymond James Financial's fiscal 'twenty 'twenty, four fourth quarter 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 joining us.
With me on the call today are chair and Chief Executive Officer, Paul Reilly.
Didn't Paul Shoukri, and Chief Financial Officer, Butch Oarlock the.
The presentation being reviewed today is available on our Investor Relations website.
Following the prepared remarks, the operator will open the line for questions.
Calling your attention to slide two please note that 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 industry or market conditions anticipated timing and benefits of our acquisitions and our level of success in integrating acquired businesses anticipated results of litigation.
And regulatory developments and general economic conditions.
In addition words such as believes expects anticipates intends plans estimates projects forecasts and future or conditional verbs such as May will could should and would as well as any other statement that necessarily depends on future events.
Are intended to identify forward looking statements.
Please note that there can be no assurance that actual results will not differ materially from those expressed in 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 website.
Speaker Change: Now I'm happy to turn the call over to chair and CEO, Paul Reilly Paul.
Paul Reilly: Thank you Christie.
Paul Reilly: Good evening and thank you for joining us today.
Paul Reilly: Before I discuss our fourth quarter and fiscal year earnings I want to start by acknowledging the heartbreaking devastation our associates advisors friends and neighbors experienced over the last several weeks.
Paul Reilly: With Hurricanes, Helene and Milton impacting communities throughout the southeast, including the St. Petersburg, Tampa Bay area, where Raymond James is headquartered as well as the Carolinas and Georgia.
Paul Reilly: Thousands across the region experienced unprecedented flooding power outages property damage and devastation.
Paul Reilly: We enacted our business continuity plans and with our service workforce almost equally distributed across offices in St. Pete Memphis in Southfield, Michigan colleagues outside impacted areas stepped in to ensure continuous service coverage.
Paul Reilly: Even those affected associates and advisors continue to serve clients, while facing storm and evacuations, often working remotely from safe location.
Paul Reilly: The storm left a long recovery road ahead of us for all on their path and while it's been difficult to bear witness to the pain and loss I have also been humbled by the resilience of our associates advisors and our community.
Paul Reilly: Following the hurricane the firm and leadership team have contributed almost $11 million to associate and community relief, including stipends to eligible associates and donations to friends of Raymond James The American Red Cross, the United Voice Suncoast and other charitable organizations across <unk>.
Paul Reilly: <unk> communities.
Paul Reilly: In addition to granting associates the time needed to navigate recovery efforts. The firm continues to provide comprehensive resources and benefits, including information about financial support immediate aid relocation services and wellness benefits.
Paul Reilly: Challenging times like these highlight the importance of always putting people first which has always been the foundation of Raymond James.
Paul Reilly: The preparation perseverance in response to the storm reflect the long history of Raymond James' service culture, and I'm, especially proud to represent our team today.
Paul Reilly: Now moving to our quarterly performance, we achieved strong results once again, concluding another fiscal year with outstanding achievements.
Speaker Change: In fiscal 'twenty 'twenty four we generated record net revenues and record net income showcasing the strength of our diverse and complementary businesses.
We ended the year with record client assets healthy pipelines for growth across our business and ample funding to support the balance sheet.
Speaker Change: We remain well positioned to continue to invest in our business, our people and technology to help drive growth across all of our businesses.
Speaker Change: Beginning on slide four the firm reported record fiscal fourth quarter net revenues of $3.46 billion net income available to common shareholders of $601 million and earnings per diluted share of $2.86.
Speaker Change: Excluding expenses related to acquisitions adjusted net income available to common shareholders was $621 million or $2 95 per diluted share.
Speaker Change: We generated strong returns for the quarter with annualized return on common equity of 21, 2% and annualized adjusted return on tangible common equity of 25, 8% of.
Speaker Change: A great result, particularly given our strong capital base.
Speaker Change: During the fiscal quarter, we repurchased two 6 million shares of common stock for $300 million.
Bringing our fiscal year total to seven 7 million shares for $900 million at an average price of $117 per share.
Speaker Change: In total we returned nearly $1.3 billion of capital to shareholders through a combination of share repurchases and dividends in the fiscal year.
Speaker Change: Moving to slide five client assets grew to record levels this quarter, driven by rising equity markets and solid adviser retention and recruiting in the private client group.
Speaker Change: Total assets under administration increased 6% sequentially to 1.57 trillion dollars.
Speaker Change: Private client group assets and fee based accounts grew to $875 billion in financial assets under management to $245 billion.
Speaker Change: Domestic net new assets during the quarter were $13 billion, representing a 4% annualized growth rate on the beginning of the period domestic P. C G assets.
Speaker Change: And for the fiscal year domestic net new assets were $60 $7 billion, representing a 5.5% growth rate on beginning of the period domestic private client group assets.
Speaker Change: A key contributor to the net new asset growth as our continued recruiting results, which were really strong this quarter.
Speaker Change: Two our domestic independent contractor and employee channels, we recruited financial advisors with approximately a $100 million of trailing 12 month production and a $17.5 billion of client assets at their previous firms.
Speaker Change: Including assets recruited into our growing RIAA and custody services Division, which we referred to as Rcs, we recruited across all platforms total client assets during the quarter of $22 $3 billion, surpassing the previous best quarter, which occurred in 2021 in terms of Ricky.
Rooted assets.
Speaker Change: For the fiscal year, we recruited financial advisors with approximately $335 million of trailing 12 month production and $56 $7 billion of client assets at through previous firms.
Speaker Change: Recruiting in the year production and assets equal to that of a pretty good sized firm.
Rcs asset growth is bolstered by both external joins as well as from internal transfers and Rcs finished the quarter with $181 billion of client assets under administration up 36% over the prior year level.
Speaker Change: This quarter, we reported financial advisers of 8787.
Overall these fantastic recruiting results reflect the continuous focus of the entire firm to ensure Raymond James remains a destination of choice for advisors.
Speaker Change: As we had mentioned in previous quarters. There are a couple of O S J relationships and our independent contractor Division, who had decided to leave the platform.
Speaker Change: It takes time to affect these movements, but a portion of those assets left the firm in the fiscal fourth quarter totaling roughly 3 billion of dollars of a UA.
Speaker Change: We anticipate approximately $5 billion of assets associated with these firms to complete their transfers off the platform in early fiscal 2025.
Speaker Change: Adjusting for these transferred assets net new assets growth in the quarter would've been approximately 5%.
Speaker Change: Overall, we remain focused on serving advisers across our multiple affiliation options, our robust technology capabilities and client first values continue to enable us to retain and attract high quality advisors.
Speaker Change: Total client domestic cash sweep and enhanced savings program balances ended the quarter at $57.9 billion up 3% over June of 'twenty 'twenty four.
Speaker Change: Bank loans grew at 2% over the preceding quarter to a record $46 billion, primarily due to higher securities based loans, which grew 5% in the quarter as well as continued residential mortgage growth.
Moving to slide six private client group generated record quarterly net revenues of $2.48 billion and pre tax income of $461 million.
Year over year results were bolstered by higher P. C. G assets under administration due to a strong equity market and net new assets brought into the firm.
Speaker Change: Reflecting positive results from our long term focus.
Speaker Change: And patients to hold the course, and our capital markets businesses generated quarterly net revenues of $483 million and a pretax income of $95 million.
Speaker Change: Net revenues grew 42% year over year, and 46% sequentially driven primarily by higher M&A revenues as the market environment became more supportive of transaction closings in the quarter.
Speaker Change: Market conditions seem to be improving and we are optimistic about our healthy pipeline and new business activity in M&A.
Speaker Change: The asset management segment generated record pre tax income of $116 million on record net revenues of $275 million.
Speaker Change: Results were largely attributable to higher financial assets under management compared to the prior year quarter due to market appreciation and net inflows and P. C. G fee based accounts as well as modest net inflows into Raymond James investment management.
Speaker Change: The bank segment generated net revenues of $433 million and pretax income of $98 million.
Speaker Change: Bank segment net interest income increased 1% due in part to higher loan balances.
Speaker Change: The net interest margin for the segment of 2.62% declined two basis points compared to the preceding quarter.
Speaker Change: Looking at the fiscal year 2024 results on slide seven we generated record net revenues of $12.82 billion and record net income available to common shareholders of $2.06 billion up 10% and 19% respectively over.
Speaker Change: The record set in the prior year.
Speaker Change: Additionally, we generated strong returns on common equity of 18, 9% and adjusted return on tangible common equity of 23.3% for the year.
Speaker Change: On slide eight the record results in P. C G and asset management segments for the fiscal year, primarily reflected a strong organic growth in P. C G along with robust equity markets.
Paul Reilly: Now I'll turn the call over to our new CFO, but you're logged to review our financial results in detail Butch. Thank you Paul.
Speaker Change: Turning to slide 10.
Butch Oarlock: Consolidated net revenues were a record $3.46 billion in the fourth quarter up 13% over the prior year and up 7% sequentially.
Butch Oarlock: Asset management and related administrative fees grew to $166 billion, representing 15% growth over the prior year and 3% over the preceding quarter.
Butch Oarlock: This quarter PSEG domestic fee based assets increased 7%, which will be an approximate 6% tailwind for asset management and related administrative fees in the fiscal first quarter.
Butch Oarlock: Brokerage revenues of $561 million grew 17% year over year, primarily due to higher brokerage revenues in <unk> and fixed income capital markets.
Butch Oarlock: I'll discuss account and service fees and net interest income shortly.
Butch Oarlock: Investment banking revenues of $315 million increased 56% year over year and 72% sequentially.
Butch Oarlock: Fourth quarter results benefited from a significant increase in M&A revenues.
Butch Oarlock: Moving to slide 11.
Butch Oarlock: Domestic cash sweep and enhanced savings program balances ended the quarter at 57 $9 billion.
Butch Oarlock: <unk>, 3% compared to the preceding quarter, and representing 42% of domestic <unk> client assets.
Butch Oarlock: So far in the fiscal first quarter domestic cash sweep balances have declined about $1 $3 billion attributable to record quarterly fee billings.
Turning to slide 12.
Butch Oarlock: Combined net interest income and RJ DDP fees from third party banks with $678 million up 1% over the preceding quarter.
Butch Oarlock: The Bank segment net interest margin was down two basis points to 262% for the quarter, while the average yield on RJ <unk> balances with third party banks decreased seven basis points to 3.34% primarily due to the fed rate cut.
Butch Oarlock: Based on current rates and balances, which reflects the September rate cut and the impact of quarterly fee billings.
We would expect the aggregate of NII and RJ <unk> third party fees to be down approximately 5% in the fiscal first quarter.
Butch Oarlock: Keep in mind, there are a lot of variables that could impact that estimate, including further rate actions, which are not assumed.
Butch Oarlock: Turning to consolidated expenses on slide 13.
Butch Oarlock: Compensation expense was $2.16 billion and the total compensation ratio for the quarter was 62, 4%.
Excluding acquisition related compensation expenses, the adjusted compensation ratio was 62, 1%.
Butch Oarlock: Non compensation expenses of $543 million increased 10% sequentially largely due to the bank loan provision for credit losses, which was a benefit in the preceding quarter.
Butch Oarlock: For the fiscal year non compensation expenses, excluding the bank loan provision for credit losses, unexpected legal and regulatory items and non-GAAP adjustments presented in our non-GAAP financial measures.
Butch Oarlock: In just under our expectation of $1.9 billion.
Butch Oarlock: While we maintain discipline in controlling our expenses, we continue to invest to support growth across the business.
Butch Oarlock: Slide 14 shows the pretax margin trend over the past five quarters.
Butch Oarlock: This quarter, we generated a pretax margin of 22% and.
Butch Oarlock: And adjusted pre tax margin of 22, 7%.
An increase over the prior quarter arising in part from the improved capital markets results.
Butch Oarlock: On slide 15 at quarter end, our total assets were <unk> $83 billion, a 3% sequential increase.
Butch Oarlock: Largely due to loan growth and higher cash balances primarily held in our bank segment.
Butch Oarlock: Liquidity and capital each remained very strong.
Butch Oarlock: R. J F corporate cash at the parent ended the quarter at $2 $2 billion, well above our 1.2 billion dollar target.
Butch Oarlock: With a tier one leverage ratio of 12, 8%.
Butch Oarlock: And total capital ratio of 24, 1%.
Butch Oarlock: We remain well capitalized.
Butch Oarlock: Our capital levels provides significant flexibility to continue being opportunistic and invest in growth.
Butch Oarlock: The effective tax rate was 28% for the quarter.
Primarily reflecting the favorable impact of nontaxable valuation gains associated with the corporate owned life insurance portfolio.
Butch Oarlock: Slide 16 provides a summary of our capital actions over the past five quarters.
Butch Oarlock: During the quarter.
Butch Oarlock: The firm repurchased two 6 million shares of common stock for $300 million at an average price of $115 per share.
Butch Oarlock: For the fiscal year, we repurchased seven 7 million shares for $900 million.
Speaker Change: As Paul noted earlier in total we returned capital to shareholders of approximately $1 $3 billion during the fiscal year through dividends and share repurchases.
Speaker Change: As of October 19th approximately $645 million remained under the board approved common stock repurchase authorization.
Speaker Change: Going forward, we expect to continue to offset share based compensation dilution and to be opportunistic with incremental share repurchases.
Speaker Change: Given our present capital and liquidity levels. We currently expect to keep a similar pace of buyback activity as we did during this quarter.
Speaker Change: Or possibly more.
Speaker Change: We remain committed to maintaining capital levels in line with our stated targets.
Lastly on slide 17, we provide key credit metrics for our bank segment, which includes Raymond James Bank in Tristate Capital Bank.
Speaker Change: The credit quality of the loan portfolio remains solid.
Speaker Change: Nonperforming assets remained low and relatively unchanged from the prior quarter level at 28 basis points of bank assets.
Criticized loans as a percentage of total loans held for investment ended the quarter at 1.47% up from 1.15% in the preceding quarter.
Speaker Change: Primarily due to a small number of idiosyncratic loan downgrades.
Speaker Change: The bank allowance for credit losses, as a percentage of total loans held for investment ended the quarter roughly unchanged from the prior quarter level at just under 1%.
Speaker Change: The allowance percentage has trended lower largely due to our loan mix shift toward more securities based loans and residential mortgages, which carry lower allowance levels.
Now account for 35% and 20% of the total loan portfolio balances respectively.
Speaker Change: The bank loan allowance for credit losses on corporate loans as a percent of corporate loans held for investment was largely unchanged from the preceding quarter at approximately 2% at quarter end.
Speaker Change: We believe this represents an appropriate reserve but.
Speaker Change: But we continue to closely monitor economic factors that may impact our loan portfolios.
Speaker Change: Now I'll turn the call over to Paul Shoukri to discuss our outlook Paul.
Thank you Butch you definitely covered the financials a lot better than I did when I was the CFO great job.
Paul Shoukri: Now onto our outlook.
Paul Shoukri: We are pleased with our record results this quarter and for the fiscal year.
Paul Shoukri: More importantly, we are well positioned entering fiscal 2025 with record client asset levels healthy pipelines for growth across the business and ample capital and funding to support balance sheet growth.
Paul Shoukri: In the private client group next quarter's results will be positively impacted by the sequential increase of assets in fee based accounts, which we expect will benefit asset management and related fees by approximately 6%.
Our advisor recruiting activity remains robust.
Paul Shoukri: And we're encouraged by the number of large teams joining us and remaining in the pipeline.
Paul Shoukri: We are focused on being a destination of choice for current and prospective advisors, which we believe over the long term should continue to drive industry leading growth.
Paul Shoukri: And the capital market segment, we were pleased to see significantly improved results. This quarter as the market environment became more constructive for investment banking results and particularly M&A.
Paul Shoukri: Our M&A pipeline remains healthy and we are optimistic that the consistent investments in our platform and people should continue to drive growth in fiscal 2025.
Paul Shoukri: And in the fixed income business the market is still challenging, but we've begun to see some improvement in the depository sector of our business.
Paul Shoukri: With short term rates decreasing and the yield curve Steepening depository clients are starting to be more engaged in managing their securities portfolio.
Paul Shoukri: Overall, despite the headwinds over the past two years, we believe our long term patient approach along with opportunistic investments, we've made have well positioned us for growth as the market and rate environment become more conducive for the capital market segment.
Paul Shoukri: And the asset management segment, we remain confident that strong growth of assets in fee based accounts in the private client group will drive long term growth of financial assets under management.
In addition.
Paul Shoukri: We expect Raymond James investment management to help drive further growth over time.
Paul Shoukri: And while the entire industry has been challenged by high levels of redemption activity. The record levels of sales in fiscal 2024 are a testament to our strong portfolio management and sales teams.
Paul Shoukri: In the bank segment, we remain focused on fortifying the balance sheet with diversified funding sources and prudently growing assets to support client demand.
Paul Shoukri: We have seen securities based loan demand increase as clients get comfortable with the current level of rates further supported by the recent fed rate cut.
Paul Shoukri: Corporate loan growth has been muted as new origination activity in the credits we target remain low, but we will remain patient and we are confident that loan demand in this category will rebound as well.
Paul Shoukri: With ample client cash balances and capital we are very well positioned to lend across our loan segments as activity increases within our conservative risk guidelines.
Paul Shoukri: In addition to driving organic growth across our businesses. We also remain focused on corporate development efforts.
Paul Shoukri: While we prefer to deploy capital to invest in growth we plan to maintain this past quarter's pace of buybacks or potentially increase it as we continue to look for opportunities that may meet our disciplined M&A parameters.
Paul Shoukri: I wanted to quickly touch on short term rates, because all too often lower interest rates are viewed as a negative for our business.
Paul Shoukri: I would just say that there are a lot of potential positive outcomes as well too.
Paul Shoukri: Two potential examples are higher loan growth and better investment banking results across the industry.
Both which have been really low over the past couple of years.
Paul Shoukri: Again, this reinforces the value of having diversified and complementary businesses.
Paul Shoukri: In closing, we are well positioned entering fiscal 2025 with strong competitive positioning and all of our businesses and solid capital and liquidity to invest in future growth.
Paul Shoukri: I want to thank our advisors and associates for their continued dedication to providing excellent service to their clients.
Paul Shoukri: I also want to thank our fantastic leadership team, many who took on larger roles starting on October one as part of our long term CEO succession process.
Paul Shoukri: I really look forward to partnering even more closely with all of our leaders and associates for many years to come and of course I want to thank Paul Reilly for developing the strong team over the past 15 years.
Paul Shoukri: What is reinforced in the most challenging of times, including with a 200 year Hurricanes that hit us in a two week period is that we have something really special here at Raymond James.
Paul Shoukri: My number one job when I take over as CEO is to do everything we possibly can to fiercely protect our culture and values.
Paul Shoukri: That concludes our prepared remarks, operator will you. Please open the line for questions.
Speaker Change: Thank you we will now begin the question and answer session. If you have dialed in and we'd like to ask your question. Please press star one on your telephone keypad Your Easter Ham and joined the queue. If you would like to withdraw your question simply press Star one again.
Speaker Change: Could you please limit yourself to one question and one follow up again, Please press star one to join the queue.
Your first question comes from the line of Michael Cho with Jpmorgan. Please go ahead.
Michael Cho: Hi, good evening, Thanks for taking my question.
Michael Cho: My first one I just wanted to touch on the capital markets segment here.
In advance of the.
Michael Cho: Two prior but clearly at nice pickup that you noted in the advisory segment can you give any color or anything incremental in terms of maybe what you saw in the quarter. What if there's anything particular that drove the quarterly results in advisory and maybe anything more on the pipeline that you as you look ahead as well and then and then secondly.
Michael Cho: Paul.
Michael Cho: Australia invested in people and platform in this business over the last number of years and so when we think about operating leverage ahead. I mean is there a way to frame. The incremental margin is ahead, making relative to maybe what you've achieved in prior environment better capital markets activity.
Michael Cho: Yes.
Speaker Change: Well first I think the whole market is pretty much shown an improving M&A environment and I think its rate expectation.
Speaker Change: And frankly, a lot of capital on the sidelines so.
Speaker Change: We had a big pick up this quarter, but we're seeing that both in activity and this.
Speaker Change: Current quarter coming up so a lot of bigger transactions a lot of people who've been on the sidelines sort of reached deals to close them.
Speaker Change: So in terms of activity.
Speaker Change: We can we could go by number of Mds, we would have to speculate with the number we know what the rate is certainly I think we've had a year a couple of years ago, that's hard to beat the benchmark because it was exceptional here, but we've got room to grow from here I wouldn't really put a number on it yet, but we've got a lot of productive capacity.
Speaker Change: As far as great as far as the margin goes.
Speaker Change: Margin portion of your question.
Speaker Change: For the year is 26%.
Speaker Change: And Thats up.
Speaker Change: Pretty healthy margin given the mix of businesses that we're in no capital markets really wasn't hitting on all cylinders until this past quarter. This final quarter of the fiscal year.
Speaker Change: Yes, we have we have puts and takes in our businesses.
Speaker Change: I'd say over time.
As always been to grow revenues faster than expenses, and therefore grow earnings and margins beyond that but in any one quarter or any one year. It could be a lot of puts and takes in our various businesses.
Speaker Change: It's a wonderful question and then just a quick follow up on the balance sheet.
Unless for wholesale on a quick sale can really grow the balance sheet.
Speaker Change: And you've called out that corporate loan book, particularly has been somewhat tepid.
Speaker Change: What you're hearing from clients and what ultimately drives more demand.
Speaker Change: Really just simply lower rates or anything else.
Speaker Change: In terms of that.
Speaker Change: Thank you.
Speaker Change: Yes on the corporate side.
Speaker Change: Lower rates would certainly help us companies to take advantage of.
Speaker Change: That they could get us more attractive rates, but also.
Speaker Change: Going back to your last question to Paul M&A activity historically has been a big driver of financing needs and so as we start seeing M&A activity pick up hopefully that'll be a leading indicator for corporate loan demand over time.
Great. Thank you.
Speaker Change: Your next question comes from the line of Dan Fannon with Jefferies. Please go ahead.
Dan Fannon: Good evening. Thanks for taking my question I'm curious on your outlook for next year with the non comp expense came in slightly below the 109.
Speaker Change: For fiscal 'twenty four.
Dan Fannon: Talk about the areas of investment and maybe quantify the growth in that non comp as you think about the next 12 months.
Speaker Change: A lot of our non comp items as we've said in the past is really growth related so investment advisor sub advisory fees. For example that grows with fee based assets, which had been growing really nicely, 7% sequentially as an example.
Speaker Change: And then the other expenses were going to continue to invest heavily in technology.
Speaker Change: We look at it on a percentage basis, that's been our biggest grower consistently year end and year out.
Speaker Change: And on an absolute dollar basis for that matter and that's that's really to remain competitive and provide advisors. The very best technology that we can.
Speaker Change: Very competitive in the industry to help them find time and serve their clients more efficiently and effectively and so.
Speaker Change: Technology will continue to be area of focus and then of course as you grow as an organization and grow the businesses youre going to need to grow the <unk>.
Speaker Change: Branch and office space and other aspects of non comp to invest in the business.
Speaker Change: Understood and then the comments around the backlog for advisors.
Speaker Change: It sounded pretty similar to what we've heard from previous quarters was hoping to get a little more context, maybe around numbers for retention in the period and then I think the larger book.
We have business coming onboard maybe talk about the size today that you are recruiting average size versus say a year ago.
Speaker Change: I think that both of those are are up is that the.
The biggest change probably over the last few years is.
Speaker Change: Fewer advisors in total, but much much bigger books, so not only was this year and on boarding of probably the most.
Speaker Change: Largest books, we ever have but also the same in the pipeline. So we've become a destination for very large teams I think both because of our technology platform and our high net worth offerings over the last couple of years, we've developed that really taken off and made us a destination. So we're very.
Speaker Change: Amphibole not only do we have a very good recruiting year, but we're very comfortable with the backlog thats in there too.
Speaker Change: Okay.
Speaker Change: Great. Thank you.
Speaker Change: Your next question comes from the line of Devin Ryan with citizens JMP. Please go ahead.
Speaker Change: Hi, Thanks, so much hi, Paul Paul Welcome Butch.
Paul Reilly: Thanks Deb.
Devin Ryan: First question just on.
Devin Ryan: Coming back to the balance sheet and just lending capacity.
Devin Ryan: As demand picks up here. So you have obviously plenty of capital you seem to be holding at least a couple of billion dollars of excess liquidity on the balance sheet and then I think you have $18 billion of cash at third Party bank. So appreciate.
Devin Ryan: This isn't going to happen overnight and youre not going to force the lending, but but how you would frame.
Devin Ryan: The amount of loan growth that could come from just remixing. The current balance sheet and that how much of that third party cash you guys are comfortable moving onto the balance sheet over time with the assumption that deposits are stabilizing to maybe starting to grow a bit here.
Speaker Change: Devin you answered the question just by giving the stats we have.
Speaker Change: Total cash and capital and I think that whats limited our growth.
Speaker Change: Just we've been.
Speaker Change: Very consistent in our risk appetite and having low risk on the C&I side of the portfolio.
Speaker Change: Just the spreads and the demand hasnt been there they are just.
Speaker Change: I think a lot of that has been most Paul talked about earlier because of lack of M&A activity.
Speaker Change: Certainly the opportunities to learn that the spreads in the risk tolerances, we like haven't been there so we're more than willing.
Speaker Change: When that returns to invest in them. So that's holding it back there.
Speaker Change: Other side.
Speaker Change: <unk> loans as rates went way up in mortgages as rates went up just called the appetite now that we've seen even after just a 50.
Speaker Change: A basis point drop.
Speaker Change: <unk> seen a pickup in Spl's right away I think people got used to the rates.
They're going to be around dish stay and they are floating so state.
Speaker Change: The SPL. So they go down the rates will go down and clients seem to be more active so.
Speaker Change: We're waiting on the commercial side to see a risk reward in terms of spreads and the risk part, we'd like and are comfortable with and on the.
Speaker Change: Client side for Sps and mortgages Thats really their appetite are here and ready.
Speaker Change: We are.
Speaker Change: Plenty of cash so we're not we're not trying to limit the bank growth.
Speaker Change: Over the years, we'll have quarters, where we've had fairly sizable growth and then quarters, where we've had none just based on really what we think that market risk appetite is.
Speaker Change: Got it. Thanks, I appreciate that I guess, where I was going was more that you have $18 billion of third party cash you want to have some liquidity.
Speaker Change: Parameters, there I'm sure for risk management purposes, so like.
Speaker Change: Are you comfortable moving 5 billion of that or $10 billion of that like what's the threshold that we should be looking at I know theres been thresholds over time. So just curious how you guys are thinking about that and where you're comfortable.
Speaker Change: Yeah, well I mean the.
Speaker Change: The thing that drives that is we offer clients FDIC insurance up to $3 million.
Speaker Change: Through multi suite program and so we want to make sure that we avail, our clients to those third party banks too.
Speaker Change: To maximize our FDIC insurance not a lot of other firms do that anymore, especially firms with affiliated banks and so we think it's important.
Speaker Change: To give that client.
That type of protection.
Speaker Change: And so that would that would limit.
Speaker Change: 2000, 18 billion for example to being deployed in our own bank, probably would limit half of that I would say something in that range from being deployed to our own bank to give the clients. The FDIC insurance that they could get to the <unk>.
Speaker Change: Multi suite program.
Speaker Change: Got it okay. That's great color, Thanks, Paul and then.
Speaker Change: A follow up I'd love to ask about fixed income brokerage.
I think.
Speaker Change: Performing reasonably in environment. That's been challenged I think you guys highlighted starting to see some.
Speaker Change: Light in the tunnel with depository clients. So I'm, just trying to think about but where where we could go from here. If there's a kind of a framing of whether its historical level.
Speaker Change: Levels of revenue or how we should think about like how may be much that part of the business is under punching relative to its potential if liquidity builds in the system and banks are more active like just where where that could go relative to where we currently are.
Speaker Change: I would say.
Speaker Change: Periods during COVID-19 with very low rates.
Speaker Change: We're kind of record levels for fixed income brokerage and there was a perfect environment.
Speaker Change: For that business.
Speaker Change: Lots of excess cash in the system.
Speaker Change: There is short term rates were close to zero and there is benefit for taking on some duration.
Speaker Change: And so somewhere between kind of where we've been running in the last couple of years and Covid is probably a reasonable place to kind of think of healthy level would be over time, and then of course as we grow the business and we take market share in wheat grow tangential opportunities like some ridge has been a great addition, beyond the depository spaces.
Speaker Change: That diversifies and further strengthen strengthens our business as well so we'll continue to look to add to our capabilities.
Speaker Change: And also our balance sheet is getting bigger so over time, we will also use our balance sheet in a very prudent way to continue supporting that business as well. So it's still a growth business for us over time, but just from the sheer depository space. The Covid period was sort of a <unk>.
Speaker Change: <unk> that business, we're sort of perfectly aligned.
Speaker Change: Yeah got it okay. That's helpful. I appreciate you taking our questions.
Speaker Change: Thank you. Your next question comes from the line of Brennan Hawken with UBS. Please go ahead.
Brennan Hawken: Hi, good afternoon, thanks for taking my questions.
Brennan Hawken: So wanted to ask about advisory.
Brennan Hawken: So it's one of the themes we've been noticing in has been sort of nagging has been that sponsors have been sort of slow to reengage, but.
Brennan Hawken: Your advisory business, there's a lot of leverage there and certainly encouraging to see that strength. So hoping you could get maybe a little more color around what youre seeing.
Brennan Hawken: Is this a good sign that sponsors are beginning to reengage in the mid market space or where there's some lumpy results that benefited the revenues.
Speaker Change: I think there's general Reengagement so.
And across a lot of sectors. So it's a sign.
Speaker Change: We've always been I.
Speaker Change: I guess pretty conservative on our outlook Berlin anytime we've talked we've talked about a backlog, but the market wasn't conducive, we're seeing people engage in and it's not only on <unk>.
Speaker Change: Inventory I mean.
Speaker Change: Existing.
Speaker Change: That were up for being sold but we are seeing new engagement discussions about new mandates. So.
We think not going to say, it's going to boom overnight, but we're seeing a much much more conducive market both in interest on buyers and sellers. So.
Speaker Change: At least for the near term, we see a fairly good market in a recovering market.
Speaker Change: Okay.
Speaker Change: <unk>.
Speaker Change: I don't know if you can give you more color because one quarter doesn't always paying a long term trend, but we can tell you that the backlog looks pretty good for this.
Speaker Change: For the near term anyway.
Speaker Change: Yes, that's fair thanks, Thanks for that Paul.
Speaker Change: And then ESP.
Speaker Change: Given where the yields were on that product I would expect that in the recent fed cut that had a very high beta.
Speaker Change: Is it should we just assume that that's a roughly 100 beta product as we see cuts and.
Speaker Change: Have you noticed any change in behavior or engagement.
Since yields started to come down around that that offering.
Speaker Change: Yes, I would say ESP balances.
Speaker Change: Our higher yielding balances sort of at the same rate.
Speaker Change: Jane just money market funds. So that is typically 100% deposit beta type product.
Speaker Change: We have others, we have balances and opportunities.
<unk> is at the bank segment as well.
Speaker Change: Total when you look at our total balances at the bank site deposits the bank segment and the sweep balances now roughly half of those balances are highest higher rate higher deposit beta type balances. So we have a lot of protection to downside rates, which is.
Speaker Change: Which will give us some.
Speaker Change: Offsets as rates decrease because obviously, we are slowly our assets are mostly floating rate assets.
Speaker Change: And then what was the other part of the question.
Speaker Change: Any changes in engagement with those higher yield products as we've seen rates come down.
Speaker Change: Not not really.
Speaker Change: I think a lot of the cash reinvestment activity, we saw slowing down of decelerating well before the rate decrease and so we haven't seen sort of an acceleration or deceleration frankly, that's notable following the decrease.
Speaker Change: Okay. Thanks for taking my questions.
Speaker Change: Thank you. Your next question comes from the line of Steven <unk> Wolfe Research. Please go ahead.
Okay.
Speaker Change: Hi, Good evening, Paul is good evening, good evening Butch wanted to start with a question just on the spread revenue guide for next quarter the growth in sweep deposits was encouraging even inclusive of the fee billings.
Speaker Change: Just wanted to drill down into some of the inputs that are underpinning that lower spread revenue guide.
Speaker Change: Maybe more specifically just what deposit pricing changes are embedded in the guide and does it contemplate any favorable cash seasonality, which we typically see around year end.
Speaker Change: Yes, I mean, we've been accused of being conservative with our guidance in the past is particularly on this guidance. So hopefully that proves to be the case. This time around because loan balances are continuing to grow we're not really factoring in ongoing loan balance. This was more of a snapshot type view in terms of what the full run rate of rate changes would be.
Speaker Change: To both the BD P fees in NII and so to your point balances can increase throughout the quarter, whether it be cash balances, but hopefully more loan balances.
And that could offset some of the reduction in rate and the sensitivity around that and I. Just gave you. The breakout of the deposits that are higher yielding and higher deposit beta versus the ones that are lower yielding lower deposit beta.
Speaker Change: And so that's kind of what went into our math.
Understood and for a follow up just on why you drill down into some of the earlier comments you made on net new asset growth in the pipeline.
Speaker Change: For both you and industry peers. This past year, we did see the moderation in industry flow trends.
Speaker Change: I understand you struck a positive tone in terms of the pipeline of new advisors, but just trying to gauge what what drove the slowdown in industry growth, whether we should interpret the comments on the pipeline is supportive of an acceleration in that flow rate.
Speaker Change: And which channels you're seeing the fastest growth across the platform given the omni channel offering.
Speaker Change: It depends on.
How do you want to look at it in our.
Speaker Change: Our AA part Rcs, it's by far the highest percentage growth.
Speaker Change: Consistent with industry trends that's been.
Speaker Change: And that's been growing quickly if you look at total dollars and this goes back and forth a couple of years ago. It was independent share the employee channel.
Speaker Change: <unk> led the way.
Speaker Change: <unk>.
Speaker Change: We used to have well, but.
Independence grow faster than down markets.
Speaker Change: Upmarket that employees in slow markets, we don't see that trend anymore. It's really just where we can meet the teams, but like on the affiliation option.
Speaker Change: So.
Speaker Change: Employee led the way I actually think that we will get some improvement in the independent contractor model because it's just cyclical.
Speaker Change: And the employee size has seems to have a very good backlog as those rcs. So.
Speaker Change: We're encouraged.
Speaker Change: But it's a process both too.
Speaker Change: Get people to commit and get people in the door.
So we can never predict the timing, but we're encouraged.
Even with the great results that we could do better so.
Speaker Change: Okay.
Speaker Change: Helpful color, Thanks for taking my questions.
Your next question comes from the line of Alex <unk> with Goldman Sachs. Please go ahead.
Speaker Change: Hey, guys, good afternoon, and Butch welcome to the call as well.
Alex <unk>: I wanted to follow up to Stephen's question around cash trends is it possible to unpack sort of sources of growth you saw in the third quarter your fiscal fourth quarter.
Alex <unk>: Across the cash stack and curious whether it is really kind of abating of the sorting or you're starting to see more cash coming onto the sidelines as net new assets coming in.
Speaker Change: I mean, we continue to grow a lot as a business and as we grow and bring on new advisers. They bring on their clients theyre going to bring on their clients' cash balance and so.
Speaker Change: And that's been happening throughout the last couple of years, it's just been masked by the fact that there's been a lot of reinvestment activity and so as that reinvestment activity Decelerates subsides that youre going to start seeing the pure.
Speaker Change: Growth coming in from the addition of advisers and their clients.
Speaker Change: Yes that makes sense. So your point is kind of like look from this point on like your cash balances are likely to grow in trend more in line with net new assets like we've seen in the past.
Speaker Change: Thank you Ted.
Speaker Change: My comments, a couple of steps further but.
Speaker Change: I'm not sure we're willing to declare a total end to the cash reinvestment, but that's the dynamic that you've seen over the last.
Speaker Change: Call. It four to six quarters is that dynamic has decelerated.
Speaker Change: Got you okay.
Speaker Change: Good enough. Thanks, and then a quick follow up on the buyback I just want to make sure I'm interpreting your comments correctly, so $300 million share repurchases. This quarter, a nice step up should we assume that to be kind of a run rate quarterly pace of buybacks from here as well or absent obviously of like M&A or anything like that and.
Speaker Change: <unk>.
Speaker Change: There are opportunities to do more you are likely to do that as well I'm just trying to understand what the criteria are from here for a trajectory of share repurchases.
Speaker Change: I mean to your point, we'd much rather use of capital to grow the business, whether it's through organic growth acquisitions or balance sheet growth with loan growth and we are optimistic.
Speaker Change: On those fronts as well, but to the extent that we're not using the capital and we're generating.
Speaker Change: Pretty good earnings then we want to make sure that.
Speaker Change: We limit further expansion of the capital ratio and that's where we come up with this sort of pace that we've been that's here for the last quarter or maybe even a little bit more.
Speaker Change: Depending on all of those factors and price and other things that we.
Speaker Change: We want to show our commitment to limiting further capital ratio growth.
Speaker Change: Given how strong it is now and it's over our target of 10%.
Speaker Change: Yes makes perfect sense alright, Thank you guys.
Speaker Change: Your next question comes from the line of Bill Katz with TD Cowen. Please go ahead.
Bill Katz: This evening I'll, just coming back to the margin discussion excuse me I was just wondering if you could unpack a little bit from the top down view of driving operating leverage to maybe the segment lines. So if I look at each maybe the private client business and the capital markets business in particular.
Speaker Change: <unk>.
Speaker Change: The margins there improved reasonably strongly particularly in capital markets. So how do we think about the marginal margin in those segments and then coming back Paul to your comment, possibly your comments of.
Speaker Change: 22% margin, it's pretty fulsome at this point so how do we think about the incremental margin at segment level, and then that sort of translating into the overall margin outlook for holdco. Thank you.
Speaker Change: How many more hours CF Tonight.
Speaker Change:
Speaker Change: Yes, I think listen to the extent that revenues grow and our segments then that should result in.
Speaker Change: Margin expansion for each one of our segments interest rates and spreads have a big play a big role in that both for the private client group segment in the Bank segment and we just had a 50 basis point reduction now I think we can over time offset that impact by growing the balance sheet at the bank as loan demand comes back.
Speaker Change: So overtime I think we can do that.
Speaker Change: And then to the extent if capital markets margin improved this past quarter, but.
Speaker Change: It hasn't been exactly great. That's the first three quarters of the fiscal year. So the incremental margin when you are.
Speaker Change: Operating at a loss is pretty significant when you, especially with the significant revenue increase we had in this segment. This quarter. So I was just saying over time.
Speaker Change: What I cautioned the street from doing is just assuming that the margin gets better in every segment because everything goes in the right direction and then that generates.
Speaker Change: A substantially higher margin than we generated this year I think thats, maybe not factoring in the puts and takes that are natural and our diverse and complementary businesses.
Speaker Change: Okay. That's helpful. And then just one follow up just coming back to client cash for a moment sort of seen as some of your peers, you've seen a big pick up in client cash into the end of the quarter and some that pointed to just some fixed income liquidity maturities coming in.
Speaker Change: Some uncertainty around interest rate expectations, given some of the moves by the fed and obviously election coming up in just a couple of weeks from now so are you seeing a structural shift in the client cash or is this more of a timing element on asset allocation that is somewhat pumping up client cash all else being equal it could sort of move back into more sort.
Speaker Change: AUM type of levels.
Speaker Change: Not so much on the NII side. Thank you.
Speaker Change: I would say our asset mix has been remarkably consistent advisers have been doing a very good job through different cycles, both market cycles and rate cycles, keeping clients asset mix relatively aligned with their long term investment objectives and so like for example, equities for US right now is roughly 60.
Speaker Change: 8% on an ex rate basis of assets and that's been consistent within two to three percentage points for the last several years in various environments and so the mix shift that you've seen over the last five years has really been within the cash category when its a low rate environment.
Speaker Change: Theres more than transactional cash and when you are at a higher rate environment Theres more investable cash there and so.
Speaker Change: That's the only shift I think we've seen over the long term and.
Speaker Change: One quarter.
Speaker Change: The difference I think and then just the last couple of quarters.
Speaker Change: Deceleration I talked about.
Speaker Change: The sorting activity and now Youre, starting to see more of that growth coming in from just bringing on advisors as they bring on their clients and existing advisors bring on new clients.
Speaker Change: Okay. Thank you for the perspective and taking the questions.
Speaker Change: Yeah.
Your next question comes from the line of Kyle Voigt with K VW. Please go ahead.
Speaker Change: Hey, good evening.
Speaker Change: Paul You noted a continued focus on corporate development efforts and remaining disciplined there just.
Kyle Voigt: Just curious if you can give us an update on the M&A environment are you seeing more or less opportunities today compared to earlier in 2024 is the rate certainty, helping to narrow bid ask spreads for potential targets.
Kyle Voigt: And any areas of focus should we should really be thinking about in terms of the wealth segment or are there. Other areas you are considering for inorganic growth.
Speaker Change: If we look across all of our businesses for growth, we really believe we're positioned.
Speaker Change: For the right opportunities to grow and I would say our corporate development team.
Speaker Change: It's done a great job of bringing opportunities to us right. So we look at a lot of deals.
Speaker Change: Some weird.
Speaker Change: We just don't like the deals the way they fit in our environment. Some are not culturally there and some we like and we just can't get the terms on what we think has good long term price so.
Speaker Change: We're constantly looking we take them very seriously.
Speaker Change: As you know conservative buyer and that will be competitive, but we won't stretch way out to buy an asset and so it really just depends when they click and that's the hard thing on timing like.
Speaker Change: Mike a few years ago people say why you guys aren't going to buy anything youre hurting all of this capital and we closed four deals in the next few months and then it just took a while and they just all happened to hit around the same time so.
Speaker Change: We're still in that mode.
Speaker Change: But we're not going to do a deal just to do a deal it has to be something that fits and makes sense for the firm and shareholders.
Speaker Change: Yes.
Speaker Change: Makes sense.
Speaker Change: And for my follow up maybe just a question on the balance sheet on the <unk> portfolio I know that continued runoff in the quarter I guess less and more clarity on the rate environment in terms of the direction of travel with the fed and still with significant excess capital is there any desire to change your stance on that and begin.
Speaker Change: Holding that steady or growing those balances in fiscal 2025, or do you anticipate laying that portfolio continuing to run off.
Speaker Change: Yes.
Speaker Change: We let that portfolio grow modestly just really to accommodate client cash balances win.
Speaker Change: Banks during the Covid period.
It didn't really want those balances and so now all we're doing is getting back to sort of a normalized liquidity.
Speaker Change: Level of both banks.
Speaker Change: And primarily at Raymond James Bank, where we were accommodating those balances so once they get to that normal state.
Speaker Change: Then we will maintain the balance.
Speaker Change: For the securities portfolio banks, typically need to run it may be around a 10% to 15% liquidity ratio between cash and securities and so Raymond James Bank is still well above that and.
Speaker Change: So we'll let those securities runoff and then once they get to that.
Speaker Change: Type of range, then we'll maintain the balances but the point is we're not taking bets on duration, we're not taking bets on where the fed may or may not take rates that got a lot of our peers in trouble.
Speaker Change: So we want to just stay focused on serving clients and keeping the balance sheet as flexible as possible for anything that the market or the interest rate environment may bring us.
Okay.
Speaker Change: Thank you.
Speaker Change: And your next question comes from the line of Michael Cyprus with Morgan Stanley. Please go ahead.
Michael Cyprus: Great. Thanks for taking the question I wanted to ask about the <unk> business.
Michael Cyprus: Right on how that's performing and contributing across Canada, and the U K today I know you've done some acquisitions there over the years just curious what youre seeing in terms of organic growth contribution over the past year versus say fiscal 'twenty, three and then Canada and the U K, maybe you could talk about if that's of any initiatives there to accelerate organic growth improved scale and profitability.
Speaker Change: It's a little bit of tail.
Speaker Change: Two cities for different reasons, but the private client group in Canada is doing great growth and recruiting.
Speaker Change: When we acquired that business it was really a capital markets business and with a small <unk> business in today.
Speaker Change: So very strong.
Speaker Change: Similar to the U S really our big capital private client group base continuing to recruit.
Speaker Change: Similar profit margins good growth.
Speaker Change: Same kind of platforms that we have here in the U S where you have advisers choice.
Speaker Change: Executed very very well to where we're really getting to the size of the.
Speaker Change: The smallest of the largest banks switches.
Speaker Change: Quite unusual in Canada, but we are up there we feel like our Canadian firm. They just U S parent.
Speaker Change: They operate very very well.
Speaker Change: U K because we've done a recent acquisition are still in integration.
The growth has been kind of flat.
Speaker Change: As we get people and systems, and everything really hooked together and going through that integration process.
Speaker Change: Both is much slower.
Speaker Change: But we anticipate once we're able to do that.
Speaker Change: And get the integration, we expect to be able to grow there, but it's a smaller business too so.
Speaker Change: <unk> has long won't have as big of an impact consolidated.
Speaker Change: Great. Thanks, and then just on the Rcs business, maybe you could help remind us just in terms of the economics, there how that.
Speaker Change: Compares to your traditional channels safer a $1 billion of assets just maybe you can walk us through the P&L impact across revenue.
Speaker Change: Thanks.
Speaker Change: Disclosed so far so maybe it's something we cover at analyst day, or something we haven't really disclosed in detail but.
Speaker Change: We really get an asset see there. So if you looked at pure RIAA the way they measure margins there.
There are higher margins, if you look at our net on.
Speaker Change: Basis points on assets or lower so.
Speaker Change: Part of it the service models different to you don't have all the supervision and compliance requirements.
Speaker Change: Alright.
Speaker Change: Those responsibilities or certain things that they do.
Speaker Change: They are clients of ours their clients or their clients are not our clients.
Speaker Change: And outside of <unk>.
Speaker Change: AML responsibilities and just oversight to make sure. They have process. There's a lot less cost that goes into it although we're a higher service model.
Speaker Change: So it's not easy to give a quick answer but it might be something that we can show in more detail maybe the next analyst day.
Speaker Change: Just any sense ballpark directionally PBT margin revenue Roca, just how to think about that versus the.
Speaker Change: The firm or first.
Speaker Change: Okay.
Speaker Change: Yes, it's complicated again as Paul said, the analyst Investor day would be a good time to talk about the margin.
Speaker Change: P&L basis is actually higher because the attachment revenue that your book is much lower whereas in our other businesses. We gross up the revenues are prepay out.
Speaker Change: And then the roka just varies dramatically depending on the asset mix that the army has and the pricing structure, because there's different pricing structures, depending on the RSA as well so.
Speaker Change: We can get probably more time than we have now to discuss but analysts investor day is probably the right form for that.
Speaker Change: Great look forward to that thank you. Thank you.
Speaker Change: Great.
Speaker Change #100: Appreciate everybody's attendance and we're very proud of the quarter, but.
Already working on the next quarter, because that's just what we do here.
Speaker Change #100: <unk> done a great job.
Speaker Change #100: We've got a great transition and we will continue to do that over the next year. So I. Appreciate you joining us and we'll talk to you next call.
Speaker Change #101: Thank you and this concludes today's conference call. Thank you all for participating you may now disconnect.
Speaker Change #101: [music].