Q1 2025 Raymond James Financial Inc Earnings Call
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 the 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 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 Thank.
Paul Reilly: Thank you Christy good evening, Thank you for joining us today.
As we begin my 60, <unk> and final earnings call as CEO I wanted to take a moment to thank you all.
Paul Reilly: These quarterly conversations have always been constructive and the dialogue has helped informed our investors and shareholders and I'm sure. They have appreciated over the years.
Paul Reilly: I'm excited for the future.
Paul Reilly: I believe Paul Shoukri and his leadership team will delivered leading results when he takes over next month following our annual meeting.
Paul Reilly: He along with our leadership team bring both deep experience and a commitment to our culture and how it translates to our performance.
Paul Reilly: The board and I have great confidence in their collective abilities and believe the future is very bright.
Paul Reilly: I'm not writing off to the Sunset, though.
Paul Reilly: As executive Chairman I will be supporting Paul when he needs. It just as Tom James supported me when he handed me the range 15 years ago.
Paul Reilly: The continuity of experience and counsel are important components of any transition.
Paul Reilly: With that let's get into the fiscal first quarter.
Paul Reilly: We achieved strong results in the quarter, we generated record net revenues in the second highest net income showcasing the strength of our diverse and complementary businesses.
Paul Reilly: We ended the period with quarter end record levels. The P. C. G assets in fee based accounts and a very healthy pipeline.
Paul Reilly: With ample capital and funding, we remain well positioned to continue to invest in our business, our people and technology to help drive growth across all our businesses.
Paul Reilly: Beginning on slide four the firm reported record net revenues of $3 five $4 billion for the first fiscal quarter with net income available to common shareholders amounting to $599 million slightly below the previous quarter's record, resulting in record earnings per diluted share.
Paul Reilly: <unk> of $2.86.
Paul Reilly: Excluding expenses related to acquisitions adjusted net income available to common shareholders equaled $614 million or $2 93 per diluted share.
Paul Reilly: We generated strong returns for the quarter with annualized return on common equity of 24% and annualized adjusted return on tangible common equity of 24, 6%.
Paul Reilly: A great result, particularly given our strong capital base.
Paul Reilly: Moving to slide five total client assets under administration increased 14% year over year to 1.56 trillion dollars sequentially.
Paul Reilly: Sequentially client assets were negatively impacted by foreign exchange rates and by one large departure, we previously discussed.
Paul Reilly: Private client group assets and fee based accounts were up to a quarter end record of $877 billion and financial assets under management were nearly unchanged at $244 billion.
Over time net new assets is primarily driven by our ongoing efforts in retaining and recruiting high quality financial advisers.
Paul Reilly: Domestic net new assets during the quarter equaled $14 billion, representing a 4% annualized growth rate on the beginning of the period domestic P. C G assets.
Paul Reilly: As we described on our last earnings call.
Paul Reilly: Impacting this quarters performance was the departure of primarily one large branch and our independent contractor Division.
Paul Reilly: The impact was approximately $5 billion of air Yue.
Paul Reilly: Adjusting for those assets domestic net new asset growth in the quarter would have been approximately five 4% a strong result.
Paul Reilly: Over the prior 12 months, we recruited financial advisors with approximately $318 million of trailing 12 month production and $51 billion of client assets at their previous firms to our domestic independent contractor and employee channels.
Paul Reilly: Including assets recruited into our a and custody services division, which we refer to as Rcs.
Paul Reilly: We recruited total client assets over the past 12 months of nearly $61 billion across all of our platforms.
Rcs finished the quarter with $188 billion of client assets under administration up 28% year over year.
Paul Reilly: Following the strong recruiting results, we achieved in fiscal 'twenty 'twenty four and in particular, the fiscal fourth quarter, our recruiting momentum continues to be strong under Jody Perry's leadership.
Paul Reilly: Jody previously ran our ICD division and took the role to lead our firm wide P. C. G recruiting.
Paul Reilly: We remain optimistic about both the near term and long term growth given the pipeline of high quality advisors and large teams.
Paul Reilly: Overall, we remain focused on serving advisers across our multiple affiliation options.
Paul Reilly: Despite our record high adviser satisfaction score.
Speaker Change: I have watched Paul sugary continue to double down on our service capabilities during the transition period, believing we can continue to do more.
Paul Reilly: Okay.
Paul Reilly: Our robust technology capabilities client first values continue to enable us to retain and attract high quality advisors, making Raymond James a destination of choice for advisors.
Total clients' domestic cash sweep and enhanced savings program balances at the end of the quarter were $59 $7 billion, reflecting a 3% increase over September 2024.
Paul Reilly: Of note Sweet balances grew 5% in the quarter.
Paul Reilly: Bank loans grew 3% over the preceding quarter to a record $47.2 billion, primarily due to higher securities based loans, which grew 4% in the quarter as well as continued residential mortgage growth.
Paul Reilly: Moving to slide six private client group generated pretax income of $462 million on record quarterly net revenue of $2.55 billion.
Paul Reilly: Results were bolstered by higher P. C G assets under administration compared to the previous year due to a strong equity market and the addition of net new assets to the firm.
Paul Reilly: Our capital markets segment generated quarterly net revenues of $480 million and our pre tax income of $74 million.
Paul Reilly: Net revenues grew 42% year over year, driven primarily by higher M&A revenues.
Paul Reilly: Result, this quarter marked the second best for M&A revenues in the third best quarter for investment banking revenues.
Paul Reilly: The asset management segment generated record pretax income of 125 million on record net revenues of $294 million.
Paul Reilly: Results were largely attributable to higher financial assets under management compared to the prior year quarter due to market appreciation and net inflows into P. C. G fee based accounts.
Paul Reilly: The bank segment generated net revenues of $425 million and pretax income of $118 million.
Paul Reilly: On a sequential basis.
Paul Reilly: <unk> segment net interest income increased 1%, while net interest margin of two 6% declined two basis points compared to the preceding quarter.
Speaker Change: And now I'll turn the call over to our CFO, but your log to review the financial results in detail.
Paul Reilly: <unk>.
Paul: Thank you Paul.
Paul: Turning to slide eight consolidated net revenues reached a record $3 five $4 billion in the first quarter, representing a 17% increase over the prior year and a 2% rise sequentially.
Paul: Asset management and related administrative fees grew to $1 $74 billion, representing 24% growth over the prior year and 5% over the preceding quarter.
Paul: PSEG domestic fee based assets grew to 877 billion up 17% over the prior year and slightly above the preceding quarter.
Paul: As we look ahead, given two fewer billing days asset management and related administrative fees are expected to decrease by approximately 2% in our fiscal second quarter.
Paul: Brokerage revenues of $559 million grew 7% year over year, primarily due to higher brokerage revenues in P. C G.
Paul: I'll discuss account and service fees and net interest income shortly.
Paul: Investment banking revenues of $325 million increased 80% year over year and 3% sequentially.
Paul: Following a strong result in the preceding quarter first quarter results continued to benefit from very strong M&A revenues, which grew 92% year over year and 10% sequentially.
Paul: Other revenues declined $21 million sequentially.
Paul: Primarily due to lower affordable housing investments business revenues.
Paul: Where we typically see a slowdown in the fiscal first quarter following its seasonal high in the preceding quarter.
Paul: Moving to slide nine.
Paul: Clients' domestic cash sweep and enhanced savings program balances ended the quarter at $59 $7 billion up 3% compared to the preceding quarter and representing four 3% of domestic <unk> client assets.
Paul: So far in the fiscal second quarter domestic cash sweep balances have decreased by approximately $1 $8 billion, primarily due to quarterly fee billings of nearly $1 6 billion turning to slide 10.
Paul: Combined net interest income and RJ BD P fees from third party banks with $673 million down 1% compared to the preceding quarter.
Paul: The Bank segment net interest margin was down two basis points to two 6% for the quarter, while the average yield on our J B D. P balances with third party banks decreased 22 basis points to 3.12%.
Paul: Primarily due to the 225 basis point fed rate cuts that occurred during the quarter.
Paul: As well as the 50 basis point rate cut that occurred late in the preceding quarter.
Paul: Based on current rates in quarter end balances net of second quarter fee billings.
Paul: We would expect the aggregate of NII and RJ BD P third party fees to be down 2% to 3% in the fiscal second quarter.
Paul: In large part driven by two fewer billing days.
Paul: Keep in mind, there are many variables that will impact the actual results, including any rate actions during the upcoming quarter.
Paul: And factors impacting our balance sheet, including loan and deposit balances.
Paul: Okay.
Paul: Turning to consolidated expenses on slide 11.
Paul: Compensation expense was 2.2 dollars $7 billion and the total compensation ratio for the quarter was 64, 2%.
Excluding acquisition related compensation expenses the.
Paul: The adjusted compensation ratio was 64%.
As a reminder, the impact of salary increases arising from our annual cycle and effective on January 1st along with the reset of payroll taxes at the beginning of the calendar year will each be reflected in our fiscal second quarter compensation expense.
Paul: Non compensation expenses of $516 million decreased 5% sequentially.
Paul: It's largely due to a lower bank loan provision for credit losses, and a decrease in professional fees.
Paul: For the fiscal year, we expect non compensation expenses, excluding the bank loan loss provision for credit losses unexpected legal and regulatory items and non-GAAP adjustments presented in our non-GAAP financial measures to be approximately $2.1 billion.
Paul: Representing about 10% growth over the same adjusted non compensation figure for the prior year.
Paul: Importantly, we will continue to invest to support growth across the business, while maintaining discipline over our controllable expenses.
Paul: As such the majority of this projected increase reflects our continued investment in leading technology supporting our financial advisors.
Paul: As well as our expectations for overall growth in the business.
Paul: Which drives for example, higher sub advisory fees, FDIC insurance premiums and recruiting costs.
Paul: Slide 12 shows the pretax margin trend over the past five quarters.
This quarter, we generated a pretax margin of 21, 2% and.
Paul: And adjusted pre tax margin of 21, 7%.
Achieving our target of 20% plus margin.
Paul: On slide 13 at quarter end, our total assets were $82 $3 billion, a 1% sequential decline.
Liquidity and capital each remained very strong.
Paul: R. J F corporate cash at the parent ended the quarter at $2 $3 billion, well above our $1 $2 billion target.
Paul: With a tier one leverage ratio of 13%.
Paul: And total capital ratio of 25%.
Paul: We remain well capitalized.
Paul: Our capital levels provides significant flexibility to continue being opportunistic and invest in growth.
Paul: The effective tax rate for the quarter was 19.9%, reflecting a tax benefit recognized for share based compensation that vested during the period.
Paul: For fiscal 2025, we still estimate our effective tax rate to be approximately 24% to 25%.
Paul: Slide 14 provides a summary of our capital actions over the past five quarters.
Paul: In December the board of directors increased the quarterly cash dividend on common shares 11% to <unk> 50 per share.
Paul: And authorized common stock repurchases of up to $1 $5 billion, replacing the previous authorization.
Paul: During the quarter the firm repurchased 310000 shares of common stock for $50 million at an average price of $161 per share.
Paul: As of January 24th approximately 1.4 of $5 billion remained under the boards approved common stock repurchased authorization.
Paul: Going forward, we expect to continue to offset share based compensation dilution and we will be opportunistic with incremental share repurchases.
Given our present capital and liquidity levels, we remain committed to maintain capital levels in line with our stated targets.
Paul: Lastly on slide 15, we provide key credit metrics for our bank segment.
Paul: The credit quality of the loan portfolio remains solid.
Paul: Nonperforming assets remained low at 26 basis points of bank segment assets and criticized loans as a percentage of total loans held for investment ended the quarter at 1.26%.
Paul: The bank allowance for credit losses, as a percentage of total loans held for investment ended the quarter at 95 basis points down.
Paul: Down four basis points from the prior quarter.
Paul: 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 and now account for 36% and 20% respectively of the total bank loan portfolio.
Paul: <unk>.
Paul: The bank loan balance for credit losses on corporate loans as a percentage of corporate loans held for investment was 193%.
Paul: <unk> six basis points from the preceding quarter.
Paul: We believe our allowance represents an appropriate reserve, but we continue to closely monitor economic factors that may impact our loan portfolios.
Paul Reilly: Now I'll turn the call over to Paul <unk> to discuss our outlook Paul.
Paul: Thank you budge.
Paul Reilly: We are pleased with our strong results this quarter.
Paul Reilly: And while the first calendar quarter always has some seasonal headwinds with the reset of payroll taxes and fewer billable days.
Paul Reilly: I'm optimistic about fiscal 2025 and beyond.
In the private client group next quarter's results will be negatively impacted by two fewer billable days, which we expect to result in an approximate 2% decline in asset management and related fees.
Paul Reilly: But advisor recruiting activity remains solid and we're encouraged by the number of large team joining us and it's still in the pipeline.
Paul Reilly: And the capital market segment, we are pleased to see a continuation of improved results. This quarter as the market environment became more constructive for investment banking results and particularly for M&A, which had its second best quarter in our history.
Paul Reilly: Our results in capital markets over the past two quarters reinforce our patient long term approach and strategic investments we have made over the past several years, even during a challenging market backdrop.
Paul Reilly: The near record levels, and M&A and investment banking this quarter were outstanding and we remain optimistic for the rest of the fiscal year, given our healthy pipeline along with a more conducive market environment and are well positioned platform and capabilities.
Paul Reilly: And fixed income business the market is still challenging, but we've begun to see some improvement in the depository sector of our business.
Paul Reilly: With the outlook for short term rates are moderating and the yield curve Steepening depository clients are starting to be more engaged in managing their securities portfolio.
And the asset management segment, we are 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.
Paul Reilly: In addition, we expect Raymond James investment management to help drive further growth over time.
Paul Reilly: In the Bank segment, we have seen securities based loan demand continue to increase as clients get more comfortable with the current level of rates further supported by the fed's recent rate cuts.
Paul Reilly: With ample client cash balances and capital we are well positioned to lend across the loan segment as activity increases within our disciplined risk guidelines.
Paul Reilly: And speaking of our strong capital position, we are well positioned to continue investing in organic growth and will be front footed and pursuing acquisitions that meet our criteria of being a good cultural fit and strategic fit.
Paul Reilly: And while we decelerated the pace of share buybacks. This particular quarter, our commitment to repurchase shares remains unchanged. If we cannot deploy capital in those after mentioned growth initiatives.
Paul Reilly: Meanwhile, the board did increase our dividend by 11% to <unk> 50 per share per quarter and authorized common stock repurchases of up to $1 $5 billion.
Paul Reilly: Over the past nine months I have been spending much of my time traveling across the country meeting with our financial advisors investment bankers associates and clients.
Paul Reilly: I could not be more energized and excited about our future.
Paul Reilly: We have really great people, who focus every day on helping their clients achieve their financial objectives.
Paul Reilly: And our best of both worlds value proposition continues to be more and more differentiated across all of our businesses.
We are unique in having the scope and breadth of products and capabilities to serve complex needs of clients combined with our strong culture that is anchored on putting people first.
Paul Reilly: This makes us a preferred destination for both current and prospective advisers bankers and associates, which we believe will drive industry, leading growth over the long term.
Paul Reilly: The most powerful thing I hear consistently from financial advisors and associates is the best decision they ever made in their career was affiliating with Raymond James and the biggest regret. They have is they did not do it few years earlier.
Paul Reilly: That is really a testament to our unique values and all the great work our associates do each and every day to help financial professionals serve their clients.
Paul Reilly: For that on behalf of our entire leadership team I want to thank our advisors and associates for making Raymond James such a special place.
Paul Reilly: That concludes our prepared remarks, operator will you. Please open the line for questions.
Paul Reilly: Yes.
Speaker Change: At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Speaker Change: We will pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of Devin Ryan with citizens JMP. Your line is now open. Please go ahead.
Devin Ryan: Thanks, So much hi, Paul Paul but for US. The question just wanted to say congratulations to Paul Reilly on.
Speaker Change: A great career and.
Speaker Change: Obviously, I know you will still be there, but it's really been a pleasure. So thank you.
Speaker Change: First question just on capital and I know you guys said on this quite a bit in the call, but 13% tier one leverage ratio.
Speaker Change: It's $2 $5 billion above 10% ratio youre going to generate and you're probably a couple of billion dollars more of capital through earnings over the next year, you only need about 400 million for the dividend. So maybe call that $4 billion of excess over the next year. So you just want to think about obviously you're growing loans.
Speaker Change: Good pace. So can you talk about the level of low demand because it would seem to be can support a lot of growth. There and then just beyond that how you would kind of rank. The other priorities are most attractive priorities for capital use and do you think you can actually work down that tier one ratio over the next year without acquisitions. Thanks.
Devin Ryan: Thanks Devin.
Devin Ryan: Yes, our target is still to get to that 10% ratio, which is still twice the regulatory requirement to be well capitalized and so.
Devin Ryan: Your analysis was quite good in that we have excess capital now not a bad position to be in but.
Devin Ryan: We are looking at the same levers that we have always told you that we prioritize which first and foremost as organic growth investing in our business and our advisors to clients and associates.
Devin Ryan: The recruiting pipeline is still very strong across all of our affiliation options.
Devin Ryan: And also recruiting across all of our businesses as well investment banking and asset management in the bank.
Devin Ryan: And then speaking of the bank growing the balance sheet the loan growth, particularly securities based loans to private client group clients has really rebounded had been strong over the last couple of quarters as clients get used to the new level of rates in the short term rates have declined and so we are seeing that.
Devin Ryan: Both there which is the loan category that we feel has the best risk adjusted returns on the most synergy.
Devin Ryan: With our private client group clients.
Devin Ryan: And then outside of organic growth.
Devin Ryan: We have been front footed in looking for acquisitions, we can't say much about that topic other than there has been a lot of activity there.
Devin Ryan: And the last thing we want to do yes, we do.
Devin Ryan: No whether or not we will close any of them are youll get to the finish line.
Devin Ryan: We have tight filters of it has to be a good cultural fit strategic fit and at a price that makes sense for our shareholders.
Devin Ryan: But the last thing we want to do is a large amount of buybacks, while we're doing due diligence.
Devin Ryan: Few acquisitions that go out.
Devin Ryan: Turnaround and raise capital to fund the acquisitions and so buyback.
Devin Ryan: Buybacks, which is sort of are behind dividends sort of the last lever that we prioritize for capital deployment.
Devin Ryan: It's something that we can turn it turn up or turn down depending on what we see with the other uses that I. Just described and you saw a deceleration there in the last quarter.
Devin Ryan: There's other levers don't drive the kind of capital consumption that we're hoping over the next several quarters and we will.
Devin Ryan: Take up buybacks buybacks back up to the pace that we saw in the preceding quarter.
Speaker Change: Got it really appreciate the thorough response or Paul.
Devin Ryan: As a follow up.
Devin Ryan: On a segment basis, there would be great to just think about what a potential recovery will look like for the capital market segment margin.
Devin Ryan: Assuming business activity continues to recover to something quote unquote more normal.
Speaker Change: Just trying to think about obviously were mid single digits last year. In 2021 2022, you were north of 20%. So do you feel like you can get back to above 20% or or just how would you guys frame what a recovery it looks like based on the business composition today. Thanks.
Devin Ryan: I would tell you above 20%.
Devin Ryan: Most likely for capital markets require both sides of the business broadly speaking the equities in the fixed income side of the business to be running on most cylinders.
Devin Ryan: So a good capital market results.
Devin Ryan: <unk> businesses are not running at one of the two is strong and the other ones. Okay is probably what we saw this quarter at around 15% to 16%.
Devin Ryan: It's a pretty reasonable result for the capital market segment.
Devin Ryan: We had a stronger result in M&A and investment banking.
Devin Ryan: Whereas for fixed income is a little bit of a softer quarter, but.
Devin Ryan: Over 20% numbers, we saw during Covid really was record levels of revenues and pre tax for both the equities and fixed income side of the businesses, which is an atypical is there a sort of natural hedges.
Devin Ryan: They typically don't run on all cylinders at the same time, given the macroeconomic backdrop, so long winded way of saying 15 ish percent.
Devin Ryan: 20% is something that we would be very happy with over cycles.
Devin Ryan: Okay terrific really helpful. Thanks, guys really appreciate it.
Jordan: Thanks Jordan.
Speaker Change: Next question comes from the line of.
Speaker Change: Kyle Vogt with K B W. Your line is now open. Please go ahead.
Kyle Vogt: Hi, good evening.
Speaker Change: Maybe a first question on the comp ratio I wanted to focus on the advisor compensation as a percentage of compensable revenues. The last two quarters have been right around 74% I think you've generally been in.
Speaker Change: And the range of $75 to 76% are in that zone for the better part of the last seven years or so.
Speaker Change: I know the mix of advisers on our platform has recently been shifting towards employees a bit just wondering if that's having an impact on that.
Speaker Change: Advisor, a comp ratio and whether this lower level near 74% is kind of a better run rate.
Speaker Change: Okay.
Speaker Change: Yes.
Hard to look at one or two quarters and call that a new run rate I think if you look at the entire fiscal year for 2024. It was right around 74, 5% or something like that so that's probably what I would point to.
Speaker Change: It bounces around from quarter to quarter, but over a long period of time.
Speaker Change: There's the mix dynamic that you are describing but there's also as you grow.
Speaker Change: Perfect production.
Speaker Change: There is sort of more fixed base that grows as you recruit advisors.
Speaker Change: Amortize over time of the transition assistance and so there is some scale advantage there as we grow.
Speaker Change: The production.
Speaker Change: Relative to the transition assistance that you could see some modest benefit and now we're still recruiting heavily so.
Speaker Change: Transition assistance will still come on in.
Speaker Change: Grow as well, but the revenue has been growing.
Speaker Change: 500, and the recruiting results.
Speaker Change: 17% for fee based assets year over year, but transition assistance amortization is not growing that fast.
Speaker Change: Alright, thank you.
Speaker Change: Just a follow up on net new asset growth I think you noted five 4%.
Speaker Change: The 5 billion large brand shut off boarded obviously still a really healthy rate, but I'm wondering what you think would need to happen to kind of accelerate back to that high single digit M&A great growth rate similar to what Youre generating in 2022 and 2023, just wondering what do you think that's simply industry churn related.
Speaker Change: Or there's competition higher competition.
Speaker Change: Certain channels for recruiting.
Speaker Change: Yes, I think it's just going to take.
Speaker Change: Recruiting can be a little lumpy as it is we came off a record year end.
Speaker Change: We had a lot of advisors joined at year end and the pipeline is very very healthy. So a lot of that is.
Speaker Change: Pushed by just.
Speaker Change: How and when we bring in the crude side and then when you recruit and they come it takes a while good year or a lot of them.
Speaker Change: Hold up their asset base.
Speaker Change: We feel really good about the trends it looks like.
Speaker Change: Up and down the industry, it's been a little slower, but we expect.
Speaker Change: I think we should expect.
Speaker Change: Strong in that area is still for a while as long as that.
Speaker Change: Users are moving and joining us.
Speaker Change: We're optimistic with the pipeline.
Paul: Thanks, Paul.
Paul: Your next question comes from the line of Bill Katz with Citi.
Speaker Change: TD Cowen. Please go ahead.
Bill Katz: Thank you very much for taking the questions and Paul Paul again, congrats to both of you guys.
Bill Katz: Just in terms of the front foot comment that sort of caught my ear, you've said it twice now in this call.
Bill Katz: <unk> is a significant amount of capital you discussed.
Bill Katz: I was wondering whether you can sort of prioritize where you're most interested in growing the platform. Maybe if you could talk either at the segment level or geographically I'd be curious to sort of where you think you need to sort of further scale. Thank you.
Bill Katz: Okay.
Bill Katz: Yes, let's say again, our priorities have been pretty consistent.
Bill Katz: Private client group business is our biggest business.
Bill Katz: And so that is sort of our top priority both in terms of.
Bill Katz: Organic deployments and also our pursuits.
Bill Katz: Acquisitions.
Bill Katz: But that's also a very difficult from an acquisition perspective space to find a good strategic fit cultural fit.
Bill Katz: And also a value that makes sense for shareholders, especially with private equity firms being so aggressive in this space right now so but that is our top priority in our capital markets continuing to look at M&A.
Bill Katz: M&A firms.
Bill Katz: Strengthen our platform for various verticals those have been more.
<unk> seen kind of team hires and lift niche acquisitions and lift outs and so those have been very accretive for us over the past several of years.
Bill Katz: And also looking at asset managers, but again on the asset management front most of the deals that we look at our.
Bill Katz: <unk> shown to us are not necessarily showing us good organic growth profiles and that's something that we would be looking for on the asset management front. So really looking across all of our businesses. We have a lot of headroom to continue growing and expanding our market share and expanding the solutions that we provide to clients in each one of our business.
Bill Katz: And so those are sort of aligned with the priorities that we have from an acquisition perspective, and just add on to fall I mean, absolutely agree you asked about geography too.
Bill Katz: First we will take a good adviser anywhere.
Bill Katz: We're looking trying to get the best advisors on the platform.
Bill Katz: If you look at market share we've grown in the northeast, but certainly have a lot of room for us gaining market share behind a lot of our other markets in the West Coast is really still wide open we are growing at a fast percentage base, but it's our smallest market share. So we believe we have a lot of opportunity to consider here.
Bill Katz: Continue to grow in that business organically through recruiting and also in Canada, and the UK as well so those are markets that.
Bill Katz: In Canada, we have a lot of headroom to continue growing there as well so those are markets that we're interested in.
Speaker Change: Okay terrific and as a follow up you mentioned the non comp non provision being about $2 $1 billion. So maybe a two part question how much flex is that if the revenue backdrop or to potentially K a little bit just from a macro perspective, and then how should we be thinking about a more sustainable operating margin just give.
Bill Katz: The further scaling of the business. Thank you.
Okay.
Speaker Change: Yes.
Speaker Change: Yes, there is some flex not necessarily flex we want experience because a lot of that those expenses grow right in line with revenues So investment sub advisory group fees grow with fee based assets.
Speaker Change: And.
Speaker Change: Branch branch expense grows as we expand branches and opened up new branches and so FDIC insurance expenses grow as we grow the banks.
Speaker Change: So we want those expenses to grow because that means revenues are growing so to your answer I guess the question. The answer to your question is there is flex, but not necessarily flex that we want to experience.
Speaker Change: Outside of that in terms of discretionary flex there always is discretionary reflects short term, but we're really committed to investing in the long term, we don't try to manage the expense growth from quarter to quarter. We're looking at the next our needs over the next three five years and beyond.
Speaker Change: So we want to stay committed to those investment objectives independent of what the short term macroeconomic backdrop looks like or what the short term revenue profile looks like.
Speaker Change: Okay.
Speaker Change: Okay. Thank you very much.
Thanks Bill.
Speaker Change: Your next question comes from the line of Dan Fannon with Jefferies. Please go ahead.
Speaker Change: Thanks, just wanted to follow up on that last question. It sounds like that's a normal course in terms of some of the investments in growth in the business as we think about non comp on a multiyear basis is 10%.
Speaker Change: Reasonable run rate or do you view this level is a bit elevated given some of your priorities around spending and investing in the business.
Speaker Change: Now again.
Speaker Change: Investment sub advisory fees grow with the fee based assets that was up 33% year over year. So we would love to see that continue to grow 33% year over year, because that means our fee based assets are growing that much.
Speaker Change: And so.
Speaker Change: I would say you have to look at each piece of it but.
Speaker Change: But overall with the revenue growth that we've been experiencing and the correlated expenses 10%.
Speaker Change: Ben.
Speaker Change: A reasonable over the last couple of years, but that will naturally decelerate if the associated revenue drivers decelerate.
Speaker Change: Understood and then just following up on organic growth it sounds like the backlog and recruiting is still quite strong wondering if you could characterize that today versus prior periods last quarter or the start of last year and then you've also had some headwinds in some of the attrition that you had noted as you look forward.
Speaker Change: Here in 2025 do you anticipate are there other kind of known.
Speaker Change: Platforms or things that might be leaving or something that you had already noted that arent fully gone just to quantify that.
Speaker Change: Yes.
Speaker Change: A large one it's essentially almost.
Speaker Change: Totally gone. This is this was the big quarter.
Speaker Change: That one is even receive.
Speaker Change: But that's behind US we think that there is.
Speaker Change: As always some attrition.
Speaker Change: We've historically said that 1% type of aggressive nutrition, but we don't see anything big on the leasing side.
Speaker Change: The biggest movement of people that have gone to R&D.
Speaker Change: Fortunately a condo.
Speaker Change: We've kept the assets.
Speaker Change: And then pipeline I think you might have seen a little bit this quarter, but normally when we have a really strong year and just like investment banking and then when you closed in the fourth quarter your fiscal quarter, we had a very.
Speaker Change: <unk> joined.
Speaker Change: And that fourth quarter, usually the first quarters and a little slower because you burned off the backlog and you're just going through it and people opt in so the timing.
Speaker Change: There's always a little off but if you look.
Speaker Change: Pipeline is very strong team is up to $20 billion in assets and the teams get bigger and bigger.
Speaker Change: So we're very very confident.
Speaker Change: But it will be lumpy quarter to quarter, it's not always it's not a straight line business, but we feel really good about the pipeline is as strong as it's been.
Speaker Change: Great. Thank you.
Speaker Change: Your next question comes from the line of Brennan Hawken with UBS. Please go ahead.
Brennan Hawken: Hi, good afternoon. Thanks for taking my calls on that question.
Speaker Change: So.
Speaker Change: Curious on the average yield on RJ PDP third party bank down about 22 basis points this quarter.
Speaker Change: I wanted to confirm that one the revenue side of that is really primarily moves with the policy rate and so there for the offset partial offset would be.
Speaker Change: <unk> beta that you have tied to those balances.
Speaker Change: Should we continue to think that that deposit beta offset will remain roughly at the level you've experienced so far and maybe you could you let us know what the beta has been on ESP and the fed cuts.
Speaker Change: Yes, I mean, I think thats, a reasonable assumption going forward.
Speaker Change: We will of course next quarter have the full impact of the rate.
Speaker Change: The two rate cuts in this quarter.
And so I think the.
Speaker Change: The beta has been averaging around 35% on the sweep balances, but much higher than that on the highest yielding products like ESP closer to 100% and so.
Speaker Change: That's what we anticipated with sort of that the deposit beta would look similar for the various products on the way down as it did as underway up for rates.
Speaker Change: Got it thanks, thanks for that Paul.
Speaker Change: And then.
Speaker Change: Understanding that that SPL growth has been pretty strong.
Speaker Change: But given the increasing optimism in the environment and business seems confidence is improving should we how should we be thinking about C&I loan growth going forward and how are you thinking about that as you think about moving into the physical.
Speaker Change: Through fiscal year 'twenty five.
Speaker Change: Yes.
Speaker Change: We're still active in this space, certainly and especially for client relationships, but.
Speaker Change: It's been challenging.
Speaker Change: <unk> origination flow.
Speaker Change: In the spaces that we cover have been still relatively muted we expect that to hopefully pick up in 2025, just given the macro backdrop.
Speaker Change: And then the flow we have seen have been really.
Speaker Change: Dreamlike tight spreads.
Speaker Change: So we're not going to FERC forest growth by pursuing spreads that.
Speaker Change: I don't meet our thresholds in terms of risk adjusted returns and so.
Speaker Change: Hopefully when volume gets to more normal levels, we will see spreads kind of recover to more normal levels.
Speaker Change: Time will tell over the course of the year in the meantime.
Speaker Change: We would hope for a continued growth in the securities based loan portfolio.
Speaker Change: As clients continue to.
Speaker Change: Established new lines and tap into their existing lines.
Speaker Change: Great.
Speaker Change: That makes a lot of sense, thanks, and congrats just for you on your new roles.
Speaker Change: Thank you Brian.
Speaker Change: Your next question comes from the line of Alex <unk> with Goldman Sachs. Please go ahead.
Alex: Hi, Good evening, everybody. Thank you for taking the question as well.
Alex: I would like to go back to the capital management discussion it feels like it's been very consistent I guess over the quarters and years, but here. We are in capital continues to build.
Speaker Change: I know you were targeting 10, and I know, it's over time, but can you give us a sense of realistically when you expect to get there not to pin you down to any particular quarter, but as a framework right and it sounds like youre closer to deals and that's kind of held you back. But then you also named a lot of things that are interesting on the deal front again similar to what you've said in the past so what is more likely.
Alex: Just in terms of the type of businesses that youre looking to.
Alex: Add inorganically and if not when should we expect to that capital ratio to walk down to your target.
Alex: Yes, let me. This is Paul I think you answered the question pretty thorough late and I understand why youre asking for clarification I.
Alex: I think we are on a road of buybacks because we felt that was the best use of capital.
Alex: When we felt that there may be other uses we held back on so we're going to.
Alex: We're not going to we're not going to acquire something there is lower the capital ratio.
Alex: Do it because if we do something because of the strategic and long term shareholder benefit.
Alex: We feel like when there is an opportunity it's prudent.
Alex: To have the capital that we do is if we don't do it we're just going to have to catch back up quickly.
Alex: Committed to the ratio I think people were surprised when we actually hit the buyback targets.
Alex: Last time, the sugar commitment.
Alex: We didn't we didn't slow up for fun, we slowed up for so.
Alex: But that's kind of part of the timing right.
Alex: So 13, we don't like operating at 13%, we think to initiatives comfortable and that's where we prefer to operate but again.
Alex: We don't want to use capital and have to go chase it.
Alex: Yes.
Alex: And I.
Alex: I know.
Alex: Perhaps feels it seems like eternity since we were at 10%, but it was just over two years ago.
In our time horizon two years.
Alex: Not a short period of time, but it's not at extreme.
Alex: Extremely long period of time, especially when you consider what's happened over the last two years with.
Alex: With balance sheet growth being harder to come by across the entire industry.
Alex: And the acquisitions.
Alex: Sure.
Alex: Very low velocity in terms of potential acquisitions out there over the last couple of years.
Alex: The ones that were done that meet our criteria of being a good cultural fit strategic fit or at a valuation that makes sense for us so I.
I know it seemed like a long time, we agree with your 13% over our 10% target, but last time, we were here just over two years ago. We did six acquisitions in two years and so what we're telling you is that we're committed to getting back down to 10%.
Alex: But we're also asking you to kind of be patient with us.
Alex: In the context of two years.
Alex: We will be prudent and we will be disciplined and we will be front footed on deploying that capital.
Alex: Yes fair enough I mean at the end of the day high high class problems.
Alex: Got that.
Alex: Question second question for you guys around the advisory revenues within investment banking.
Alex: I think running at north of $200 million for two quarters in a row now.
Alex: Approaching kind of peak ish levels, but that's without even the M&A cycle really taking off so maybe help us frame how much the underlying drivers of the business have expanded over the last couple of years and as you think about the current cycle in the context of the prior peak how.
Alex: How much higher do you think advisory revenues could get.
Alex: Could ultimately get to as the new M&A cycle unfolds.
Alex: Okay. So let's start with the pipeline looks very strong just like everyone in the industry believes in.
Alex: Maybe that story with strong.
Alex: Pipelines, but green shoots where fast that so people are doing deals but.
Alex: I wouldn't annualize the last two quarters, we've been last quarter. The first quarter, we were stronger than most.
Alex: But an earlier recovery last quarter.
Had two large fees one over $40 million so.
Alex: It's hard to say M&A is lumpy.
Alex: It's going to be smooth with I think would be.
Alex: Not a good assumption that that run rate.
Alex: That would be challenging next quarter, although the pipeline looks very good so.
Alex: We got off to a we got out of the gates quickly, maybe a little more quicker than our run rate would be so.
Alex: I'd be cautious taking.
Alex: Taking that number just extending that although we think we're in the middle of a good recovery, but not at the run rate at the peak.
Alex: Okay.
Alex: Got it alright, thank you both very much and congrats to everybody.
Alex: Thanks, Alex.
Speaker Change: Your next question comes from the line of Jim Mitchell with Seaport Global Securities. Please go ahead.
Jim Mitchell: Hey, good afternoon.
Jim Mitchell: Just on NII it sounds like based on the guidance for the next quarter that your NIM. This seemingly pretty stable, we have loan growth picking up deposit.
Rose looking like it's turning and starting to get a little better.
Jim Mitchell: Still have asset repricing so we.
Jim Mitchell: With only about one or two cuts in the forward curve is it fair to think that.
Jim Mitchell: Trajectory on NII could start to get a little better.
Jim Mitchell: Beyond next quarter.
Jim Mitchell: I'm trying to think through full year, 'twenty, five and what maybe the quarterly trajectory look like.
Jim Mitchell: Yes, Jim that's absolutely right, that's our hope as well we have two fewer billable days this upcoming quarter. So that's the headwind but beyond that is.
Jim Mitchell: Assuming rates stabilize the NIM stabilizes, we grow assets.
Jim Mitchell: We think that that can be a tailwind for NII and that's the goal is for it to be a tailwind to NII going forward.
Speaker Change: Okay, and then maybe as a follow up on just on the NIM. It seems like you are kind of your current.
Being dragged down by the Securities book, yielding around two and a quarter in the mortgage book yielding in the threes.
Speaker Change: Can you give us any sense on the frame the timeframe.
Around when those books could start to get back to kind of current market rates is that a multiyear story is it.
Speaker Change: Little more quicker than that how do we think about that.
Speaker Change: Yeah, Hey, Jim that's a great question in terms of the available for sale.
Speaker Change: Re pricing, we see the maturities decreasing our maturing.
Speaker Change: $1 $5 billion over the next 12 months not at pro rata run rate about $500 million of that re pricing.
Speaker Change: Maturities will occur in the next quarter and then.
Speaker Change: Other smaller amounts over the remaining three quarters.
Speaker Change: And those that repricing is is we are using to fund about.
Speaker Change: Loan growth.
Speaker Change: Associated with the bank, so that re pricing.
Speaker Change: For this past quarter and for the upcoming quarters will be will be deployed in those loans.
Speaker Change: <unk> loan growth that we talked about in the other elements of loan growth.
Speaker Change: I'll turn it on.
Speaker Change: Kind of.
Speaker Change: Turn from a headwind to a tailwind for us as securities mature and rollover to higher yielding assets.
Yes, absolutely.
Speaker Change: Right great. Thanks, so much.
Michael: Your next question comes from the line of Michael <unk> with Morgan Stanley. Please go ahead.
Speaker Change: Hey, good afternoon. Thanks for taking the question just wanted to circle back on the non comp expense $2 $1 billion guide for the fiscal year I was hoping you can elaborate a little bit more on some of the major areas for investment that you are focused on I think technology has been one maybe you could provide a little bit more color on the types of technology investments maybe.
Michael: Help quantify that a bit more and just more broadly unpack some of the major areas for investment here in the fiscal 'twenty five.
Michael: Yes, I think technology in particular is something we want to speak to the street about in more detail at the next analyst Investor day, because that is a big area of focus for us as we really help advisors.
Michael: Ultimately save time, so they can spend more time with their clients and provide deeper and broader services to their clients in a more efficient way and so.
Investing in the technology.
Michael: And also the process the underlying processes.
Michael: That require automation.
To be more efficient and so we're doing that across the private client group also investing in that technology.
Michael: <unk> infrastructure and capital markets business, as well and really across all of our businesses. So more more detail than we can provide.
Michael: On the earnings call by the good question and something that I think we will try to carve out time at our analyst Investor day to really highlight because it is a real strength.
Michael: And probably maybe an underappreciated strength at Raymond James Underappreciated by the Street certainly not by the advisers when we bring in advisors to home office visits from the largest firms in the country.
Michael: Oftentimes more often than not they tell us while we thought we were going to have to downgrade.
Speaker Change: In terms of technology to join Raymond James because you guys have such a great culture, but I am now realizing after spending a day or two with your technology that it's actually going to be an upgrade.
Michael: And so we.
Michael: We need to do a better job highlighting that and.
Michael: We're also investing.
Michael: And automation across the platform as well to increase efficiency. So we're excited about the technology investments, we're making across the business over the next several years.
Speaker Change: If I could I was just hoping to ask a question on AI, Although maybe ill tell me I'll save that for Investor day, but maybe I'll just give it a shot here anyway, but just curious if you could maybe just give a little bit of an update on how youre thinking about the opportunity set where and how you're experimenting across the firm today, what sort of learnings.
Speaker Change: You had along the way where do you think it could be the most impactful as you think about the business over the next couple of years and just given the peak advancement over the weekend. It seems like maybe there could be some potential for faster deployment, just curious how youre thinking about that from an innovation and cost of the play standpoint.
Speaker Change: Yes.
Speaker Change: Bob.
Speaker Change: It's definitely a topic for an analyst Investor day. So you are right about that but it is something that.
Speaker Change: Not only are we actively looking at but we have been actively looking at.
Speaker Change: We are.
Speaker Change: Inactive discussions and making the investments to be more formal about that.
Speaker Change: <unk> and monitoring and deployment across our businesses because as you are as you point out.
Speaker Change: We know it's going I think the management team as a lot of conviction that it's going to result in substantial changes probably sooner than we think but.
Speaker Change: But we also have a lot of conviction that we don't know exactly how those changes will manifest themselves over the next couple of years, because it's still so early in the process of really the key for us is to and for everyone. In our industry is to really be proactive in monitoring the developments in understanding the potential use cases.
Speaker Change: Testing and deploying and piloting the potential use cases, so that is something we are in the process of setting up a team to do in a more formal way in a more dedicated way and something that we will certainly be ready to discuss in more detail at the analyst Investor day.
Speaker Change: Super I look forward to that thank you.
Speaker Change: Your final question comes from the line of Steven <unk> with Wolfe Research. Please go ahead.
Steven: Hi, Congrats Paul and Paul.
Speaker Change: And yeah look forward.
Speaker Change: Two of them, obviously engaging with Paul on the new role certainly so just a quick question for me on sweep cash trends they were quite resilient in the quarter for you and industry peers. Your growth did lag. However, some of the public peers and was hoping you could speak to any actions or changes in promotions, which may have impacted the cash for.
Speaker Change: And with NII poised to stabilize at some point this year what are your underlying underwriting for sweet cash balance growth in the year ahead.
Speaker Change: And I think.
Speaker Change: When you look at quarter to quarter trends, but if you look at year over year trends.
Speaker Change: I think youll see different trends there so.
Speaker Change: Our cash balances and our cash programs, we always put clients first and the offering and we have a very competitive offering both on the sweet program the enhanced savings program.
Speaker Change: The special rates, we offer for new money and also.
Speaker Change: Purchase money market fund platform in and first and foremost when we make decisions around any of those cash programs, we're thinking about what's best for our clients.
Speaker Change: And that's served us very well over a long period of time.
Speaker Change: The sorting dynamic has certainly gotten into the later innings, especially as rates have started to come down.
Speaker Change: And outside.
Speaker Change: Outside of quarter to quarter blips that you're highlighting.
Speaker Change: You may have some noise in that if you look over a long period of time.
Speaker Change: We've been very consistent that you as you know Stephen about being.
Speaker Change: About providing transparent and sort of consistent guidance around what we thought was going to happen to cash balances and we have performed just as well if not better than the rest of the industry. Since the start despite maybe some others are saying about what would happen.
Speaker Change: No that's helpful. Paul and I just have two clean up questions here, if I could ask quickly. The first is just on the capital markets comp ratio, whether the 63% is a reasonable run rate assuming this more constructive backdrop continues and then what drove the decline in AUM in the quarter given.
Speaker Change: Equity markets were slightly higher you cited the positive flow trends just wanted to understand some of the drivers underpinning that.
Speaker Change: I'll talk about the trends there really.
Speaker Change: Which is something unusual for us so a lot of the <unk>.
Speaker Change: Some of the Big Delta was actually FX, which usually doesn't fit us.
Speaker Change: But we know with the UK and Canada being down 6% in the portfolio that actually was a big chunk and then.
Speaker Change: One firm that left it will be nice not to talk about that anymore. After this quarter, but that would have brought us into positive territory.
Speaker Change: So there was some one off things in the quarter, which I think is why are we look like we've lagged in again.
Speaker Change: Our asset growth has been very strong.
Speaker Change: This was just a blip before and there is nothing that we can see or that we're worried about in terms of.
Speaker Change: The growth of assets.
Speaker Change: On the comp ratio I don't know call or questions. You wanted to think about the comp ratio our guidance has been to keep the comp ratio under 65% of the firm.
Speaker Change: And we have.
Speaker Change: Certainly been able to do that even though even as.
Speaker Change: Interest rates have started coming in a little bit so.
Speaker Change: It bounces around from quarter to quarter, especially in the capital markets segment.
Certainly it's hard to compare our last fiscal quarter to the first fiscal quarter of the year, because we have year end reversals and those sorts of things so.
Speaker Change: I would encourage I always encourage folks to kind of look at a longer term trend when making comparisons.
Speaker Change: That's great Congrats again, Paul and Paul and Thanks for squeezing me in here.
Paul: Thanks, so much Steve.
Speaker Change: Thanks, Steve.
Speaker Change: That concludes our Q&A session.
Paul Reilly: Now turn the conference back over to Paul Reilly for closing remarks.
Paul Reilly: Well. Thank you all for attending and I really do appreciate as I said in the opening.
Paul Reilly: This is very valuable to shareholders us and the feedback so I appreciate it very constructive open dialogue I hope that you always felt were front footed and honest, even though you call. It sandbaggers once in a while.
Paul Reilly: We tried to give you a good and accurate information. So thank you for that.
Paul Reilly: I appreciate it.
Paul Reilly: It may not be on the calls, but I'll be listening to them at a minimum so.
Paul Reilly: Appreciate it thanks for your support and all in.
Paul Reilly: And we'll talk to you next call.
Paul Reilly: Okay.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].