Paul Reilly:

Thank you, Christy, and good evening. Thank you for joining us today. Last week Paul and I attended our Summer Development Conference for our employee advisors. It's exciting to spend time with so many advisors who embody our client first culture. We hear firsthand what makes Raymond James a great place for advisors who value the breadth of our technology and product platform so they can effectively serve their clients, and importantly, a firm that provides advisors the tools they need to grow their businesses. Paul and I appreciate the passion and dedication of the thousands of advisors who continue to serve their clients day-in and day-out. Turning to our quarterly results, we once again delivered strong results in the quarter. Our diverse and complementary business combined to generate record results for the first nine months of the fiscal year. We continue to invest in our businesses, our people, and our technology to help drive growth across all of our businesses. Beginning on slide four, the firm reported record fiscal third quarter net revenues of $3.23 billion, an increase of 11% over the prior year quarter, primarily due to higher asset management and related administrative fees. Quarterly net income available to common shareholders was $491 million, or $2.31 per diluted share. Excluding expenses related to acquisitions, adjusted net income available to common shareholders was $508 million, or $2.39 per diluted share. We generated strong returns for the quarter with annualized return on common equity of 17.8% and annualized adjusted return on tangible common equity of 21.9%, a great result, particularly given our strong capital base. During the quarter, we repurchased 2 million shares of common stock for $243 million, bringing our fiscal year-to-date total to 5.1 million shares for $600 million. Moving to Slide five, client assets grew to record levels during this quarter, driven by rising equity markets and solid advisor retention and recruiting in PCG. Total client assets under administration increased 2% sequentially to $1.48 trillion. Private client assets and fee-based accounts grew to $821 billion, and financial assets under management to $229 billion. Domestic net new assets during the quarter were $16.5 billion, representing a 5.2% annualized growth rate on the beginning of the period domestic PCG assets. Our robust technology capabilities, client-first values, and long-established multi-affiliation options continue to retain and attract high-quality advisors to the platform. This quarter, we recruited to our domestic independent contractor and employee channels financial advisors with approximately $92 million of trailing month production and $13.4 billion of client assets at their previous firms. Including RCS, we recruited client assets of $14.9 billion, making this our best quarter since 2021 in terms of recruited assets. Fiscal year-to-date, trailing 12-month production of recruited advisors is up 33%, and related client assets are up 52% over the prior nine-month period. These results do not include our RIA and custody services business, RCS, which also continues to have recruiting success and finish the quarter with $167 billion of client assets under administration. We continue to experience growth in RCS from external joins as well as from internal transfers. This quarter, we reported record financial advisors of 8,782, and that does not include internal transfers to RCS of nearly 50 advisors, primarily all from one firm. While transfers to RCS lower the firm's advisor count, the client assets typically remain with the firm. Looking at fiscal year-to-date results, domestic net new assets were $47.7 billion, representing a 5.8% annualized growth rate on the beginning of the period domestic private client group assets, a strong result compared to peer group. Total clients' domestic sweep and enhanced savings program balances ended the quarter at $56.4 billion, down 3% from March of 2024. We are pleased to see cash balances remain relatively flat in the quarter following fee billings paid in April. Bank loans grew 2% over the preceding quarter to a record $45.1 billion, primarily due to higher securities-based loans, as demand for C&I loans remains muted. Moving on to Slide six, private client group generated record quarterly net revenues of $2.42 billion and pre-tax income of $441 million. Year-over-year, results were bolstered by higher PCG assets under administration due to strong equity markets and net new assets brought into the firm. The capital market segment generated quarterly net revenues of $330 million and a pre-tax loss of $14 million. Net revenues grew 20% compared to a year-ago quarter, primarily due to higher debt and equity underwriting revenues. Sequentially, revenues increased 3%, primarily driven by the higher affordable housing investment revenues. Pre-tax loss in capital market segment of $14 million reflects weak M&A results in the impact of amortization of deferred compensation granted in preceding quarters, which totaled approximately $20 million this quarter. While the timing of closings remain difficult to predict, we are still optimistic about our healthy pipeline and new business activity in M&A. We continue to expect investment banking revenues to improve along with industry-wide gradual recovery. The asset management segment generated pre-tax income of $112 million on record net revenues of $265 million. Results were largely attributable to higher financial assets under management compared to the prior year quarter due to market appreciation and net inflows into PCG fee-based accounts. The bank segment generated net revenues of $418 million and pre-tax income of $115 million. The bank segment net interest margin of 2.64% declined just two basis points compared to the preceding quarter. Looking at the fiscal year-to-date results on Slide seven, we generated record net revenues of $9.36 billion and record net income available to common shareholders of $1.46 billion, up 9% and 12% respectively over the previous record set in the prior year. Additionally, we generated strong annualized return on common equity of 18.2% and annualized adjusted return on tangible common equity of 22.5% for the nine-month period. On slide eight, the strength of the PCG and asset management segment for the first nine months of the year primarily reflects the strong organic growth in PCG along with robust equity markets. And now, I'll turn the call over to Paul Shoukry for his remarks. Paul?

Paul Reilly:

Thank you, Paul. I am pleased with our strong results this quarter, and looking forward we are well-positioned with record levels of assets and bank loans starting off the fiscal fourth quarter. And while there is still economic uncertainty, I believe we are in a position of strength to drive growth over the long term across all of our businesses. In the private client group, next quarter's results will be positively impacted by the 3% sequential increase of assets and fee-based accounts. Our advisor recruiting activity remains robust, and I am encouraged by a record number of large teams in the pipeline. 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. In the capital market segment, we continue to have a healthy M&A pipeline and good engagement levels. But our expectations are for a gradual recovery and are heavily influenced by market conditions, and we expect activity to pick up over the next few quarters. And in the fixed income business, although we've seen some improvement in depository, results are still lagging historical levels. Depository clients continue to experience flat to declining deposit balances and have less cash available for investing in securities, putting pressure on the brokerage activity. We hope once rates and cash balances begin to stabilize and grow, we will start to see an improvement. Overall, despite some near-term headwinds, we believe the investments we've made in the capital markets business have us well-positioned for growth once the market and the rate environment become conducive. In asset management segment, we remain confident that strong growth of assets and fee-based accounts in the private client group segment will drive long-term growth of financial assets under management. In addition, we expect Raymond James Investment Management to help drive further growth over time. In the bank segment, we remain focused on fortifying the balance sheet with diverse funding sources and prudently growing assets to support client demand. We have seen securities-based loan payoffs decelerate and demand for these loans increase as clients get more comfortable at the current level of rates. Corporate growth has been muted as market activity remains low. However, with ample client cash balances in capital, we are well-positioned to lend once activity increases within our conservative risk parameters. In addition to driving organic growth across our businesses, we also remain focused on corporate development efforts. While we prefer to deploy capital through M&A, we plan to increase the pace of buybacks as we continue to look for opportunities that may meet our disciplined M&A parameters. I expect you have several questions related to the industry news regarding cash sweep changes that have occurred over the past few weeks. We have been monitoring these emerging developments closely like you have, and frankly probably have some of the same questions. We are prepared to attempt to answer any questions you may have. In closing, we are well-positioned entering the fourth quarter with strong competitive positioning in all of our businesses and solid capital and liquidity base to invest in future growth. I want to thank our advisors and all of our associates for their continued dedication to providing excellent service to their clients. Thanks for all you do. That concludes our prepared remarks. Operator, will you please open the line for questions?

Michael Cho:

Hi. Good evening. Thanks for thinking my question. I will go ahead and start with a regulatory piece. Paul, you mentioned, you talked through the interesting comment in RJBDP, kind of doesn't include potential considerations to maybe changes in rates on sweep cash. You mentioned competition. Again, how would you characterize the current changes in the competitive environment from your view, from your seat? And is there a way to frame the magnitude or even type of response by running a game, whether it's either competition or regulatory on the spot? Thanks.

Michael Cho:

Okay, great. No, thanks for the clarification and some of the thoughts there. I guess just for my second question, I just want to zoom out and ask a broader business question and kind of trajectory for Raymond James ahead. I mean, as you talk through you continue to hit record assets, record revenue, record bank loans, and I realize you have some margin targets out there for the broader company. And clearly there's some aspects and nuances happening in real time as you just talked through Paul. But I'm just curious, how would you frame the trajectory for operating leverage in the business, as this backdrop continues to reach record levels for Raymond James despite maybe some rate normalization ahead?

Michael Cho:

Great. Thank you so much.

Devin Ryan:

Hey, good afternoon, Paul and Paul, how are you?

Devin Ryan:

Good. I'll ask another one on the advisory cash rates. Sounds like some of what's going on in the industry is news to you guys as well as you're following along. And so, I guess just what I'd love to know if you can, like what percentage of fee-based accounts is in cash at the kind of the lowest rates? And then, just also trying to understand competitive reasons that could drive kind of a change in your thinking, because obviously one of the firms that's moved, you made their changes in April, which I'm assuming you guys probably, as you evaluate frequently, you probably saw that then. So just trying to think about what else could competitively change your view, especially now that the vast majority, if not all of the yield seeking cash has already been moved on to those higher yielding alternatives for customers as advisors should have already done?

Devin Ryan:

Right. Exactly. So I guess that's kind of my, I guess the root of the question that you've already seen that move. It’s a very small amount that you are playing a higher rate than some other programs, as you mentioned already. So competitively from here, we don't know exactly every action that's happened, but just the catalyst to actually make meaningful change after you're already in the position that you're in as you just described, Paul?

Devin Ryan:

Yes. Okay. Very helpful. Thank you, Paul. And then just a quick follow-up on the loan growth and really nice to see that, I guess, securities-based loan demand that you guys referenced. And just curious if that's something that, just as you're kind of maybe seeing a shift in appetite and people's comfort with where rates are, if that's something that you'd expect would continue -- can that continue to fuel loan growth? I guess is the root of the question.

Devin Ryan:

All right. Thanks so much.

Operator:

Your next question comes from the line of Steven Chubak with Wolfe Research. Your line is open.

Paul Reilly:

No, that's a great question. And let me explain the disclosure first. So on advisory accounts, cash has no different payment in terms of the advisor than any other asset class. So if they have a million dollar account and they're charging 1%, they're getting $10,000 in fees. If there's zero cash in there, they're getting $10,000 in fees. If there's 5% cash, they're getting $10,000 in fees. There's no indirect incentives and trips or rewards or points or anything. There is zero incentive in advisory account to do anything but what's in the best interest of your client. And I assure you, there's nothing from home office that even asks them about it, where we've been known and continued, advisors should be doing the right things for their clients. And of course, we have supervision, making sure it doesn't go the other way. But you know, we have a great group of advisors and by the movements, they're doing what they should be doing. The disclosure really talks about some limited things and the brokerage side. And let me explain that one that we've had some fundraising programs like the ESP program, where for high rate money market types of rates that we've allowed advisors to be compensated in those programs, they are not compensated a penny on the sweeps. So the only incentive that they have is to go -- is to put clients for compensation into higher rate accounts. They have zero compensation on the low rate accounts. So brokerages be like dropping a ticket into some of their investment if they put it into those high rate accounts. They're doing the right thing for clients, it costs us more money. So we don't believe there's any conflict whatsoever. But the fact that we've done that in limited cases. We put that disclosure in, to cover that. And regulatory wise, they like it very clear that instead of you could pay that you are paying, but it's been a very nuanced circumstance. But again, it's all for the very high rated, quite high rate types of programs.

Paul Reilly:

Yes, when you're looking at the focus on cash, that's the only thing I can imagine, that's the only thing where there's compensation at all for cash directly or indirectly. It's just on those very small investment vehicles like ESP that we've put into brokerage. And that's it. I mean, there is no other -- advisors have opportunities on asset growth and net new assets, but it has nothing to do with cash. I mean, if they bring in net new assets, we have a net new asset program that can benefit advisors, but it's nothing -- it's not centered on cash.

Paul Shoukry:

Yes. So kind of offsetting some of the funding cost pressures that you're describing there is a loan growth that we experienced throughout the quarter and the continued asset growth that we would hope to experience going forward, so that's, we said flat or maybe down nominally, but that's what's driving that guidance.

Paul Reilly:

Thanks, Steve.

Dan Fannon:

Thanks, good evening. I guess one more question on this, just in terms of the competitive backdrop. Does your evaluation period, does this imply that you need to see additional changes across the industry for you to potentially react, or are you still digesting these most recent moves and need to get more color on what they exactly were?

Dan Fannon:

Understood. And then just in terms of the backlog around recruiting, you mentioned record backlog of large teams, that's a comment I think you've been making for several quarters. So just curious if there's additional context thinking, given the strong net new assets in the quarter, the funding, kind of bring onboarding that you're seeing versus the replenishment of that backlog, if there's any other additional color that would be helpful?

Dan Fannon:

Understood. Thank you.

Brennan Hawken:

Good morning, Paul and Paul. Sorry. Good afternoon. It's been a rather long day. Sorry about that. I'm going to I'm going to start with another question somewhat related to this sweep. Is it possible for you to identify what portion of your advisory assets or the advisory assets, I should say, on the Ray J platform where Ray J is considered a fiduciary?

Paul Shoukry:

I mean, what we could say is that within fee-based, all fee-based accounts, we have about $15 billion of cash sweep balances and that excludes the custody business. And then, within that, to Paul's point, it's very, there's some risk of fiduciary, there's some other types of programs within that, but that's all fee-based accounts.

Paul Reilly:

And some of those are firm managed, some of them are advisors with discretion and there's some with advisors without discretion where they have to clear everything with a client. So, they -- so but that's the total number if you looked at it.

Paul Reilly:

Yes. And again, almost the average on those accounts is $8900 and 2.5%. So it's not -- it's really the residual cash residing on average in those sweeps in those accounts.

Paul Reilly:

No, we anticipate one coming. It's probably in the next quarter. So that's the one we've been talking about. But it hasn't happened. It'd be nice if it didn't. But we anticipate it will still happen. That's the one we wanted to flag. But it has not happened yet.

Paul Reilly:

Yes, the fourth calendar quarter.

Paul Reilly:

Yes.

Kyle Voigt:

Hi. Good evening. Maybe a question on the third-party bank sweep yields falling by 18 basis points sequentially and about 25 basis points over the last two quarters. Just wondering if you could clarify, are there any changes made to rates or tiers that partially drove that. And also clarify what's driving this in terms of mix shift towards the higher yield sweep offerings? Is that simply a shift of cash towards higher balance tiers or is there something else driving the negative mix shift?

Kyle Voigt:

Okay. Is there any way to quantify the percentage of those third-party sweeps that are in the newer or high yield or the money market fund kind of equivalent yield program?

Kyle Voigt:

Understood. Okay, thank you. And then just as a follow-up, just on repurchases, you mentioned your desire to increase the pace of repurchases from here. You executed on about 240 million repurchases in the prior quarter. Should we think about that ramping to 300 or 350? Any way you can quantify the increase in that pace moving forward?

Paul Reilly:

As we said, if we couldn't find the -- we're still looking at M&A activity. It's our preferred, but if we couldn't find it, we'd return it. We haven't been able to find them yet, so we're going to start being more aggressive on returning to keep the capital ratios back where we think they should be.

Operator:

Your next question comes from the line of Bill Katz with TD Cowen. Your line is open.

Paul Reilly:

I think the, you know, very active, there's reasonable opportunities. Some are pricey. But for us, it's the right culture fit and integration and frankly, we're, as you can see by this quarter, in the last few, our earnings are very, very strong. So, this capital ratio tweaks up, we want to get it back in a proper range. So we think we can still be a lot more aggressive on the buybacks and still have the ample capital if something happens. So it's just saying, we don't expect anything of a size that there's no reason not to be more aggressive on returning it to shareholders.

Paul Shoukry:

Yes, 10% still our target right now for Tier 1 leverage.

Paul Shoukry:

Yes. So we offer, our grid starts, as Paul said, from 25 basis points, goes all the way up to 3% on the cash sweep program, and you know, there has been some migration and mix shift to the higher yielding programs and initiatives that we've offered, which are actually closer to 5%. And so, what all of this is happening, what hasn't really been there for the us or the industry is loan growth. And that's actually impacted our capital ratios as well, because our earnings have been very strong, but the loan growth across the industry has been muted. So that's ultimately the driver of both NIM and more importantly, net interest income, which actually impacts the bottom line, will be driven by loan growth, which will drive higher yields and higher earnings overall. And so that's kind of what we're as an industry waiting for. We started seeing some improvement on the SBL side, and we're optimistic that with more corporate activity, we'll start seeing more activity on the corporate side eventually as well.

James Mitchell:

Hey, good morning. Good afternoon. Sorry. Just maybe, Paul, can you talk about deposit betas in the face of rate cuts? How do you at least think your asset sensitivity would look in the first 100 basis points? Can you kind of almost get a one for one offset or how are you thinking about betas?

Paul Reilly:

Yes. If you're in a suite -- if you have a suite program, it's one to 50 basis points. You get a 50 basis point drop over two cycles. It's kind of hard to respond. We have plenty of room in ours and still be very competitive in the market today.

Paul Shoukry:

Yes, putting aside whether I believe the forward curve or not.

Paul Shoukry:

We've generated record results now for the last three years and three quarters. And those were in very different interest rate environments. And so, we are confident in our ability to perform very well in any kind of interest rate environment, because we have diversified and complementary businesses. So, for example, lower interest rates, at least in the last cycle, certainly supported our M&A business and our fixed income business and supported loan growth. We had records, securities based loan growth, during the COVID period because partly due to the lower rates. So there's different things that benefit us in different rate environments. But to your point, on a relative basis, because we have been so generous in passing on the rates to our clients and offering these other programs, we feel like we're relatively well-positioned on that front as well.

Operator:

Your next question comes from the line of Michael Cyprys with Morgan Stanley. Your line is open.

Paul Reilly:

Yes, well, I guess there's so many ways, it's hard to tell, right? A big source of growth and income used to be, can be one fees and other things and they've become less of a factor over time. Certainly asset based fees, if you look at how they price versus the broker dealers. Asset based pricing is becoming more common. There's all sorts of ways and part of that depends on regulatory. You could have performance fees. You could have -- I think it's hard to tell where it evolves. I think in the business, I don't know, people talked about consulting fees or hourly rates. I don't think anyone likes a lawyer or accountant's bill when they spell out hours. So I don't think it will go there, especially given the value of the relationship with an advisor where they -- it's -- it's everyone always thinks about the investment part. And that that is part of it. But a lot of it is really the advice, the family advisors. And they've become a big part of the lives of clients. So there's all sorts of stuff that they change anyway over time. Maybe it'll get more asset based. We certainly have countries that the UK, Australia, where it's just direct charges, the clients have to be in fees. So it's very clear. It could evolve all sorts of ways. But it's a very competitive, mature industry. And I think that people will find a way to adjust. We've had to adjust through zero interest rates and high interest rates and all sorts of things. And we've kind of adjusted as we've gone along. So 10 years out in our industry seems like forever. Maybe it's because I'm old and Paul has to worry about it.

Paul Shoukry:

Yes, I mean, we continue to believe that we're closer to the end of the sorting cycle than the beginning. And some of the metrics that Paul discussed just in the fee-based accounts, having $8,900 of cash sweeps per account, whereas we have $22,600 of money market funds, CDs and treasuries. A lot of these clients, to the extent they had investable cash balances, have been invested in the higher yielding alternatives. As we've always said since the very beginning, and we're one of the first, if not the first, to say it, we're not going to declare the end of the trend until we have several quarters of history to look back on and start seeing growth in the cash balances. And ultimately, that growth will come from the stabilization of the runoff and the migration and the growth of -- the continued growth, which we've had phenomenal growth of client assets. And as we retain, recruit advisors and those advisors bring on more client assets, there'll be cash associated with that, and that ultimately will drive the growth and the balances.

Operator:

Your final question will come from the line of Alex Blostein with Goldman Sachs. Your line is open.

Paul Reilly:

Well, I guess, my quick answer would be, what do you get on your checking account, right? There's a cost to having it on the platform. There's a cost to servicing it. It's transactional, so it has more transactions, so there's a cost. I mean, if the standard for BI is you have to pay a rate that's way uneconomic to operate a business, I don't know what that means. I don't think that is the standard under BI. It's put clients first and be fair and take their interests at heart first. And I think that transactional cash, at 25 basis points, it's a lot more than you're going to get on your checking account, is very reasonable. So I mean, there may be disagreements. I think a standard like that is, I wouldn't understand how you can come up with that.

Paul Reilly:

There are a lot of fiduciary accounts, I agree, that you look at institutional asset managers, they have a fiduciary relationship, but they don't have zero cash in their portfolios. I mean, so if you want to benchmark it to other fiduciary relationships of this type of investments, it would be a real outlier to say, all that cash has to be 100% invested because it's not reality, the way accounts work. That would say we have to not only sort the cost, so we'd have to fund the transactions because there wouldn't be cash in the account or sell out securities in order to fund these transactions or other things. I mean, I think that, to me that's not a reasonable standard.

Paul Shoukry:

Yes, well, we have, I mean, the initiative itself, we have some levers on and around, largely rate, right? So to the extent that we want to continue bringing in cash from the outside, rate is a big lever. We actually just announced that we're reducing the rate on the high-yield portion of the program that brings in the new cash from the outside, because we have pretty big buffers now with over $17 billion of cash swept to third-party banks that we can reposition and bring on to fund our own bank over time. So, it really just depends on how much of the initiative that we want to continue to pull in that we actually, again, just announced that we're reducing the rate. It's still very attractive, higher than 5%. But we're not going to, again, declare completion of any type of trend until we have several quarters of history. Otherwise, it's just speculation.

Paul Shoukry:

Yes, that's the sweep initiative. That's right.

Paul Shoukry:

Thanks, Alex.

Paul Reilly:

Okay. Well, I appreciate all the questions and you're on the call. I want to remind everybody we had a very good quarter, but I understand all the questions and cash sweeps. So, appreciate. Hope we were helpful in all of our responses and thank you for joining us.

Paul Shoukry:

Thank you, Paul. Starting on Slide 10. Consolidated net revenues were $3.12 billion in the second quarter, up 9% over the prior year and up 3% sequentially.

Paul Reilly:

Thank you, Paul. As I said at the start of the call, I'm pleased with our results for fiscal second quarter and through the first half of the fiscal year, generating record results and ending the quarter with record client assets. And while there is still economic uncertainty, I believe we are in a position of strength to drive growth over the long-term across all our businesses.

Alexander Blostein:

Congrats to both of you guys. Well deserved. I wanted to start with a question around comp maybe. I understand there are some seasonal factors that impacted the quarter, but maybe help break down how much is seasonal, what specifically this quarter? It feels a little bit heavier than normal. And then Paul, I think I heard you say that you're kind of on target to 65% comp rate for the year, but then you also said you're still shooting to be below 65% for the year. So maybe just kind of help reconcile where you guys are ultimately expect to end up for the full year.

Alexander Blostein:

I got you. My second question around recruiting activity. And if we look at the net new assets disclosed in the quarter, organic growth is trending at a lower end from what we've seen from you guys historically. And I guess double-clicking into that, it looks like the independent head count continues to be pretty range bound. So maybe kind of walk us through what's been sort of pressuring the net new asset growth so far this year, your expectations for the rest of the year? And then specifically, what you're seeing in the independent channel that's been keeping the head count relatively flat?

Michael Anagnostakis:

This is Michael Anagnostakis on for Steven. I did want to ask one just on cash sweep. I appreciate the commentary about how things have trended to the start of the quarter. And it was certainly nice to see that sweep cash was flat in 1Q, but seeing now tax season is behind us, are you seeing signs of cash sweeps building, inflecting positively? And maybe just speak to your level of confidence that we could see the absolute sweep cash balances build from here.

Paul Reilly:

Well, yes, so I appreciate the question. We're digesting 500 pages of a regulatory rule is a little more -- even more complicated than trying to get through our earnings release, so -- to analyze it. So it's early.

Michael Anagnostakis:

Totally appreciate that. And congratulations to you both.

Operator:

Next question comes from Michael Cho, JPMorgan.

Paul Reilly:

If you look for the first 6 months, where it -- I think compared to the industry in the 5s, that we did pretty well. So this quarter was slower in terms of the number. Typically it is a little lower but lower -- maybe a little lower than we would have thought in terms of the number itself, but the recruiting is going well, the movement to RIA, you can see that net new assets growth was pretty robust. And that asset growth was pretty robust. So I think it actually, it was -- we have quarters where things are down and quarters where things are up. And I just think it was down a little more than we anticipated from a measurement standpoint.

Y. Cho:

Okay. Fair enough. And then just switching gears to the Capital Markets business. I mean I realize some of that is driven by the deferred comp that you called out and maybe still a recovering M&A environment. I guess so with that backdrop potentially improving from here and with Raymond James' history of investing in talent as well. I mean, how would you frame your willingness to go after incremental talent in the advisory business over the next, call it, 9 to 12 months?

Brennan Hawken:

Congrats to both of you. Curious about the idea now that we're starting to see Capital Markets get going, activity begins to pick up. How should we think about incremental margins in that business for you given how weak the profitability has been? I would assume that they would be pretty good. But could you help us get a sense of what an incremental dollar of revenue would mean from an incremental margin perspective?

Brennan Hawken:

Sure. Fair enough. And then thinking about the improving environment. If we continue to see signs of recovering strength in your core businesses, would that increase confidence and improve the likelihood for a better outlook for capital returns and buybacks?

Operator:

The next question is Dan Fannon, Jefferies.

Paul Reilly:

Yes, we could go into a long -- I mean that's a hard question to answer quickly. I mean there's -- our primary geographies are North America and then Europe, that we look for the best opportunities in each business. The opportunities are different, in our Private Client Group, it's really North America and the U.K. Our M&A group is much broader, we're on the continent, not really in Asia, but not against M&A capability more than we have today in Asset Management, this particular product. We can go on and on and on.

Paul Shoukry:

Yes. As you know, loan growth has been tepid, not only for us, but the -- really the entire banking industry since rates started rising over the last 12 to 16 months. And a lot of that is due to just the higher rate environment and a lot of corporations and investors coming into this environment flushed with cash.

Operator:

Up next is a question from Mark McLaughlin, Bank of America.

Paul Reilly:

Just that the competition is still robust. I mean, that the advisor movement, especially of large teams has been -- [ already as a ] focus has been big. I think private equity investment into the RIA space has caused more movement to into outside of the independent broker-dealers and employee broker-dealers. So that's kind of a new factor in force. So part of the reason why a decade ago, we started investing -- to have our RIA channels, so we could be competitive.

Paul Reilly:

In the market, there's certainly a lot of movers and movements of the smaller teams that want to become RIAs and big teams that have the infrastructure to be RIAs. So the movement is really kind of across the board, larger teams. One of the positives and challenges of RIAs is that you can affiliate with a firm, but have multi-custodians. So I think that if you look at set -- large RIAs at some of the big custodial firms, they still move assets sometimes. So you don't have to have a firm affiliate with you to be an asset gainer, too. So the dynamic of that, it's a much more dynamic industry in that way. It's kind of all or none in the registered rep side. And it's a fight for wallet on the RIA side.

Kyle Voigt:

Just have a couple of follow-ups. Maybe first, just a follow-up on Dan's M&A question. And I guess, just to be clear on the capital point, do you feel like you have enough capital flexibility today with the current leverage ratios to act on M&A opportunities that you're seeing in the market? Or is the near-term guidance on buybacks to offset dilution and imply continued near-term capital build due to maybe wanting a bit more flexibility due to the size of the acquisition opportunities that you're seeing?

Kyle Voigt:

Great. And congrats again to both of you.

Paul Reilly:

Thank you.

Michael Cyprys:

I just wanted to ask on organic asset growth. I think in the past, you've suggested that most to the growth -- and I think that you're seeing is from recruiting. Just curious how you think about an opportunity set over time from maybe providing advisors with more services to enhance their efficiency and unlock growth from the installed advisor base to grow same-store sales.

Michael Cyprys:

Great. And then just on the loan book. Just curious where you think you're underpenetrated as you look at the portfolio today. If you look out over the next couple of years, how would you sort of like the composition and size of the book to evolve? And are there any additional capabilities you feel you may need to build out?

William Katz:

Congratulations, everybody. Question for you just on the NIM, the net interest margin. Just sort of wondering if you could talk a little bit about maybe what the exit level might be for the new quarter? And just if -- just given sort of the reinvestment rates of what might be rolling on, rolling off and in a world of a tepid type of loan backdrop for now. How do you sort of see that playing out if the sorting starts to ease a little bit as well?

Paul Shoukry:

I mean we have been consistently investing in all of our businesses. First and foremost, the largest business by far is our Private Client Group business. And we don't anticipate that changing. So that's where the vast majority of our investment dollars go. But we also invest heavily in growth in the Capital Markets, Asset Management and the Bank businesses. They're all great businesses.

Operator:

And our final question today will come from Devin Ryan, Citizens JMP.

Paul Reilly:

Great. We appreciate you all coming on and good quarter, already on to the next quarter. And I think we've got some good tailwinds. So we look forward to it. And I'm not sure I look forward to hearing all these generational comments about how old I am, how ready Paul is, but he is ready. So I think you're going to see a lot of good things from Raymond James. So thanks for joining us today.

Paul Reilly:

Thank you, Kristie. Good evening. Thank you for joining us today. Who would have thought, given all the uncertainty over the past year, we would have ended the last fiscal year with record results and generated record earnings per share and record client assets this quarter. This is a testament to our focus on executing on our strategic priorities, which are rooted in our adviser and client-focused cultures. These priorities have remained consistent over many years. They are

Operator:

[Operator Instructions] And your first question comes from the line of Michael Cho from JPMorgan.

Paul Reilly:

Well, historically, like this quarter, it's a pretty good NNA number. So what's really driving it is still rate retention, recruiting. And most of our recruiting -- the adviser count number is a little misleading now because we're recruiting more and more larger -- very large teams, fewer number but larger teams. This quarter, we had a lot of retirements. But the retirement -- seasonally, we do at the end of the year. But the retirement, almost all of them have transition plans. So we keep the assets, [ which drive ] the adviser count number down. And when people transfer to the RIA division, which happens every quarter, we take them out because they don't have a FINRA license.

Y. Cho:

Okay. Great. I just want to switch gears on the capital markets side of the business, specifically investment bank. I mean you continue to invest in talent there despite the choppy backdrop over the last 18 months. And I think you've called out a higher-quality banker or a higher-producing banker at Raymond James now [indiscernible] versus previous periods. I mean how should we think about something like revenue per MD going forward in a more normalized environment if the backlog starts to flow through at some point?

Operator:

Your next question comes from the line of Devin Ryan from JMP Securities.

Paul Reilly:

Yes. I think there's 2 pieces to that, Devin, is that we have seen spreads widen. The problem is, is the market hasn't been really robust in the area that we like to lend. And we have a target both in industries, borrowers. So it's fairly conservative. And that pipeline of new loans, as you can see from other banks, too, has just slowed down. So we're still waiting for that kind of resurgence in activity, which we think will happen at some point. But that's really been the -- we're ready to lend. We're also seeing SBL loans and things -- which was deteriorating. We've seen that the payoffs are really decreasing. We're seeing some growth there now, too. So we're starting to see the beginning of growth in those portfolios. But certainly, the market isn't giving us that opportunity to put on loans at the same rate we did in like early 2023 or certainly '22.

Paul Reilly:

Yes. So first, it's a pretty fickle market. SumRidge has done well the whole time. They [ day traded ] on volatility. So if you look at volatility, you could probably look at their results. They're really good, very hedged, very focused corporate trading strategy and consistently have executed since day 1. And their business has not been off. It's done well. Our traditional depository business, which is a big part of our franchise, as they got cash squeezed, it slowed down. Two things were happening. A lot of banks already had plenty of fixed-rate maturities, and they weren't looking for more bonds and they were worried about their liquidity. I think what happened in December as liquidity looked like it was easing some and rates looked like they were going to come down, they got much more active.

Operator:

Your next question comes from the line of Dan Fannon from Jefferies.

Paul Shoukry:

Yes, you touched on them. I mean, we, in the December quarter, typically have sort of seasonal tailwinds with tax loss harvesting, maturities and those type of things. And then throughout the year -- quarterly fee billings alone this quarter were north of $1.3 billion, and we'll hopefully see that continue to grow throughout the year. And then we also have the headwind as we enter April with income taxes as well. So rates are still high there -- out there. They've come in a little bit, as Paul said, just with the expectation for lower rates. So we have seen some declines across the industry.

Paul Reilly:

And I think that if people look at kind of the beta there is, they'll say if rates come down, will that spread increase quickly? Well, on normal sweeps, they kind of follow fed funds. But really, if you look at money markets, they're more -- they're buying bonds, and it takes 2 to 3 weeks for them to adjust. So if they're -- if you consider them some of the competition for rate, it's going to take a few weeks at least for that to sort through before there's -- before rates start moving at the more expensive people who are investing in higher-yielding types of certificates. But it will be moving in the right direction [ of rates ].

Paul Reilly:

So first, there's always been scrutiny on those products over time, and we believe we have good products and systems to manage that. And the DOL, we had put in systems to comply with a fairly similar law in the beginning, and then we had to take them out as we -- as the industry defeated the rule. The second interpretation of questions came out, and the industry defeated the rule. So we'll have to see in court, and we'll have to see what this rule finishes with before we look at the impact. And my guess is the industry will challenge the rule again. So we've won twice. Well, my guess -- I think there will be a substantial challenge with a lot of things that could challenge what is proposed today, and so we'll have to see. So I'm -- it's kind of early to speculate on that until it's finalized, until we see if it really can withstand the third court challenge.

Kyle Voigt:

So first, on the balance sheet, just given how much sweep cash you have sitting off balance sheet at this point at $18 billion and the excess capital you're currently running with combined with the shape of the forward curve, would you consider beginning to grow the securities portfolio again over the next few quarters and start to lock in some yield? Or do you still have a preference to allow that to run off?

Paul Reilly:

And we've heard a lot of people speculate over at the top rates, but we went from no rate cuts to 3, to people speculating 6, to speculating, well, maybe we won't get one for months. So we just don't want to really play that game. And I think one of the keys to our consistent performance is we're not making bets. We're just consistently running the business. So we really don't look at locking in rates like that. And right now, the spread on the sweep rates is very, very good and compelling anyways.

Paul Shoukry:

Yes. This quarter was pretty low almost across the board. IT -- the technology expenses, we typically pull back on external support during the December quarter just because it's a little bit slower for those vendors as well even to bring people in. We -- it's a relatively quiet quarter for conferences and trips. And so we -- and it was also a relatively favorable quarter for legal and regulatory. And so I think as the year progresses, we should expect to see growth to get to that $1.9 billion sort of guidance. And then as a reminder, that excludes some of the non-GAAP items, which most of you exclude, as well as the bank loan loss provision and unexpected legal and regulatory reserves because it's just -- it's impossible for us to try to forecast those over the next 3 quarters.

Operator:

Your next question comes from the line of Brennan Hawken from UBS.

Paul Shoukry:

Yes, we'll provide more of that breakout at our Analyst/Investor Day in May. When we last went through this in 2016, last time we disclosed this metric, it was about 1/3 of the assets were in IRAs and retirement accounts, but we haven't provided any real disclosure on that since then. So we'll plan on doing that at the Analyst/Investor Day.

Paul Reilly:

There wasn't anything lumpy in the bank channel. We -- that tends to be a lumpier one just because of the -- with advisers, there's many, many. So they average out with the banks. We don't expect anything lumpy. It's part of our growth platform, and I think our NNA has continued to be very, very solid. So we like the trajectory. And this is, I think, a very strong number, both given the environment and given our competitors this quarter, and still believe we have the opportunity to keep -- we don't forecast a number, but I think we can be right at the top of NNA.

William Katz:

Maybe to mix up the topics a little bit, I was wondering if we could circle back to capital return just given the fact that you have a very strong capital position. You mentioned sort of mix dynamics on the loan side or lending side. Why not pick up the pace of capital return through buyback? And then maybe as a subsector to that -- subset to that, what's your incremental thinking of inorganic opportunities at this point? And what might you be looking at?

Paul Shoukry:

Yes, Bill, I think in the Capital Markets segment, when they were operating at record levels over the last couple of years, 2 years ago, they, I think, hit a maximum margin or a record margin of around 26%. And so that just shows you the upside potential for that segment. And that was both the equity side and the fixed income side of the business running on all cylinders, which is somewhat atypical across the industry just given the countercyclical nature of some of those businesses. But we -- there's a lot of upside from just breaking even this quarter in capital markets to what the potential is and that we proved out a couple of years ago, and that obviously would help the overall margin of the firm. We're still saying it's a 20% plus margin target for the firm at this juncture, and we'll update that as appropriate at Analyst/Investor Day in May.

Operator:

Your next question comes from the line of Steven Chubak from Wolfe Research.

Paul Shoukry:

Yes. I mean we -- the ESP balances, we would expect the correlation of the movement of those rates to be much more aligned with what happens with fed funds effective. And I think that's what advisers and clients expect not only at Raymond James but across the industry as well for those higher-yielding products. You say it's different in terms of mix of deposits than others in the industry. But you also have to remember, with the TriState acquisition, we have -- they have $18 billion of deposits now, which are higher-cost deposits and are likely higher beta deposits, too, both on the upside and on the downside of rates. So it gives us more similar sensitivity than just looking at the sort of PCG-related deposits, which we feel good about.

Steven Chubak:

That's great color, Paul. And for my follow-up, it's related to what Bill had just asked, but I was hoping to pin you down with an explicit number in terms of how to think about incremental margins because the offset from lower rates is clearly expected to come from the capital market side of the business. The concern is that NII is not compensable. But if we actually look at what you guys did during the period of robust capital markets activity, you cited the 25%-plus type margins. The incremental margins were actually close to 50% during that period. So I just want to get a sense, if we do have a more meaningful ramp in capital markets activity, is a 50% incremental margin a reasonable assumption consistent with what we saw during the COVID period?

James Mitchell:

Maybe just a quick question on the brokered sweeps. Your yield went up -- net yield went up again. You've had pricing power. How long do you think the pricing power can last? I mean deposits in the industry have seemingly stabilized for banks. Does that start to erode some of that pricing power? What's your outlook on the sweep pricing?

James Mitchell:

Great. Makes sense. And then maybe as a follow-up on just sort of the large team pipeline sort of at a record. I think you highlighted that last quarter as well. How much of that is -- what is your win rate among the large teams? Do you feel like it's getting better? And how much is in the pipeline versus actually in the door, I guess, when I think about just as you win new mandates and new clients and FAs?

Mark McLaughlin:

For my first one, I was curious, how do you view your use of transition assistance and loans to financial advisers? I know some of your competitors use that a lot in terms of generating growth. How do you view your competitivity in that space?

Operator:

Your next question comes from the line of Alex Blostein from Goldman Sachs.

Paul Reilly:

Yes. Well, honestly, there's a lot of opportunities in all of our business segments. We've been -- we think there's inorganic opportunities. The challenge is you just don't know -- some are on the market. Many we keep in touch with and say is this a good time for you to look at teaming with us versus competing with us. And I think during the last year with everything going on, discussions are up. Now when you can close those or when they're actionable or -- and frankly, in this market where we suffer a little bit from what our own M&A business does, that the sellers' price expectations adjust much slower than the buyers do. So just take in our industry with cash sorting right? We've always said conservatively, we'd expect cash sorting to continue, which it has over the last year. And many people were saying, "Well, cash sorting is over, and this should be our -- this should be the EBITDA you value us on." So we just say, no, we don't think so.

Operator:

Your next question comes from the line of Michael Cyprys from Morgan Stanley.

Paul Reilly:

On recruiting, since my 15th year, I think, in this role -- I mean, since I've been here, everybody told me recruiting was going to slow down, and it's just picked up. There would be aging advisers. There'd be no more advisers left. And we see teams in their 40s that have bigger books than we've ever seen before. So I think the recruiting potential is going to stay there. I think we have a unique value proposition given our size on one hand with -- and our A ratings across the 3 rating agencies; our capital on the other hand, allowing independents and Freedom advisers to own their books so they can leave if they want to leave. The technology platform and wealth, we think, is second to none, and that's what the industry awards would say.

Operator:

There are no further questions at this time. Mr. Paul Reilly, I turn the call back over to you for some final closing remarks.

Operator:

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

Paul Reilly:

Good evening and thank you for joining us today. I've spent a lot of time in these last few weeks in front of our advisors. First, traveling with our top-producing independent advisors on a great trip, great to see the success in their business and the positive nature of how they feel about the firm. And then, attending our RCF Conference, our RIA division and clearing firm. Again, that division is over 10% of our private client group assets now. And it's great to see the growth and the enthusiasm there also. Now turning to our results, despite the challenging environment, which included a regional banking crisis, heightened volatility, and rapidly rising interest rates, we generated record net revenues and earnings for the last fiscal year. That's our third consecutive year of record results in very different market environments, was achieved by staying true to our core; we put clients first, we act with integrity, we value independence, and think long-term. These core values are more than words on a page, they are lived day in and day out by our advisors and associates. This dedication and focus provide stability during tough economic times and what makes me confident about our continued success in the future. Reviewing fourth quarter results, starting on slide four, the firm reported record quarterly net revenues of $3.05 billion, a net income available to common shareholders of $432 million or $2.02 per diluted share. Excluding expenses related to acquisitions, adjusted net income available to common shareholders was $457 million or $2.13 per diluted share. The increase in asset management revenues and interest-related revenues drove significant revenue growth over the prior year, with net revenues increasing 8%. Quarterly results were negatively impacted by elevated provisions for legal and regulatory matters, including an incremental $55 million provision related to the previously disclosed SEC industry sweep on off-platform communications. This provision resulted in an impact during the quarter of $0.26 per diluted share. We generated strong returns for the fiscal fourth quarter with an annualized return on common equity of 17.3%, an annualized adjusted return on tangible common equity of 22.2%, a great result particularly given our strong capital base. Moving on to slide five, the year-over-year client asset growth was strong driven by organic growth in all of our affiliation options, along with market appreciation. We ended the quarter with a total client assets under administration of $1.26 trillion, PCG-based and fee-based accounts of $683 billion, and financial assets under management of $196 billion. With our continuing focus on retaining, supporting, and attracting high-quality financial advisors, PCG consistently generate strong organic growth, which was evident again this year with domestic net new assets of $14.2 billion in the fiscal fourth quarter, representing a 5% annualized growth rate on beginning-of-the-period domestic PCG assets. For the fiscal year, domestic net new assets of $73 billion reflected a 7.7% annual growth rate, which is a leading result in the industry. During the fiscal year, we recruited to our domestic independent contractor and employee channels financial advisors with approximately $250 million of trailing 12 production and nearly $38 billion of client assets of their pervious firms. These results do not include our RIA and custody services business, RCS, which had another strong year in recruited results. More importantly, we continue to maintain a very low [regrettable] (ph) attrition levels of financial advisors at about 1%. These factors contributed to our annual NNA growth of 7.7%. Total clients' domestic sweep and Enhanced Savings Program balances ended the quarter at $56 billion, down 3% compared to June of 2023. The Enhanced Savings Program, with its competitive rate and robust FDIC insurance coverage, continued to attract significant cash this quarter, partially offsetting a decline in client sweep balances largely due to quarterly fee billings and cash sorting activity. Total bank loans increased 1% from the preceding quarter to $44 billion, reflecting muted loan demand to our target markets, giving rising rates in the macroeconomic uncertainty. Moving on to slide six, Private Client Group generated record results with quarterly net revenues of $2.27 billion, and pre-tax income of $477 million. Year-over-year, results were lifted by strong asset-based revenues and the benefit of higher interest rates on interest-related revenues and fees. The Capital Markets segment generated quarterly net revenues of $341 million, and a pre-tax loss of $7 million. Revenue declined 15% compared to the prior-year quarter mostly driven by lower fixed income brokerage in investment banking revenues. However, we were pleased to see a sequential improvement in M&A and advisory revenues this quarter. Additionally, our public finance business had improved results with debt underwriting growing 32% sequentially. The extremely challenging market environment, particularly for investment banking, has strained the near-term profitability of segment results. And as we explained previously, the segment results are negatively impacted by amortization of share-based compensation from prior years as well as growth investments. We remain focused on managing controllable expenses as near-term revenues are depressed. The Asset Management segment generated pre-tax income of $100 million on net revenues of $236 million. The increases in net revenue and pre-tax income over the preceding quarter were largely the result of higher assets in PCG fee-based accounts at the beginning of a quarterly billing period and strong net flows in Raymond James Investment Management, which generated $920 million of net inflows during the fiscal fourth quarter, and $2.2 billion of net inflows in the fiscal year. The Bank segment generated net revenues of $451 million and pre-tax income of $78 million. Fourth quarter NIM for the Bank segment, of 2.87%, declined four basis points compared to a year-ago quarter, and 39 basis points compared to the preceding quarter primarily due to a higher cost mix of deposits. We continue to add diverse higher-cost funding sources with our Enhanced Savings Program, and consequentially shifted more of the lower-cost sweep funding to third-party banks. In a few minutes, Paul Shoukry will discuss this further. While this negatively impacted the Bank segment NIM, there is an offset in higher RJBDP third-party bank fees. So, still a net positive for the firm overall, while also providing advisors an attractive deposit alternative to offer their clients. Looking at fiscal 2023 results on slide seven, we generated record net revenues of $11.6 billion and record net income available to common shareholders of $1.7 billion, up 6% and 15% respectively over the prior year's records. Additionally, we generated strong returns on common equity of 17.7%, and adjusted returns on tangible common equity of 22.5% for the fiscal year. On slide eight, the strength of the PCG and Bank segments for the fiscal year primarily reflects the benefit of strong organic growth in the Private Client Group, the successful integration of TriState Capital, and the benefit from higher short-term interest rates. When compared to the record activity levels in the year-ago period, weaker capital markets results reflect the challenging environment for investment banking and fixed income brokerage revenues despite incremental revenues from the SumRidge acquisition, which we completed in June of 2022. And now, I will turn it over to Paul Shoukry for a more detailed review of our fourth quarter results. Paul?

Paul Reilly:

Thank you, Paul. As I said from the start of the call, I am pleased with our results for the fiscal 2023 and our ability to generate record earnings even in challenging market conditions. The record results this fiscal year once again highlight the strength of our diverse and complementary businesses. And while there is still near-term economic uncertainty, I believe we are in a position of strength and are well positioned to drive growth over the long-term across all of our businesses. In the Private Client Group, next quarter results will be negatively impacted by the 2% sequential decline in assets and fee-based accounts. Near-term, we expect some headwinds to enter sensitive earnings at both PCG and the Bank segment given ongoing cash sorting activity. However, I am optimistic we will continue delivering industry leading growth as current and prospective advisors are attracted to our client focused values, and leading technology and product solutions. Our advisor recruiting activity has picked up significantly over the last two months with record numbers of large teams in the pipeline. In the Capital Market segment, as we saw this quarter, there are some signs of improvement in investment banking, and we continue to have a healthy M&A pipeline and good engagement levels. But while there are still reasons for optimism, we expect the pace and timing of transactions to be heavily influenced by market conditions and would expect activity to likely pick up over the next six to 12 months. And in the fixed income space, the dynamics of last year persist. Depository clients are experiencing declining deposit balances and have less cash available for investing in securities, putting pressure on our brokerage activity. We hope once rates and cash balances stabilize, we can start to see an improvement. So, while there are some near-term challenges, we believe the capital markets business is well positioned for growth given the investments we've made over the past five years, which have significantly increased our productive capacity and market share. In the Asset Management segment, financial assets under management are starting the fiscal quarter down 2% compared to the preceding quarter, which should create a headwind to revenue. We remain confident that strong growth of assets and fee-based accounts in the Private Client Group segment will drive long-term growth of financial assets under management. In addition, we expect Raymond James Investment Management to help drive further growth through increased scale, distribution, operational and marketing synergies. In the Bank segment, we remain focused on fortifying the balance sheet with diversified funding sources and prudently growing assets to support client demand. We have seen securities-based loan payoffs decelerate, and are starting to experience growth. We expect demand for these loans to recover as clients get comfortable with the current level of rates. With little activity in the market, corporate loan growth has been tepid. However, spreads have improved, and with ample cash sitting on third-party banks and lots of capital, we are well-positioned to lend once activity increases. In closing, entering fiscal 2024, we believe our strong competitive positioning in all of our businesses along with our ample capital and liquidity has us well-positioned to drive future growth. I want to thank our advisors and associates for their continued perseverance and dedication to providing excellent service to their clients each and every day, especially in uncertain times when clients need trusted advice the most. Thank you for all you do. That concludes our prepared remarks. Operator, will you open the line for questions?

Dan Fannon:

Thanks. Was hoping you could expand upon the record backlog you talked about for advisors joining your platform, maybe some context around the size and scope of that? And also, it seems like there is more industry movement. You mentioned attrition being very low for the year. Just wondering if you're seeing any uptick in terms of attrition across your platform more recently as you mentioned more advisor movement across the industry?

Dan Fannon:

Thanks, it's helpful. And then just a question as you think about the coming fiscal year and expenses, if the capital markets activity remain somewhat depressed or around these levels, should we think about non-comp expenses or how should we think about non-comp expense and levers that you think or you're looking to pull to potentially improve the profitability and/or even maintain profitability in a more challenged revenue environment?

Dan Fannon:

Great, thank you.

Kyle Voigt:

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

Kyle Voigt:

Great, thank you. And then just for a follow-up, just want to touch on the admin comp line within the PCG segment, moved lower sequentially in the quarter, came in a bit lower than expected. If we take a step back and look at the full-year, that admin comp grew by more than 15%, which is a similar rate to fiscal 2022, although I think there were some acquisitions in there and some unusual or higher than expected raises that went into effect over that period. As we look out to fiscal 2024 or over the medium-term, just how should we think about growth in that admin comp line on a normalized basis?

Kyle Voigt:

Great, thank you.

Benjamin Rubin:

Hi, this is Ben Rubin filling in for Brennan. Thank you for taking my question. I first want to ask about the composition of the loan book. We did see some growth in the loan book and the balance sheet for the first time in several quarters. I guess, my first question is, how are you thinking about balance sheet growth on the loan side in fiscal year 2024, maybe on commercial versus consumer underwriting? And then also, what type of balance sheet growth does your NII guide interpret as we look to next quarter? Thank you.

Paul Shoukry:

I would just add, we are open for business, we have more than adequate cash and buffer, and certainly the capital, and it's really just the loan demand. So, hopefully, the SBLs continue to go from being repaid to starting to grow, as we saw the indication last quarter. The mortgage business is obviously slow. And the commercial loans, we're open to it. But it's a very slow market. And spreads are widening for the deals that are coming out. But again, it's more of a muted market. So, you saw this quarter, we're open for business. We just have to find the loans that we're comfortable with.

Paul Shoukry:

I think for the quarter, I mean, it's been a dynamic year in a lot of ways, in terms of as you look at advisor count. I think that we had one program, which we previously talked about, that we exited from the platform. We kept 60% of the advisors, 40% left. And it cost us $4.6 billion in assets and 60 advisors. But we think from a profitability and long term, it was the right program. If you look just this month, again, adding a $3 billion bank program and 27 advisors just in one recruit, there are a lot of big projects like that. So, we're still optimistic whether we get the double digits we had in a couple of quarters. It's a big number, depending on the markets. But we expect to do very, very well. But that'll be up to recruiting and what happens to the Capital Markets. So, I don't know if you have anything to add, Paul.

Operator:

Our next question comes from Steven Chubak with Wolfe Research. Your line is open.

Paul Reilly:

Hey, Steve.

Steven Chubak:

Hey. So, I wanted to start off with a question on spread revenue, came in better than your guidance in the quarter, it also trended better than what we saw at some of your peers and given you have a larger proportion of client cash that swept to third-party banks, to what extent is the spread revenue benefit from improved pricing from those partner banks provide any incremental boost. We know banks are seeking out alternative sources of liquidity. There's a lot of demand for that whether you benefit from any improved pricing on some of those third-party sweeps?

Steven Chubak:

It's great. And for my follow-up, wanted to drill down into some of the October deposit trends, Paul that you would say that, given the sensitivity of spread revenue to changes in deposit mix, I was hoping you could provide some additional granularity disaggregating this sweep and ESP deposit levels and maybe help size the impact of the advisor payout?

Steven Chubak:

Quarterly fee billings, which honestly, I care less about that, I really just was hoping to get the ESP and sweep deposit levels disaggregated given the sensitivity?

Steven Chubak:

Sorry, go ahead.

Steven Chubak:

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

Operator:

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

Paul Reilly:

Yes, I think we just sort of covered the growth and enhanced savings program balance for us, I mean in terms of the deposit cost, that is the biggest factor because that those costs somewhere around 5%. And so, to the extent that the mix of the total client cash balances shift to those Enhanced Saving Program balances, you're picking up probably 350 or so, 3.5 percentage points of cost effectively. So, I would say that's probably the biggest factor and the higher deposit costs. And why you saw the NIM really contract sequentially was largely due to us intentionally growing the higher cost deposits. But again, a lot of that is geography. Because effectively what we have done is raised the higher cost deposits of the Bank segment to that and savings program, and then essentially shifted more of the lower cost sweep balances to third-party banks. And so, that shows the NIM at the Bank segment, contracting sequentially, but you see the corresponding benefit to the firm with third-party fees, which shows up in the PCG segment. And that's why, as Steve pointed out, we were able to generate better than expected and better than industry trends, at least on the sequential basis.

Paul Reilly:

I think that the growth has been great, we're over 10% now of our assets in the RCS division. When we first probably opened it, we had a bigger movement of internal people who wanted to go just switched platform, which again as part of the noise and advisor count, when the advisors moved from our employer independent division, we count them as advisors. And once we're in the RCS, they're not registered. They're RIAs. So, they're one firm, right? So, we dropped them out of the advisor count, so but the assets have stayed and I think the proof point in that is the growth, D&A and assets, which I think for the year, and for the quarter have been above most of the players in the market. The speed and the recruiting outside has picked up to now that we've gotten the platform much more robust and increased the technology significantly. Hopefully the long-term growth will come from the outside. But we do have people here if they want to operate in the RIA format. They're welcome to switch affiliation options. But that has slowed down over the last couple of years from the initial opening of it or more people came over.

Operator:

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

Paul Reilly:

I don't think anyone can really tell you exactly when cash sorting will fully stabilize across the industry. I know a lot of firms have been trying to convince you of that for the last 12 to 18 months, but we've been trying to be pretty transparent with you guys. And so, what we have said in the last three months, at least is that we feel like we're closer to the end of the sorting dynamic than the beginning. And you sort of are seeing that in the numbers. But we're not going to sort of declare an end to that dynamic until we have several months of data to support that. But to your point, longer-term, we are excited about the position that we're in now with a strong capital position, with the $16 billion, almost as cash with third-party banks. That gives us a lot of dry powder to really grow the balance sheet when the attractive opportunities come. And we think we'll be in a position of strength there because not a lot of other firms in our space will have the capital and funding to pursue that attractive growth. So, we're in a great position. Again, it's a reflection of that long-term client focus, the flexible balance sheet that we've always strived to maintain even when being criticized for it over the last few years, but it puts us in a pretty good position now.

James Mitchell:

Right. That's fair. And maybe just to follow-up on the credit side, some pretty big additions to reserves. You said you feel comfortable. I guess, what changes that, you mentioned macro, just trying to think through how you're feeling about the credit provision story there, given that loan growth has been pretty flattish.

James Mitchell:

Right. So, the additions are more macro-driven rather than specific concerns internally?

Paul Reilly:

For last quarter, the macro had a bigger impact than it did this quarter. It wasn't a big macro outlook change this quarter. That's right.

Operator:

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

Paul Shoukry:

I think the fixed-income debt, certainly the activity was up. We did have a pretty big deal in the quarter also. So, that was part of the pickup and it's long-term client we're in rotation. We happen to have a big -- our term for kind of the big underwriting. So, it's a little bit of both, I would say, but certainly the big deal had an impact. And I just -- the lack of interest rate kind of, as Paul talked about with the depositories, without excess cash, they're waiting for stabilizing too. So, that part of our franchise has certainly been slow. And I think in general, the trading has been, as you look at spreads, whether in AAA munis or mortgage securities or stuff that have very high spreads. Right now, people are just waiting for rates to pick out because certainly the spreads there are higher than they've been in a while, but the activity is not way up. So, I think people are waiting to feel like they know where interest rates are going to stabilize. And until then, it's going to be a tough business, maybe a little better. It's hard for it to get a lot lower, not impossible, but when it really picks up is I think you're going to have to see more of a stabilized outlook and interest rates.

Paul Shoukry:

I mean, the big ad has been, SumRidge has done extremely well since joining us, too. So, they've been a great addition and well ahead of what we would expect in the traditional business, but at lows given the interest rate environment.

Paul Shoukry:

I think that first, cost of capital is impacting deals. So, it's two things. First, it's pricing. So, with the buyers, the cost of capital is saying, well, this is significantly higher, and pricing has been slower to come down, which isn't unusual in other M&A cycles that I've lived through. The price is slowest to adjust, and so that we have empathy for M&A bankers because we look at things too. We have the same thing when you look at debt was free and then you layer on a seven or eight or whatever the cost of rate is, and especially for a lot of M&A firms where it's more higher risk debt. I mean, it impacts the pricing. It just has to. So, we see that both in the M&A business, it's backed up. So, you can see people doing deals now in the fourth quarter. We don't expect the next quarter to be a lot different, but backlog's good. People are waiting, but that gap, which I think a lot of it's from lending pricing and the cost of capital is impacting it and you can see it in all the firms. And I'd say the same thing when we run numbers, it has an impact. Even with our excess capital, we assume we have to replace it, it makes it tougher. And most of the prices, most prices adjust a little bit or cost of capital falls. It's going to be harder. Or people just wait it out long enough and go, okay, the lower price is the new price. It's going to take one of those factors for it to really pick up. So, that's why we gave more of a six to 12 month outlook in our M&A business. Just, we think that the market's starting to see that, but let's see if it adjusts or not. I don't think it's going to happen overnight.

Paul Shoukry:

All right. Thanks, Devin.

Michael Cyprys:

Hey, good evening. Thanks for squeezing me in here. Just a question on the bank capital rules, we've seen some proposals from the banking regulators, including the Basel III Endgame proposal. Just curious how you see that impacting the opportunity set for your capital markets business, given you're under the 100 billion asset threshold. Just curious how you think about the opportunity set for yourselves, but then as you look out over the coming years, I'm sure eventually you probably hope you cross a hundred billion and grow to that level. Just how do you think about that impacting potentially your capital markets business? Which areas you think might be more impacted and how do you think about preparing for that?

Paul Shoukry:

And just to add one thing to that timeline, one of the reasons it will be we expect to be around that long is because one of the things we did during COVID is really accommodated client cash balances on the balance sheet to the securities portfolio. And so, we expect over the next year, for example, for a lot of the Bank's loan growth to be essentially funded with securities that mature out of that portfolio, so you don't get as much net growth from the loan growth because it's a repositioning of those assets.

Michael Cyprys:

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

Michael Cyprys:

Okay, thank you.

Paul Reilly:

So, first, I appreciate the time. It's been really outside the kind of a regulatory charge, it would have been a really outstanding quarter that still is a very good quarter. And so, we're focused still going into an uncertain market. But we've always been in our business have outperformed because of our capital and cash. And especially in down markets, be nice to be enough capital markets and interest rates to come in and then it'll be kind of an easy year, but we always assume we have to work for it every year. Market is competitive. So, we're just doing what we've done. We've been managing expenses. A lot of people say what are you going to do to manage expenses? We have been doing that especially over the last few quarters. And plan to continue to do that until, we can see growth to support those. So, appreciate you joining the call and all the time you spent with us, and we'll talk to you soon.

Paul Reilly:

Good evening. Thank you for joining us today. Since our last earnings call, we hosted our two major advisor conferences for both the independent and employee affiliation channels and also had our Chairman's Council Recognition Trip for our top employee advisors. I'm so proud of our advisors' unwavering dedication to serving their clients and helping them to navigate these volatile and uncertain times. Our advisors have also expressed their appreciation of our commitment to managing the firm for the long-term and always striving to be a source of strength and stability for them and their clients. It's these shared values that have resulted in our success through multiple cycles since our founding and what makes me confident about our continued success in the future. Now turning to our results. Despite the challenging environment and elevated market volatility since the Federal Reserve started raising interest rates, we generated record net revenues and earnings for the first nine months of the fiscal year. Reviewing third quarter results, starting on Slide 4, the firm reported record quarterly net revenues of $2.9 billion and net income available to common shareholders of $369 million or $1.71 per diluted share. Excluding expenses related to acquisitions, adjusted net income available to common shareholders was $399 million or $1.85 per diluted share. The increase in interest-related revenues driven by higher short-term interest rates drove significant earnings growth over the prior year. Net revenues increased 7%, and net income available to common shareholders grew 23%. Quarterly results were negatively impacted by elevated provisions for legal and regulatory matters of approximately $65 million, and bank loan provision for credit losses of $54 million, which was predominantly driven by significantly weakened macroeconomic assumptions for the Moody's CRE price index utilized in our CECL models. Notwithstanding these items, we had a solid quarter in a tough market environment. We generated strong returns with annualized returns on common equity of 14.9% and annualized adjusted returns on tangible common equity of 19.7%. We believe this is a leading result, especially considering our strong capital base. Moving to Slide 5, the strength of our PCG business really shine driving record assets this quarter. We ended the quarter with record total client assets under administration of $1.28 trillion, record PCG assets and fee-based accounts of $697 billion and financial assets under management of $201 billion. With our continued focus on retaining, supporting and attracting high-quality financial advisers, PCG consistently generates strong organic growth, which was evident again this quarter with domestic net new assets of $14.4 billion, representing a 5.4% annualized growth rate on the beginning of the period domestic PCG assets. However, I'll note net new assets in our adviser count were negatively impacted by an independent contractor relationship whose affiliation with the firm ended in the fiscal third quarter. This was a planned in mutual separation and more than 60% of the assets and advisors stayed with Raymond James. The impact of the portion that moved off the platform this quarter was $4.6 billion in assets and 60 financial advisors through our net new asset metric would have been even stronger after adjusting for this separation, which we do not believe will negatively impact our profitability. During the prior 12 months we recruited to our domestic independent contractor and employee channels financial advisors with approximately $282 million dollars of trailing 12-month production and nearly $38 million dollars of client assets at their previous firms. Total clients domestic sweep and enhanced savings program balances into the quarter at $58 billion dollars up 11% from March of 2023. The enhanced savings program with its competitive rate and robust FDIC insurance continued to attract significant cash this quarter offsetting a decline in client sweep balances largely due to quarterly fee billings and tax payments in April. Total bank loans decreased 1% from the preceding quarter to $43 billion dollars primarily reflecting a modest decline in corporate loans as new origination demand continues to be tepid in the market. Moving to Slide 6, Private Client Group generated record results with quarterly net revenues of $2.18 billion and pre-tax income of $411 million dollars. Year-over-year asset based revenues declined due to market decline. However PCT results were lifted by the benefit of higher interest rates and interest-related revenues and fees. The Capital Markets segment generated quarterly net revenues of $276 million dollars and a pre-tax loss of $34 million dollars. Revenues declined 28% compared to the prior year quarter mostly driven by lower investment banking revenues as well as lower fixed income brokerage revenues. The extremely challenging market environment particularly for investment banking has strained the near-term profitability of the segment's results. As we explained at Analysts and Investor Day, the segment's results were negatively impacted by amortization, share based compensation for prior years, as well as growth investments. However we are focused on managing controllable expenses as near-term revenues are depressed. The Asset Management segment generated pre-tax income of $89 million dollars on net revenues of $226 million dollars. The increase in net revenues and pre-tax income over the preceding quarter were largely a result of higher assets and fee-based accounts. The Bank segment generated net revenues of $514 million dollars and pre-tax income of $66 million dollars. Third quarter NIM for the Bank segment of 3.26% rose 85 basis points over the year-ago quarter but as expected decreased 37 basis points from the preceding quarter primarily due to higher funding costs. We continue to add diverse higher cost funding sources and shifted more of the lower cost suite funding to third-party banks. While this negatively impacted the Bank segment's NIM, Paul Shoukry will walk us through how this benefits both clients and the firm overall. Looking at the fiscal year-to-date results on Slide 7, we generated record net revenues of $8.6 billion dollars and record net income available to common shareholders of $1.3 billion dollars, up 5% and 22% respectively over the prior year's records. We aren't seeing many other firms in our industry generate records so far this year. Additionally we generated strong annualized return on common equity of 17.9% and annualized adjusted return on tangible common equity of 22.7% for the nine-month period. On Slide 8 the strength of the PCG and Bank segments for the first nine months of the year primarily reflects the benefit of strong organic growth in the Private Client Group, the successful integration of TriState Capital, and higher interest-related revenues. When compared to the record activity levels in the year-ago period weaker capital markets results reflect the challenging environment for investment banking and fixed income brokerage revenue despite incremental revenues from the SumRidge acquisition. And now I'll turn it over to Paul Shoukry for a more detailed review of our third quarter financial results. Paul?

Paul Reilly:

Thank you, Paul. As I said at the start of the call, I'm pleased with our results for the first nine months of fiscal 2023 and our ability to generate record earnings during what continues to be a challenging environment. And while there is still near-term economic uncertainty, I believe we are in a position of strength and are well positioned to drive growth over the long-term across all of our businesses. And the Private Client Group next quarter results will be favourably impacted by the 5% sequential increase of assets in fee-based accounts. And I'm optimistic over the long-term, we will continue delivering industry-leading growth as current and prospective advisors are attracted to our client-focused values and leading technology and product solutions. In the Capital Markets segment, there are some signs of improvement in investment banking, and we continue to have a healthy M&A pipeline and good engagement levels. But while there is reason for optimism, we expect the pace and timing of transactions to be heavily influenced by market conditions and would more likely pick up over the next six to 12 months. In the fixed income space, depository clients are experiencing declining deposit balances and have less cash available for investing in securities, putting pressure on our brokerage activity. We hope that once rates and cash balances stabilize, we could start to see an improvement. So while there are some near-term challenges over the long-term, we believe the capital markets business is well positioned for growth given the investments we've made over the last five years and have significantly increased our productive capacity and market share. We will continue to prudently manage expenses in these businesses as near-term revenues continue to come under pressure. Obviously, we'll have to take more significant action if the industry had once proved to be more long-term. In the Asset Management segment, financial assets under management are starting the fiscal fourth quarter up 3% compared to the preceding quarter, which should provide a tailwind to revenues if markets remain conducive throughout the quarter. We remain confident that strong growth of assets and fee-based accounts and the private client group segment will drive long-term growth of financial assets under management. In addition, we expect Raymond James Investment Management to help drive further growth through increased scale, distribution, and operational and marketing synergies. In the bank segment, our focus over the next several months will continue to be fortifying the balance sheet with diversified funding sources and prudently growing assets to support client demand. We have seen securities-based loan payoffs decelerate and expect demand for those loans to eventually recover as clients get comfortable with the current level of rates. With little activity in the market, corporate loan growth has been tepid. However, we believe the yield environment has improved with ample cash sitting with third-party banks and lots of capital. We are well positioned to lend once activity picks up. In closing, we have strong prospects for future growth given our strong competitive positioning in all of our businesses and our ample capital and liquidity. I want to take this time to thank our advisors and associates for their continued perseverance and dedication to providing excellent service to their clients each and every day, especially in these uncertain times when clients need trusted advice the most. Thank you all for what you do. And with that, Operator, will you please open the line for questions?

Unidentified Analyst:

Hey, Paul and Paul. It's Michael and I'm going to start this, I'm on for Steven here. I guess just starting one off on maybe the balance sheet reinvestment strategy here, you highlighted potentially capitalizing on some of the yield opportunities in loans down the road. But given the improving sorting picture, the funding capacity you have on the off-balance sheet cash, and the fact that we're near peak rates, is adding duration to lock in some higher yield here something that you're considering more actively?

Unidentified Analyst:

Okay, that's helpful. And for my follow-up, maybe switching to the capital markets side, we're hearing a lot of your peers highlight green shoots, as well as a potential recovery in DCM and ECM. But capital raising activity at Ray J was relatively weaker during the quarter. Is that just a function of the mix or were there other factors at play? I know you said you expect better results in 2024, but how should we be thinking about the outlook for that business relative to what your peers have been highlighting? Thank you.

Unidentified Analyst:

All right. Thanks for taking…

Kyle Voigt:

Hi, good evening. Maybe first question on cash and ESP balances. With now having built back to over $16 billion of third party deposits and noting in your prepared remarks that you have adequate liquidity for growing the balance sheet, do you anticipate taking any steps near-term or have you already taken any steps yet to reduce some of the incentives in place to grow those ESP balances much further from current levels?

Paul Shoukry:

And it's an easy adjustment for us. It's an easy adjustment for us too because you can adjust rate, which gives you some attrition. And you can stop the program if you had to or slow it down. So, but as of right now cash sorting has slowed, but it hasn't stopped if you look at everyone's reports. We will continue to leave the program open to our advisors as long as we have capacity.

Paul Reilly:

Yes, I think we have certainly seen a deceleration of pay downs which is what really picked up as rates increased and borrowing costs increased. We saw the expected pay downs over the last, six to 12 months, but kind of, particularly in June, and even in July, those pay downs have really slowed down. And so we think this is a good baseline. We're not smart enough to call a trot or a floor. But we do we are optimistic that over the next six to 12 months, if the markets stay relatively resilient, that we'll see kind of a pickup of demand off this level of these sites sort of levels going forward.

Operator:

The next question comes from the line of Alex Blostein with Goldman Sachs. Please proceed with your question.

Paul Reilly:

A lot of pieces to that question, Alex, but hopefully 5% is a conservative guide. Last quarter, we guided down 10% and it actually ended up being down 3%. So we were very pleased to outperform our guide from last quarter. Just given the uncertainty, we think it's always prudent to give conservative guidance around these type of things. So you're right, there are a lot of puts and takes. We would expect the BDP fee portion to be up just because balances are up so significantly quarter-over-quarter. So as long as that stays somewhat resilient over the course of the quarter, we would expect those BDP fees to be up. And then conversely, with the interest income at the bank, we would expect pressure there just because we'll have a full quarter impact of all of the ESP balances that we raised during the third quarter. And as we raise those balances, we move to lower cost balances from the bank to the third party banks. So there's some geography involved in that from one to the other. But when we put those things together, and our best guess that balances going forward, which can change dramatically over the next couple of months, that's where we come up with the down 5% between both BDP fees and NII. But again, we're hoping that we can exceed that guidance if things hold. And in terms of what we're seeing so far in the month of July, really the balances have stabilized. I mean, we did see a decrease in the sweep balances due to the quarterly fee billings in July, which is what you would expect, but outside of that we really have seen kind of a sort of absolutely a deceleration of cash shorting activity. I mean, outside of those declines from the quarterly fee billings, cash, the sweet balances were fairly stable outside of those quarterly fee billings and the ESP balances continued to grow.

Paul Shoukry:

Well actually got us both pretty well there. You're calling me older than Paul. I think that it's really hard to tell. If you look at backlog and things you could say it will start improving, but I think the market really goes you'll see it with everybody, so I don't I don't know what our position would be that would make it a lot different in the market when it returns. So we do have a lot more capacity. We invested lot of those investments are with people that we recruited and did acquisitions and they are kind of part of us now. So yes we've already looked and only trimmed some costs and we think it will continue longer term we would do more, but we're really trying to keep the team in place that we spent five years in building. I think they'll be very, very productive. So hopefully that everyone's green shoots turns into trees and it's worth hoping for. I think Paul gave six to 12 months before we think industry wide not just us it will really start getting, but that's the unknown. It really just is the unknown right? We certainly have the capacity and once the market picks up I think we're well positioned. Clients are engaged, but that's the million dollar question I can't answer. But if we ever got to the point we thought it was more of a permanent or longer term kind of hiatus, we would manage cost as tightly as we could.

Operator:

The next question comes from the line of Brennan Hawken with UBS. Please proceed with your question.

Paul Reilly:

Yes, I mean there could be certainly additional reserves and there probably will be additional reserves in future quarters, we're hoping that they'll be pretty big drop off from the $66 million or so that we saw this quarter that was obviously unusual for us if you look back at our history. So time will tell, but as obviously, this quarter was obviously elevated relative to sort of what you look at for an average reserve for quarter for us.

Paul Reilly:

Yes I think we're not going to talk about firms or stuff, but I think that just based on our strategy it was an independent contractor firm, a normal independent contractor firm based on their strategy and what they wanted to do and ours and us looking at our profitability and I think what they thought they could do and other things, we just thought it would better have another home and they went ahead and we supported their move and then we, again as we said we kept a lot of the advisors, the advisors had a choice. And so we call it just strategic differences in both of our businesses and profitability as we said we don't think that the -- that there's a negative impact to our profitability on that change. So we're both making our bets and both going in the directions we think we're right.

Operator:

The next question comes from the line of Jim Mitchell with Seaport Global Securities. Please proceed with your question.

Paul Reilly:

Yes and we -- I mean the average maturity on that portfolio is somewhere in the four year range and so it takes some time for it to run off. We're probably going to see maybe $1.5 billion or so of a runoff a year at current levels. So it will take some time. And frankly we grew that securities portfolio over during that COVID period, because we had a pretty significant increase in client cash balances, as you'll recall. And there really wasn't demand from third party banks. So we took it on to our own balance sheet to accommodate those cash balances. Unfortunately, we kept the vast majority of those, as Paul indicated in very, very short-term treasuries, and didn't take too much duration risk. And so now as we look forward, we're really going to grow that left debt securities portfolio runoff, so the liquidity in the balance sheet should be somewhere around 10% of the bank's balance sheets combined, which will let us reinvest a lot of those repayments to bank loans, which again, as Paul said, have higher spreads and higher yields on them. So that will be a nice kind of tailwind for us over the next several years, hopefully.

Paul Reilly:

And just to be clear, when we raise those ESP balances, cash is fungible. The cash and we move off balance sheet to third party banks, is still making a higher spread than the cost of EIP balances, while we sort of await investment in higher yielding assets and loans. So it's still a net, not a huge net positive, but it's still a net positive for us. So we offer the clients a product that's attractive, allows advisors to gain more wallet share from their clients. And we essentially place that cash with third party banks until we have better investment opportunities. There's a lot of geography involved in terms of what shows up in NII, and BDP fees, but we obviously look at it from a consolidated basis. So it's really a win for the clients, a win for the advisors, and a win for the firm, and gives us a lot of capacity to grow the balance sheet over time. So that's kind of how we're thinking about it. And, to the extent that when demand returns for loans, both corporate loans, and then loans to the Private Client Group clients, then there will certainly be a nice tailwind to our net interest income.

Paul Reilly:

So just to be clear and just to be clear, one last comment on this is because I've got some questions over the email is, we our guide, the 5% guide that I provided on NII and BDP fees is really based on today's rate action. So we're not trying to factor in the forward curve or anything like that, as Paul said, I'm not sure we totally buy the forward curve, but I'm not sure if we, we're certainly not going to give guidance based on the Fed cutting rates anytime soon.

Operator:

[Operator Instructions] And the next question comes from the line of Michael Cyprys with Morgan Stanley. Please proceed with your question.

Paul Reilly:

So I think we I think I've gotten this question almost every quarter now for 13 years since I've been CEO. It's competitive. I mean it's -- I think all firms are kind of in the market. The costs have gone up somewhat, certainly over the years. So we have maintained our position not being the highest bidder in these cases and using as its positive selection, but it's certainly comparative. You have broker, dealer employee channels, you have the independent firms and the aggregators competing especially at the high end of for all their clients, so the good news for us as we continue to compete very well. We continue the pipeline is strong. The biggest change probably over the last two years is the number of just very large teams that we talked to versus years ago. So the pipeline is great, it's been picking up every quarter very slow start. It's continued to pick up each quarter and so we're optimistic, but it is competitive.

Paul Reilly:

Yes, well, it's a relatively new product for us. We launched it in March. So we'll learn more as we have more experience with it and as rates stabilize, and those sorts of things. So we want there, we always try to have cushions around kind of how we think about funding deployment, and maybe even more so a bigger cushion when you're dealing with a new deposit product in a volatile and uncertain rate environment and so you look at where we are today. We've had a target of third party balances of around $10 billion that we talked about, just six months ago, and now we're up to $16 billion, or north of $16 billion of third party balances and the banks are still holding very high cash balances more than they need in a normal environment. And so we have a significant funding cushion and opportunity over the next several months to really kind of have better history and understanding of the sort of the reinvestment of the enhanced saving product balances.

Michael Cyprys:

Great, thank you.

Devin Ryan:

Great, thanks so much. Good evening, Paul and Paul. I'll just keep it at one there, most of it was covered here. But I do want to ask about corporate M&A for the firm. And we obviously saw recent press around a reasonably sized public independent broker that could be mulling a sale and so I thought that was interesting. And so without getting into details around where Raymond James might be interested specifically, it'd be great just to hear about kind of what you guys are seeing in the marketplace because it would seem that conditions could be getting better for you guys as well just with valuations recovering your stocks up as well. Confidence is improving in the marketplace to some degree and that's a little bit of a better environment for M&A. So just love to talk about what you guys are seeing in the marketplace today, if you can, what that pipelines of opportunities is looking like right now relative to a year ago?

Devin Ryan:

All right, good stuff. Thanks so much, guys.

Operator:

And there are no further questions. Mr. Reilly, I'll turn the call back to you.

Operator:

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.

Kristina Waugh:

Good afternoon, everyone, and thank you for joining us. We appreciate your time and interest in Raymond James Financial. With us on the call today are Paul Reilly, Chairman Chief Executive Officer; and Paul Shoukry, Chief Financial Officer. The presentation being reviewed today is available on Raymond James Investor Relations website. Following the prepared remarks, the operator will open the line for questions. Calling your attention to Slide 2. Please note certain statements made during this call may constitute forward-looking statements. These statements include, but are not limited to, information concerning future strategic objectives, business prospects, financial results, anticipated timing and benefits of our acquisitions and our level of success integrating acquired businesses, divestitures, anticipated results of litigation and regulatory developments or economic conditions. In addition, words such as may, will, could, anticipates, expects, believes or continue or negative of such terms 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 Investor Relations website. During today's call, we will also use certain non-GAAP financial measures to provide information pertinent to our management's view of ongoing business performance. A reconciliation of these non-GAAP measures to the most comparable GAAP measures may be found in the schedules accompanying our press release and presentation. Now I'll turn the call over to Chair and CEO, Paul Reilly. Paul?

Paul Shoukry :

Thank you, Paul. Starting on Slide 10. Consolidated net revenues were a record $2.87 billion in the second quarter, up 7% over the prior year and 3% sequentially. Being able to generate record quarterly revenues during a period when Capital Market revenues were so challenged across the industry, reinforces the value of having diversified and complementary businesses. Asset Management and related administrative fees declined 11% compared to the prior year quarter and increased 5% sequentially due to the higher assets and fee-based accounts at the end of the preceding quarter, partially offset by fewer billable days in the fiscal second quarter. This quarter, fee-based assets grew 5%, providing a tailwind for Asset Management and related administrative fees in the fiscal third quarter. Brokerage revenues of $496 million declined 12% year-over-year and grew 2% sequentially. This year-over-year decline was largely due to lower asset-based trail revenues in PCG as well as lower fixed income brokerage revenues in the Capital Markets segment. I'll discuss account service fees and net interest income shortly. Investment banking revenues of $154 million declined 34% year-over-year and grew 9% sequentially. As experienced across the industry, M&A revenues were particularly challenged this quarter, declining 37% year-over-year and 15% sequentially. Despite a healthy banking pipeline and solid new business activity, there remains a lot of uncertainty in the pace and timings of deals launching and closing, given the heightened market volatility. It remains too difficult to say when conditions will become conducive to increase investment banking revenues. Moving to Slide 11. Clients' domestic cash week and Enhanced Saving Program balances ended the quarter at $52.2 billion, down 14% compared to the preceding quarter and representing 4.9% of domestic PCG client assets. The Enhanced Savings Program added approximately $2.7 billion in new deposits in March as the offering was only open to net new balances until April. And a good portion of these new balances were derived from brand-new clients to the firm following the Silicon Valley Bank collapse, highlighting the attractiveness of this product and Raymond James being viewed as a source of strength and stability. As Paul said, the Enhanced Savings Program balances exceeded $4.5 billion this week, continuing to grow nicely and partially offsetting the anticipated decline in sweep balances, largely due to quarterly fee billings in April. So while it's difficult to parse through the disclosures to make sure we're comparing apples to apples, of the handful of peers who have reported thus far, we estimate year-over-year cash sweep declines for those peers were approximately 35% to 45%. This compares to a 35% year-over-year decline in our domestic sweep balances through March. So this dynamic of declining sweep balances has really been experienced at roughly the same order of magnitude for most of the firms in our industry. And as most of you know, we have been expecting, communicating and preparing for the sorting activity for quite some time. Looking forward, we expect additional cash sorting activity, although we believe we are much closer to the end of that dynamic than we are to the beginning if rates settle out near current levels, and the average sweep balance per account over the approximately 3.4 million accounts domestically is now less than $15,000. And we hope to continue to offset any further cash sorting activities through our diversified funding sources, including the Enhanced Savings Program, TriState's deposit franchise and other initiatives. And when the sorting dynamic does stabilize, we would then expect to grow sweep balances given our strong organic growth in PCG. Meanwhile, to be prudent, we would strive to maintain a strong funding cushion of domestic cash swept to third-party banks, not too much lower than where it ended the March quarter. We would also plan to keep elevated cash balances in the Bank segment, which grew from $1.8 billion in December to $5 billion at the end of the fiscal second quarter. While these actions don't optimize net interest margin over the short term, we believe they give us the most flexibility over the long term. Turning to Slide 12. Combined net interest income and RJBDP fees from third-party bank was $731 million, up 226% over the prior year quarter and 1% over the preceding quarter, as a sequential decrease in RJBDP fees from third-party banks was more than offset by higher firm-wide net interest income. The Bank segment net interest margin increased 27 basis points sequentially to 3.63% for the quarter, and the average yield on RJBDP balances with third-party banks increased 53 basis points to 3.25%. Our long-standing approach of maintaining a high concentration of floating rate assets not only helped drive more immediate upside to higher short-term interest rates but also preserve a relatively flexible balance sheet compared to the banks that had much higher concentration of duration risk. Looking forward, we expect combined net interest income and RJBDP fees from third-party banks to decline sequentially in fiscal third quarter due to a decrease in third-party RJBDP fees given the lower average balances with third-party banks. We would also expect the bank segments NIM to contract from the second quarter given the higher level of cash balances we plan to maintain during this volatile period as well as the impact from higher cost diversified funding sources. But as we have always said, instead of focusing on maximizing NIM, we are focused on preserving flexibility and growing net interest income over the long term, which we still believe we are well positioned to do after the cash sorting dynamic is behind us. But near term, we expect headwinds for the net interest income and RJBDP fees for the reasons I just explained. Moving to consolidated expenses on Slide 13. Compensation expense was $1.8 billion, and the total compensation ratio for the quarter was 63.3%. The adjusted compensation ratio was 62.8% during the quarter. The compensation ratio continues to benefit from higher net interest income in RJBDP fees from third-party banks. The sequential increase in compensation reflects higher revenues as well as the impact of salary increases effective on January 1, along with the reset of payroll taxes at the beginning of the calendar year. We are very pleased to generate a 62.8% adjusted compensation ratio, given these factors and the extremely challenging market environment in Capital Markets. Non-compensation expenses of $496 million increased 25% sequentially. Adjusting for acquisition-related non-compensation expenses and the favorable settlement received in the fiscal first quarter, which are all included in our non-GAAP earning adjustments, non-compensation expenses grew 16% during the quarter. This increase was largely driven by higher legal and regulatory costs including an unfavorable arbitration award totaling $20 million, along with higher communication and information processing expenses, which reflect continued technology investments and the seasonal impact of year-end mailing. The bank loan provision for credit losses for the quarter of $28 million largely reflects the charge-off of a C&I loan has been challenged for several quarters as well as higher allowances in the CRE portfolio. I'll discuss more related to the credit quality of the Bank segment shortly. In summary, we remain focused on managing expenses while continuing to invest in growth and ensuring high service levels for advisors and their clients. While there has been some noise with elevated legal and regulatory expenses this quarter and there are always some seasonal expenses that hit in the first calendar quarter of the year, none of the non-compensation expenses are coming in too much differently than we expected when we last provided guidance for the fiscal year. But legal and regulatory expenses are inherently difficult to predict. Slide 14 shows the pre-tax margin trend over the past five quarters. In the current quarter, we generated a pre-tax margin of 19.4% and adjusted pre-tax margin of 20.4%, a strong result given the industry-wide challenges impacting Capital Markets. On Slide 15. At quarter end, total assets were $79 billion, a 3% sequential increase largely reflecting the $3.2 billion increase of cash balances in the Bank segment during the quarter. Liquidity and capital remains very strong. RJF corporate cash at the parent ended the quarter at $1.8 billion, well above our $1.2 billion target. Our Tier 1 leverage ratio of 11.5% and total capital ratio of 21.4% are both more than double the regulatory requirements to be well capitalized. The 11.5% Tier 1 leverage ratio reflects a $1 billion of excess capital above our conservative 10% target, which would still be 2x the regulatory requirements to be well capitalized. Our capital levels continue to provide significant flexibility to continue being opportunistic and invest in growth. We were pleased to have our A- credit rating reaffirmed by Fitch in mid-March. In the announcement, Fitch cited the firm's strong capital cushion, significant deposit funding and access to unsecured debt markets, among other drivers as the reason for the rating. Also in April, we renewed our revolving credit facility and expanded it from $500 million to $750 million. A strong balance sheet and long-standing relationships with our banking partners enabled us to upsize the 5-year committed corporate revolver with enhanced terms to further strengthen our contingent liquidity sources. The ability to execute this facility in a challenging market environment is a testament to our long-term conservative approach. I know many of our bankers are listening on this call, so I'd like to thank all of you for your continued support and partnership. We also have other significant sources of contingent funding. For example, just to be proactive, given the market uncertainty in March, we increased our FHLB borrowings in the Bank segment by only $500 million from December 31 to March 31. And given our strong cash position, we've already paid $200 million of that down in April. That leaves us more than $9 billion of FHLB capacity in the Bank segment. Slide 16 provides a summary of our capital actions over the past five quarters. During the fiscal second quarter, the firm repurchased 3.75 million shares of common stock for $350 million at an average price of $93 per share. As of April 26, approximately $1.1 billion remained available under the Board's approved common stock repurchase authorization. And we currently intend on continuing our planned repurchases as we discussed previously, particularly as this market volatility has provided attractive opportunities for us, and we don't plan on using as much capital to support balance sheet growth over the next 3 to 6 months. Lastly, on Slide 17, we provide key credit metrics for the Bank segment, which includes Raymond James Bank and TriState Capital Bank. The credit quality loan portfolio remains healthy. Criticized loans as a percentage of total loans held for investment ended the quarter at just 0.92%. The bank loan allowance for credit losses as a percentage of total loans held for investment ended the quarter at 0.94%. The bank loan allowance for credit losses on corporate loans as a percentage of corporate loans held for investment was 1.67% at quarter end. We believe this represents an appropriate reserve but we are continuing to closely monitor any impacts of inflation, supply chain constraints, higher interest rates and a potential recession on our corporate loan portfolio. I know there's been a lot of attention on commercial real estate across the industry, given the challenges with property value and interest rates. So let me briefly cover our portfolio. Across the Bank segment, we have a CRE and REIT loans approximately $8.8 billion, which represents 20% of our total loans. Our office portfolio is only 17% of these real estate loans. So our office portfolio only represents approximately 3.5% of the Bank segment's total loans. Based on the underwriting and origination along with the most recent appraisals, the average loan-to-value of this office portfolio is somewhere around 60%, which is probably a little bit higher now, given pressure on valuations in the industry, but still providing us a lot of cushion on this portfolio on average. Overall, we have deliberately limited the exposure to office real estate, and we underwrote office loans with what we believe are conservative criteria, but we continue to monitor each loan closely given the industry-wide challenges. Now I'll turn the call back over to Paul Reilly to discuss our outlook. Paul?

Operator:

[Operator Instructions] The first question comes from the line of Devin Ryan with JMP Securities.

Paul Reilly :

Well, I'll let the other Paul go through the NIM. But I don't think we anticipate right now higher reserves -- I mean, reserve cash, maybe we'll be carrying a little more cash, but I don't know which reserve you're referring to, so.

Paul Reilly :

There's more cash in the bank. Go ahead, Paul. I'll let...

Devin Ryan :

Got it. Okay. Great color. I guess maybe just I want to follow up on the same topic. And probably, you just mentioned the Enhanced Savings Program. It looks like you're having some nice success there. And I'm assuming that it's still reasonably early in terms of the advisor penetration. So just love to maybe talk about kind of the expectation for growth there. And maybe could advisors be more active moving their customers' cash there in the near term, just given that it's new. And so that could pressure the -- I guess, the rate on the liability side or do you have data that's just suggesting that the majority of the yield-seeking cash has already moved out of the accounts?

Operator:

And the next question comes from the line of Kyle Voigt with KBW.

Paul Reilly :

Yes. that's the hard one to peg with tests like happening today in the press, even we're going to be more cautious until the industry is sorting down and kind of a level field. We think that the 10% is a good target. But in the short term, we're probably not going to be overaggressive to it, especially if we're not growing the bank aggressively. We don't think that's the smart move right now. We will continue to let SBL balances and mortgage our client balances fund those, those are the priority. We're not sure it's a good time to get into the increasing the corporate side of the lending right now just because of the market. So shorter term, I think the capital ratio is going to be over the 10%, but we're not going to change the goal, but during the volatility like we've seen with today's news and other things, we're going to be cautious to pretty comfortable the market settled down.

Kyle Voigt :

Great. And then just maybe a follow-up question to that. Just with your stock price where it's at today. Obviously, in the first quarter -- calendar first quarter, you were up the buyback a bit here. But just wondering if you can kind of compare the current valuation of your stock to maybe any opportunities that you're seeing in the M&A market, if you kind of could expand upon some of those opportunities that you're seeing? And what segments you're seeing more opportunity in light of everything that's happening in the banking space as well, that would be helpful.

Operator:

And the next question comes from the line of Alex Blostein with Goldman Sachs.

Paul Shoukry :

Yes, the 10% decline, Alex, includes the BDP fees as well. So it's kind of a combined basis as we show it in the presentation. And that factors in the 25 basis point increase that the market is expecting in May. And so in terms of the cash that we plan on holding on the bank's balance sheet. We plan on holding more than we need for -- during these volatile times, more than we hopefully need during these volatile times, just to stay prudent. And as Paul said, we're being deliberate in growing corporate loans, and we're being actually opportunistic in selling corporate loans. So not much balance sheet growth forecasted over the next -- at least during this period of volatility. And in some cases, for example, we've already sold over $400 million of corporate loans that we had rated lower from a credit perspective. And we're able to get near par value for those loans. We had marks on them that were higher than what the price we were able to get. So we don't believe that the market is fully factoring in potentially the downside risk on certain loans. And so just as we've done in other volatile periods, we're sort of being opportunistic, knowing that we're just building dry powder, both capital and hopefully funding dry powder to accelerate growth when the opportunities look more attractive.

Paul Shoukry :

Yes. The first two quarters are always a little bit lumpy in terms of the non-compensation expenses. So if you look at it kind of on a combined basis, backing out the acquisition-related costs and backing out the loan loss provision, which is how we made the guidance, it was around, I think, $830 million for the first 6 months of the year, which actually trends lower than the $1.7 billion guidance I provided for the non-comp expenses, excluding provision. So we still -- we're not changing that guidance for the time being because none of the -- other than legal and regulatory, which is inherently unpredictable, and we had a $20 million arbitration award, which we were not expecting, obviously, this quarter. We are -- most of the other line items are kind of coming in, in line with what we forecasted when we provided that guidance. But of course, things change between now and the next 6 months of the fiscal year, then we certainly will update that and let you all know.

Paul Shoukry :

And with that being said, while it's coming in line with what we expected, we're also given the market environment going to be very deliberate in managing all those expenses while still investing in growth in high service levels.

William Katz :

Maybe stepping back and perhaps it's just too soon tell. As you think about some of the structural changes that may evolve for the banking industry on the other side of the banking collapse and maybe your early-stage conversation with the regulators, how do you see the evolution for regulatory capital or leverage ratios. Does that affect your 10% bogey? And then maybe how you think about long-term growth in earning assets and NIM associated with that.

Paul Shoukry :

I think you asked a question about the future NIM prospects for the industry. And I think the banking industry is pretty efficient. The good news is we already have a very conservative level of capital. So I think we're well, as Paul said, well positioned for those changes. But to the extent the capital rules do change or increase and certainly the cost of the average deposit in the industry as all the big banks were saying, even the largest banks are saying that's increasing as well, then you would expect all else being equal for spreads to expand across the industry to preserve a reasonable NIM and a reasonable return on equity for the industry. And so to the extent that we can be patient now and wait for more attractive opportunities at least a more stable environment, we think that will serve our shareholders well over the long term.

William Katz :

Understood. Just a quick follow-up and just a jumping one point there. As you think about maybe Paul, Sui you could just unpack, I think I understand the difference between the sort of the bank versus the third-party sweep impact, but maybe unpack maybe where you are on a spot basis for the NIM? And as you think about this year, how to think about maybe earning asset levels, can I hear a couple of different things those cautious loan growth, maybe some runoff in the corporate loan portfolio sales, maybe some shrinkage on the investment securities book, how to think about maybe framing where the end of the year might be in terms of your associated with that.

Operator:

And the next question comes from the line of Manan Gosalia with Morgan Stanley.

Paul Shoukry :

Yes. I would say just jumping to kind of where we are today, for example. So we ended the quarter with sweep balances and Enhanced Saving Program balances at $52.2 billion. You fast forward to where we are today, and we're right around $52 billion since we've been Enhanced Saving Program balances, and that reflects the fee billing that we do quarterly, which was over $1.2 billion and also annual income tax payments. So we feel comfortable and confident that the sorting dynamic is closer to the end than it has been to the beginning, as I said on the comments, the average cash per account the sweep program now it's right around $15,000, which is sort of a low point as far as we look back and have that data. So we're commented, but things are closer to the end, but we don't know how much longer, obviously, that dynamic will continue. Meanwhile, we'll continue to be -- offer attractive products to our clients that give them good yields and get them good FDIC coverage to keep deposit balances as strong as we can.

Paul Shoukry :

One other metric that I think is pertinent on this topic is sort of the deposit -- aggregate deposit data since rates started rising. And really, you have to look at it both at the sweep program and also adding the Enhanced Saving Program balances. And on a spot basis, that aggregate deposit beta has only been for us 25% to 30%. And we bet, which is we've seen so far, again, they have a much higher mix of the higher cost funding at this juncture. And that's with us being able to be more generous to our clients than most of our competitors in the sweep program. So to the extent that we have to raise some incremental higher cost deposits, 25% to 30% aggregate deposit beta at this point is much lower than I think we all expected at this point in the cycle. So we have a lot of kind of capacity and bandwidth to add higher cost funding, while still generating attractive returns.

Paul Reilly :

There's no doubt. I mean, there's huge demand for deposits in the system. So the extent you have cash, banks are hungry for it. So the question is, what happens with rate and you would assume with that demand, you might get the spread should increase, right? So yes. So if the Fed stops raising or you have a recessionary cash returning out of the markets back into the regular sweep programs and deposit programs, do you think you -- our prediction as you would -- those spreads would increase, but we're not there at this point today. So it's really hard looking forward right now. I -- if we want to look forward a year or so, we feel a lot more comfortable than next quarter just because we've been in the middle of -- since March of a very dynamic market.

Paul Shoukry :

You have to look at the average, the average balances will be down 25% even if we keep them flat with where they ended the quarter. So -- but beyond that, then just depend on where the balances. The balances will drive it more so than the spread that we earn from the third-party banks, I guess, is the easiest way to describe it.

Paul Shoukry :

It's a little bit of both, both on the -- to the extent that we have new appraisals that's factored into it. But I mean I think you can assume, as I said in the prepared remarks, that valuations are probably lower now than even that new appraisal base. So -- but the point being is we still have a reasonable cushion and underwrote those properties conservatively. But we also expect there to be some challenges if the economy continues to soften, particularly for real estate.

Operator:

And the next question comes from the line of Jim Mitchell with Seaport Global.

Paul Reilly :

The restrictions are where we opened it up for sales of certain securities for people that wanted to move from money markets back into cash, which is the only reason they the money markets was the spread. So we've opened that up. And we have two choices. We can say we've given time limits. If we need more, we can extend the time limits. Or if we want to cut it off, we can cut it off or -- you can always do that with rate, let it find seek its own level. So we have all those options. And we're just watching the balances. We're comfortable at these cash balances. We're actually comfortable lower, but we're Raymond James we always seem to be accused of having excess capital and excess balances. So we'll just dial it back or stop it, or if we open it up to other securities type, if you really need it, and there's treasuries, there's CDs, there's other things that have stayed on the system seeking yield. So we have a lot of flexibility. It just depends how much we need.

Paul Reilly :

We think we're at a level even when we were at the end of the quarter when we dropped below 50%, we were fine. But we'll keep it until we have extra in this environment. We'd rather -- if more flows in, we'll keep it for a while. You can always again lower rate, have it flow out the other yielding instruments. But yes, we're not trying to get it back into the 70s. That's for sure. We had excess too much cash then, but there is no place to put it. But I think somewhere in the 50s level, we'll try to -- we would start slowing it down.

Brennan Hawken :

One, just -- it sounded like from Paul Shoukry comments on the comp ratio that if -- unless we see some kind of substantial change in capital markets environment that the comp ratio is probably -- this is probably a reasonable zone to think about until that inflects. Number one, is that right? And then if we do see a recovery in the Capital Markets revenue, what kind of order of magnitude would you expect to feed through and pull down that comp ratio?

Brennan Hawken :

Got it. Okay. Yes, that makes sense. -- a 10% decline in So one more on cash and deposit dynamics. I'm sorry, it's been a real dead horse to beat here. But you gave the trends quarter-to-date in the enhanced program, which is really helpful. Could you also speak to like overall trends in cash quarter-to-date? And then if what we're seeing in the Enhanced Program would be selling out of the purchased money fund and into the deposit program, wouldn't then we see you moving in the direction of the peers. Paul Shoukry, I think you commented a few times on how you're at 10 and peers are at 50. Does that mean you're going to converge to that level? Or you be pulling on some of those price and other levers that you referenced before to prevent that from happening?

Paul Shoukry :

And the only other thing I'll add to that is we have over $40 billion of purchased money market funds or our clients have over $40 billion of purchase money market funds on the platform. So all the cash really stayed within the system to the extent that -- and we earn very little on those purchased money market funds as a firm. So to the extent that our clients prefer to have the FDIC insurance at the attractive rate that we would be willing to offer that we are offering today that could really be a win-win for the client and for the firm because now that cash, even though it's higher cost to funding relative to our suits can give us -- generate more economics than staying in the purchase money market fund. So you kind of have to look at the holistic picture to determine whether or not it's really a win-win. And as Paul said earlier, we always strive to look for those win-win opportunities for both clients, advisors and the firm.

Brennan Hawken :

Okay. That's helpful. And also for the added points on your philosophy. Could you touch on the point about overall cash trends quarter-to-date beyond just the Enhanced?

Operator:

And there are no further questions at this time. I will now turn the presentation back to the speakers.

Operator:

That does conclude today's conference. We thank you for your participation and ask that you please disconnect your lines.

Paul Reilly:

Good afternoon and thank you for joining us today. Although there is a lot of disappointment for us in the Bucks' playoff game and even more disappointment for me is Paul Shoukry's Bulldogs won the National Championship, Raymond James came through again with another good, solid performance.

Paul Reilly:

Thank you, Paul.

Devin Ryan:

I guess just a couple of quick ones on my end. First, on the buyback. So you repurchased $138 million. It's a bit below the implied $250 million average target. And so I guess the implication is there's going to be a catch up. So I'm just trying to understand the factors that impact the cadence, whether it was being price conscious or were you in blackout through the quarter that we didn't see or maybe any other reasons trying to think about, again, kind of the cadence there.

Devin Ryan:

Got it. Okay. And just a follow-up here on net interest income in private clients. So that's been obviously very strong, and that came in better than we were looking for. And we see the decline in the kind of the Client Interest Program. And so if you're trying to think about the other drivers there, was the kind of continued strength there driven by margin and just higher margin rates? Or some of your peers had some sec lending that helped as well. So I'm curious if there was any kind of lumpy sec lending in there. Just trying to think about some of the moving parts that's keeping that really strong.

Operator:

And the next question comes from the line of Gerry O'Hara from Jefferies.

Paul Reilly:

Yes. If you look at -- I think almost everyone has offered enhanced yield programs today that are not new. We just haven't had a need for them because of the amount of the client cash we've had. And as that dwindles more and just even as a defensive mechanism, we will offer them. And that's the account. Whether people have people and money markets and on an insured product, which we have, or if people are thinking of moving their money, they have a competitive yield without moving their money into sweeps -- I mean, into money markets or fixed income products or things. So that's really a number of firms in the industry primarily than relying on that. We haven't because of the cost of funds. But as we've had it -- we're reaching an area where we've always said, "If we get to this area, we'll offer some of those products."

Paul Reilly:

Thank you. I mean for years, everybody said, "Well, we hear it's competitive." It's been competitive a long time. It continues to be competitive. I would say that the competitive environment is about the same. I said the only thing new in the last year is there are some third-party RIA aggregators that have paid more than the other firms competing for people in the adviser space. But we are at a very strong backlog.

Operator:

And the next question comes from the line of Manan Gosalia with Morgan Stanley.

Paul Shoukry:

I think the true answer is no one really knows. We -- that 5% number was based on that 2016 to '19 period. So we don't have a lot of -- as an industry, a lot of great historical benchmarking because, of course, even in that 2016 to '19 period, the Fed funds target topped out at 2.5%. And so arguably, client sensitivity around rate is heightened when you're at today's Fed fund target rate and the yields that you can earn on your investable cash balances.

Paul Reilly:

I don't think we tried to figure out what the bottoms are when we acquired -- when TriState joined us, and we talked about diversified funding, I think a lot of people said, "Well, why are you even bringing that up? You've got record cash deposits." Well, we always anticipate these time frames. And just in 2019, where we started -- ready to roll out some higher-yielding products because no one wanted cash, all of a sudden, we got flooded with cash again overnight. So we know these dynamics can change, and change rapidly.

Manan Gosalia:

Got it. Okay. Great. And then in terms of deposits, you noted you're allocating more deposits to the bank rather than a third-party bank program. So is there a specific loan-to-deposit ratio or liquidity level that you're thinking about maintaining at a bank? And how should we think about this going forward if cash hoarding continues at the same rate?

Paul Reilly:

Yes. We have plenty of capital and liquidity. So our first source is to fund the banks, that's our business. And then to the extent, the sweep is really a cash overflow in a lot of ways, but a good part of our business model. So right now, we're not alarmed. We still have flexibility. But at some point, we've known people that have gone up to 90% of cash or something. We just -- that's a little to leverage for us.

Alexander Blostein:

Apologies for a 2-parter, but it is related. So I'm hoping to just better understand the balance sheet strategy for you guys from here. So on the one hand, Paul, you talked about slowing loan growth in this environment. And then at the same time, you're talking about launching an enhanced yield product on the deposit side despite the fact that you have lots of liquidity in third-party bank deposit sweep still. So maybe help me understand how much of that $18 billion third-party bank is ultimately sweepable to your bank. How big the enhanced yield program you think ultimately will be for you guys over the next 12 months? And how are you thinking about the overall growth at the bank in terms of the growth in assets?

William Katz:

Also appreciate you moving back the conference call tonight. Just following up on sort of this last line of questioning. As you think about earning asset growth, a, can you grow that in an environment where there's sorting and mixed loan demand? And b, if it does grow, could you talk a little bit about the sort of decision-making between loan growth and the investment securities portfolio?

Paul Reilly:

So yes, let me go backwards into the question. And first, we like organic growth the best. It's been our focus because it's sustained, it's large, consistent, net new assets. Even when we're not doing acquisitions in the PCG space, we're still growing. And -- but we like acquisitions for the right targets, and we can't tell if and when those would happen. I think in the last few years, people doubted if we were serious, and then we closed 3 deals pretty quickly.

Operator:

And the next question comes from the line of Jim Mitchell with Seaport Capital (sic) [ Seaport Research Partners ].

Paul Shoukry:

Obviously, there's, Jim, a lot of variables that kind of go into that. But as we look into our fiscal second quarter, I mean, we're entering in with a spot rate of 3.5% for the bank's NIM -- for the Bank segment. And so that's before any additional benefit from further rate hikes potentially. And so -- and we have grown the bank's portfolio of 2%. Their assets have grown 2% sequentially.

Paul Reilly:

I think also is we'd have to really hustle on raising high-cost deposits, which could be significant enough to have a huge impact on that number in the shorter term. But obviously, if the cash dynamic and sorting continues, that will start impacting as we raise. So we'll just have to see how that goes.

Paul Shoukry:

Yes. Jim, I would tell you that the first quarter comparisons to the fourth quarter are always a little bit noisy just because in the fourth quarter, we're always trying to adjust the bonus and benefit accruals to reflect the actual results for the fiscal year, and then we sort of reset those accruals in the first quarter. So I think last year at this time, it was like an 11% increase in PCG admin comp as an example. .

Kyle Voigt:

[ Give you a ] question, just given the forward curve and market expectations now for the Fed to begin cutting by year-end 2023 and into 2024, I was wondering if you could help us think about deposit betas through a declining Fed funds environment. And I think during the last rate cycle, the adjustments on yields are the betas on the way down for the first few cuts in 2019, relatively high and help support the bank NIM. I guess is it fair to look back towards that last cycle as a good guide for how you would kind of match your deposit rates this cycle as well?

Paul Shoukry:

Yes, we actually do provide the line-by-line end-of-period loans in the supplement, so it's kind of buried in there. I know we provide a lot of materials, but there is some more detail there. But you are right, the SBL balances declined sequentially. And that was due to, frankly, a lot of repayments as the interest rates went up dramatically over the last 3 to 6 months on those lines.

Brennan Hawken:

I know you've touched on this a couple of times, but I'm still a little confused, and so I'd love to ask a follow-up. Paul -- sorry, Paul Shoukry, you speak about the liquidity in the balance sheet often, and we can certainly see your liquidity on the asset side. And so I guess I'm not 100% clear as to why -- what the impulse is to raise higher-cost funding through this enhanced yield program when you could simply allow for some of the assets to run off, especially the stuff that's easily replaceable like securities. So could you maybe clarify that for me?

Paul Shoukry:

Yes, so to your point, Brennan, we are kind of continuing to let the securities portfolio run off. A lot of that growth over the last 2 years is really accommodating client cash balances on the balance sheet. And so we really built that up well beyond our liquidity targets at Raymond James Bank.

Paul Reilly:

I don't know of other institutions that don't have CDs, enhanced wealth. They've been aggressively raising money. Because of our floating rate balance sheet and our unusually high liquidity in -- both on our balance sheet and client cash, we haven't had to, and that's been part of what's driven a lot of the earnings. So -- but we could assume that we'll have enough and it'll last forever or we can start the programs in case they continue to run off more than the industry expects, and we'll still be well funded. So the reason we're starting it is just in case. And if we need more, we'll accelerate it.

Paul Shoukry:

The only thing -- only other thing I would add is there's so much concern around mix shift as they -- understandably so, but it's not like the cash isn't moving. We have the best purchase money market fund platform in the industry, as far as I can tell. It's institutional share classes offered to any size client. And so it's not like the cash is moving to other higher-yielding destinations as it should, and the financial advisers help their clients with those type of decisions.

Brennan Hawken:

Yes. Sure. Sure. Totally get you on the substitutes being broadly available. And any sense of your expectations for magnitude of how big this program could be?

Steven Chubak:

I just had one final question on Capital Markets, and more specifically, the profitability or, I guess, lack thereof in the quarter. I recognize one quarter [ does not trend make ]. You did incur the pretax loss in the segment. What I wanted to better understand is given the lack of complex that we saw within the segment itself, how you're thinking about managing expenses and comp if you remain in a challenging investment banking backdrop?

Paul Reilly:

Yes, so I mean the Capital Markets have been difficult for everyone. And the -- part of -- there's a couple of factors. One, it didn't have a good quarter. But secondly, compared to a lot of other firms, we don't have any unallocated overhead. So there are other firms that certainly had lower results, but every penny of overhead is allocated to a segment, so you see a fully loaded P&L, and it's not the case in a lot of other firms, who if they had, might have a little bit of a different answer or a closer answer.

Operator:

And there are no further questions.

Kristie Waugh:

Good morning, everyone, and thank you for joining us. We appreciate your time and interest in Raymond James Financial. With us on the call today are Paul Reilly, Chair and Chief Executive Officer; and Paul Shoukry, Chief Financial Officer. The presentation being reviewed this morning is available on Raymond James’ Investor Relations website. Following the prepared remarks, the Operator will open the line for questions. Calling your attention to slide two, please note, certain statements made during this call may constitute forward-looking statements. These statements include, but are not limited to, information concerning future strategic objectives, business prospects, financial results, anticipated benefits of our acquisitions, our level of success in integrating acquired businesses, divestitures, anticipated results of litigation and regulatory developments, impacts of the COVID-19 pandemic or general economic conditions. In addition, words such as may, will, should, could, plans, intends, anticipates, expects, believes, estimates or continue or negative of such terms or other comparable terminology, as well as any other statements that necessarily depends on future events are intended to identify forward-looking statements. Please note there can be no assurance that actual results will not differ materially from those expressed in the forward-looking statements. We urge you to consider the risks described in our most recent Form 10-K and subsequent Forms 10-Q and Forms 8-K, which are available on our Investor Relations website. During today’s call, we will use certain non-GAAP financial measures to provide information pertinent to our management’s view of ongoing business performance. A reconciliation of these non-GAAP measures to the most comparable GAAP measures may be found in the schedules accompanying our press release and presentation. Now I am happy to turn the call over to Chair and CEO, Paul Reilly. Paul?

Paul Shoukry:

Thank you, Paul. Starting with consolidated revenues on slide 10, record quarterly net revenues of $2.83 billion grew 5% year-over-year and 4% sequentially. Asset management fees declined 6% compared to the prior year’s fiscal fourth quarter and 10% compared to the preceding quarter, in line with the guidance we provided on last quarter’s call based on fee-based assets. Equity markets declined further during the quarter, resulting in a 3% sequential decline in private client group assets and fee-based accounts. This decline will create a headwind for asset management and related administrative fees in the fiscal first quarter, which I expect to be down close to 4% sequentially in the fiscal first quarter of 2023. Brokerage revenues of $481 million declined 11% compared to the prior year’s fiscal fourth quarter and 6% compared to the preceding quarter, as lower activity and asset-based trail revenues in PCG, as well as decreased fixed income brokerage revenues more than offset the addition of SumRidge, which generated strong revenues in the quarter. As Paul touched on, we expect this to be a tough environment for our legacy fixed income business, as depository clients have quickly transitioned from having excess deposits to investment securities to experiencing deposit run-off as a result of the Fed’s actions. I will discuss account and service fees and net interest income shortly. Investment banking revenues of $217 million declined 3% compared to the preceding quarter, a solid result given the challenging and uncertain market environment and while our pipelines are strong, there remains a lot of uncertainty given the heightened market volatility that could impact investment banking revenues positively or negatively in the coming quarters. Therefore, our best guess right now is that we could achieve a similar level of average quarterly investment banking revenues in fiscal 2023 that we experienced over the last two quarters. Obviously, a lot of variables can and probably will impact that estimate, but that would result in a 20% decline in investment banking revenues in fiscal 2023. That would still represent a much higher level of investment banking revenues than we generated prior to the pandemic, as we have made significant investments to the platform over the past few years, which has significantly increased our productive capacity and market share. Other revenues of $80 million grew 167% sequentially, primarily due to higher affordable housing investment business revenues, which achieved record results in fiscal 2022. Moving to slide 11. Clients’ domestic cash sweep balances ended the quarter at $67.1 billion, down 12% compared to the preceding quarter and representing 7% of domestic PCG client assets. As of this week, these balances have declined to just under $64 billion, reflecting the quarterly fee payments, which were paid in October, as well as additional cash sorting activity during the month. When comparing trends across the industry, it is important to note that these cash sweep balances do not include high yield saving balances, nor do we have a money market sweeps option. So it is sometimes difficult to make apples-to-apples comparisons across the industry. Most of the decline in our sweep balances were experienced in the client interest program at the broker dealer, which was really the last-in, first-out destination of the excess deposits over the past couple of years. As we have been explaining for at least a year now, we anticipated a significant decline in these cash balances as the Fed started increasing short-term interest rates. So we kept the CIP balances invested in deposit accounts and short-term treasuries. The Raymond James Bank Deposit Suite Program continues to be a relatively low cost source of stable funding and now with the addition of TriState Capital Bank’s independent deposit franchise, we have a more diversified funding base. And while this additional funding source may not have seemed as valuable several months ago, I think, everyone now appreciates just how precious deposits are and the importance of having multiple funding sources. Turning to slide 12. Combined net interest income and RJBDP fees from third-party banks was $606 million, up 206% over the prior year’s fiscal fourth quarter and 64% from the preceding quarter. This strong growth reflects the immediate impact from higher short-term rates given the limited duration and high concentration of floating rate assets on our balance sheet. While it can sometimes seem appropriate to take more duration and bet on rates, our longstanding approach to maintain a high concentration of floating rate assets is proving to be a significant tailwind in this rising rate environment. You can see on the bottom portion of the slide, the bank segment’s net interest margin increases substantial 50 basis points sequentially to 2.91% for the quarter and that’s on top of the 40 basis point sequential increase in NIM in the preceding quarter. The average yield on RJBDP balances with third-party banks increased nearly 100 basis points to 1.85%. Both the NIM and average yield from third-party banks are expected to increase further with the anticipated rate increases. For the fiscal first quarter, factoring in an expected 75 basis point rate increase in November and some assumptions around deposit beta and other variables, we would expect the average yield on RJBDP from third-party banks for the fiscal first quarter of 2023 to be somewhere around 2.5% and the bank segment’s NIM to average around 3.15%. But these projections will, obviously, be impacted by the actual deposit beta we experienced. As we have done this cycle, we will continue to put clients first and focus on staying on the more generous end of the spectrum for our clients. So far, the cumulative deposit beta since the Fed started increasing rates in March has been around 25%, with the most recent increase in September having a deposit beta of about 35%, less than the 50% we expected, but still much more generous to clients than the vast majority of our competitors. Moving to consolidated expenses on slide 13, beginning with our largest expense, compensation. The total compensation ratio for the quarter was 62.1%, which decreased from 67.5% in the preceding quarter. The adjusted compensation ratio was 61.5% during the quarter. The sequential decline in the compensation ratio largely reflects a significant benefit from higher net interest income in RJBDP fees from third-party banks. Non-compensation expenses of $456 million, which includes $13 million of acquisition related expenses included in our non-GAAP earnings adjustments decreased 3% sequentially. This quarter reflected a full quarter of expenses from both TriState Capital and SumRidge Partners, which sequentially added just over $25 million of incremental non-compensation expenses, excluding the bank loan loss provision for credit losses. The bank loan loss provision for credit losses decreased to $34 million, primarily due to the $26 million initial provision associated with the TriState Capital acquisition in the fiscal third quarter. This quarter’s bank loan provision primarily reflects sequential loan growth along with a weaker macroeconomic outlook used in the CECL models. So, as you can see, we remain focused on the disciplined management of all compensation and non-compensation related expenses while still investing heavily in growth and ensuring high service levels for advisers and their clients. Slide 14 shows the pre-tax margin trend over the past five quarters. In the fiscal fourth quarter, we generated a pre-tax margin of 21.8% and an adjusted pre-tax margin of 22.8%, really excellent results. And just to get ahead of it, I know many of you will ask me, if we will update our 19% to 20% pre-tax margin target that we laid out at our Analyst and Investor Day in May since we exceeded it this quarter, while that is certainly a reasonable ask. Given the market uncertainty and ongoing cash sorting dynamic, we think it’s appropriate to wait at least a few more months to update all of our targets. But with that being said, I think our solid results this quarter highlight the benefit of our diversified business model, the upside we preserve to higher short-term interest rates and our consistent focus on being disciplined on expenses. On slide 15, at quarter end, total assets were $81 billion, a 6% sequential decrease, primarily reflecting the decline and the client interest program cash balances I mentioned earlier. Liquidity and capital remain very strong. RJF corporate cash at the parent ended the quarter at $1.9 billion, well above our $1.2 billion target. The Tier 1 leverage ratio of 10.3% and total capital ratio of 20.5% are both more than double the regulatory requirements to be well capitalized. The spot Tier 1 leverage ratio at the end of the quarter is actually closer to 10.5%. So our capital levels continue to provide significant flexibility to continue being opportunistic and invest in growth. The effective tax rate for the quarter increased to 28.7%, up from 27.5% in the preceding quarter, primarily due to non-deductible losses on the corporate-owned life insurance portfolio. Going forward, we still believe around 24% to 25% is an appropriate estimate to use in your models, but in rapidly declining equity markets, the effective tax rate increases as we experienced this quarter and last quarter and vice versa when equity markets increase. Slide 16 provides a summary of our capital actions over the past five quarters. Since the closing of the TriState acquisition on June 1st through October 26th, we have repurchased approximately 2.1 million common shares for $200 million or approximately $96 per share under our Board authorization. As of October 26, 2022, approximately $800 million remained available under the Board approved share repurchase authorization, which we typically revisit annually in the upcoming Board meeting. We remain committed to offset the share issuance associated with the acquisition of TriState, as well as share-based compensation dilution. Therefore, we expect to repurchase on average $250 million per quarter in fiscal 2023 or $1 billion total for the fiscal year. Of course, we will continue to closely monitor market conditions and other capital and cash needs as we plan for these repurchases over the coming quarters, but I do want to emphasize this $1 billion objective for fiscal 2023. Lastly, on slide 17, we provide key credit metrics for our bank segment, which now includes Raymond James Bank and TriState Capital Bank. The credit quality of the loan portfolio remains healthy, with most trends continuing to improve. Criticized loans as a percent of total loans held for investment ended the quarter at just 1.14%. The bank loan allowance for credit losses as a percentage of total loans held for investment ended the quarter at 0.91%, down from 1.27% at September 2021 and nearly flat sequentially. The year-over-year decline in the bank loan allowance for credit losses as a percentage of total loans held for investment largely reflects the higher proportion of security based loans boosted by the acquisition of TriState Capital Bank. Securities based loans, which account for approximately 35% of net loans are generally collateralized by marketable securities, and therefore, typically do not require an allowance for credit losses. If you look at the bank loan allowance for credit losses on corporate loans held for investment as a percentage of the total corporate loans, it was 1.73% at quarter end. Compared to most other banks, we believe this represents a healthy reserve, but we are continuing to closely monitor any impacts of inflation, supply chain constraints and a potential recession on our corporate loan portfolio. Now I will turn the call back over to Paul Reilly to discuss our outlook. Paul?

Operator:

Thank you very much. [Operator Instructions] I will proceed with our first question on the line from Manan Gosalia with Morgan Stanley. Go ahead.

Paul Reilly:

Good morning, Manan.

Paul Shoukry:

As you know, Manan, we do like to provide conservative guidance in that 3.15% admittedly is somewhat conservative. It’s only factoring in the November increase and the market is obviously expecting a December increase as well and so SOFR tends to lead those type of increases as we saw last quarter. So we had 50 basis points sequential increase two quarters ago in the NIM, 40 basis points this quarter and we are guiding 25 basis points, but certainly could be higher than that going forward. We were expecting deposit beta to -- as rates kind of continue to increase to get closer to 50%. On the last incremental increase for us, it was 35% and cumulatively, it was 25%, and we have been really leading most of the industry, focusing on clients and sharing and being generous with clients as the rates have increased. And so going forward, 50%, frankly, might be too conservative as well, just because of when you look at competitors were certainly well ahead of -- most of our competitors on the sweep rates.

Paul Reilly:

Yeah. I think absolutely. The demand is way up. And as you pointed out, if you look at almost all of our competitors, if you really looked at just what’s happened to cash sweeps there, we are all in the same ballpark. It’s just most of the other firms have gone into high yield savings to supplement their cash or the money market sweeps. So we haven’t done that. So we may. But to-date, we feel like we have ample low-cost funding with our sweeps. And we do see the demand going up, which will impact rates, and Paul, I will let you address the rate dynamic.

Manan Gosalia:

So it sounds like in terms of the fee rate, you could be well above the 2 percentage points or so that you peaked at during the prior cycle at the -- so if we compare the end of, if this rate hike cycle, should we expect a fee rate above the 2 percentage points that you saw last cycle?

Manan Gosalia:

Okay. Correct.

Manan Gosalia:

All right. Perfect. Thank you.

Gerry O'Hara:

Great. Thanks. Perhaps just a little bit of context or color on the adviser recruiting market. I know it’s obviously been another kind of challenging quarter from a volatility standpoint. So would just love to get a little bit of color as to what you are seeing industry-wide in terms of those dynamics?

Gerry O'Hara:

Fair enough. And then perhaps one for Paul Shoukry, can you maybe just comment a little bit, we obviously saw an increase from 2Q to 3Q on the non-comp side of expenses that actually came off a little bit in 4Q. But can you perhaps maybe help us think a little bit about how that kind of run rate might look going into the next couple of quarters?

Gerry O'Hara:

Okay. Great. Thanks for taking the questions.

Alex Blostein:

Hey, guys. Good morning. Thanks for the question. So maybe first just focusing on some of the bank dynamics. I guess if we look at the last cycle, bank NIM peaked at around 3.5% and not to pinpoint you to any specific quarter, but I guess, when you use them out a little bit and taking your conservative posture on the deposit betas, but it doesn’t sound like they are going up above 50%. If you think about TriState now in the mix, that’s more loan heavy, so obviously, higher yielding and the absolute level of rates is higher. So should we be thinking closer to 4% bank NIM once the Fed is done or how are you thinking about that sort of run rate on the other end of that cycle?

Alex Blostein:

Got it. All right. Fair enough. Just staying on the balance sheet theme for a minute, you guys, obviously, had the right call on not extending duration a year or two ago and keeping the balance sheet fairly floating. But if you look at what’s going on today, security yields are quite attractive and maybe there’s a little bit more upside. But that’s a fairly good return on invested capital as you kind of look at what the market rates are today. What are your thoughts about building securities portfolio from here, maybe extending duration a little bit, just to lock in what looks like a pretty attractive rates of return?

Paul Shoukry:

Yeah. I think kind of looking forward, we really built up the securities portfolio in the last couple of years, as there’s no -- there’s very little third-party bank demand. So we kind of brought it onto the balance sheet as an accommodation. But now with the cash sorting dynamics with loan growth being solid, we would expect some of that buildup in securities to really run-off over the next year to fund that loan growth that Paul talked about and some of that loan growth has duration as well. I mean, so you saw the mortgage portfolio grew sequentially during the quarter pretty nicely. There’s duration, obviously, associated with that portfolio that gives us that same type of protection. But to the extent that we take duration, our preference has been to take it to support client relationships. And to the extent that we have excess kind of cash beyond the loan growth and we would certainly invest in securities because it is a good return. As is the cash we sweep off to third-party banks as well. So right now we have a lot of different options and that’s just the power of the flexibility that we have with the cash balances and the flexibility that we preserve frankly through the last couple of years.

Paul Reilly:

Yes. It was over 20.

Alex Blostein:

Okay.

Steven Chubak:

Hi. Good morning.

Paul Reilly:

Hi, Steve.

Paul Reilly:

Yeah. You can see the dynamic. Our -- we have a great fixed income franchise, but really in that banking space that’s very, very strong and they are focused on the same dynamics the whole industry is. So as cash tightens they are going to fund loans first and security second just like us. So, yeah, that could have pressure. Now there’s other parts of the business, but it will certainly have pressure on that run rate, if it gets tighter. And again, on the other hand, SumRidge is -- maybe timing is everything, but this is kind of the perfect market for them to perform. They are just really killing it right now, but they are -- everything is in their favor, but everything is a headwind for that banking part of the franchise that we are so good at. So it could come under more pressure also.

Paul Reilly:

Well, where we have been even with our advisers and associates, we paid them what we think is fairly on their production and we haven’t paid on interest. Now when interest went away, we didn’t change their payouts and comp, obviously, it affects management’s comp. So our plan right now is that interest rates will continue to be non-compensable and so certainly impacts some of the bank comp. But generally, to the extent there’s more interest spread, margin comp will go down to the extent that normalizes or goes the other way, the ratio will go up. But there’s no change fundamentally in how we are paying based on it. So, again, interest spreads will drive it down for a period of time. I think spreads right now are like in any cycle, probably outsized for I don’t know if they are out how long that stays a year or two years, quarter, but it will return but where our comp philosophy is the same. So you should see improvement spreads -- as interest spreads improve.

Steven Chubak:

Okay. And anything on the admin cost side that we need to be mindful of, I do think the admin comp was running a little bit higher than we had anticipated or at least based on what some of the napkin math would suggest when you try to back out some of the non-compensable portions of revenue?

Steven Chubak:

Helpful color. Thanks for taking my questions.

Jim Mitchell:

Hello. Can you hear me?

Jim Mitchell:

Okay. Sorry. So deposits are down to about 6% of client assets based on sort of the guidance for October, client cash I should say. Can you remind us of the historical average for cash levels, maybe a low and high range, just trying to think through where that starts to bottom out?

Jim Mitchell:

Right. And is there a point where you have to more aggressively defend cash balances and deposits to fund the balance sheet?

Jim Mitchell:

Great. Thanks.

Devin Ryan:

Hey. Good morning, guys. How are you?

Paul Shoukry:

Devin.

Paul Reilly:

There probably always is.

Paul Reilly:

So part of what we are doing is we are going through our budgeting exercises to say where do we want to deploy capital. We have got with the banking business, a broader bank business. TriState is an independent business with its third-party platforms. And the question is, between that and Raymond James Bank, where do you allocate capital in the portfolio really to optimize, not partly the balance sheet from our standpoint, but really to allow freedom, for example, for TriState to service their customers. So we are going through that to make sure that the capital allocations make sense both for those businesses and for us. So there always is in periods of rapid transition right now, it’s a little bit harder to do it, but we are in a lot of discussion on it.

Devin Ryan:

Yeah. Okay. Thanks, Paul. And then a follow-up here just want to talk a little bit about the investment banking outlook. Appreciate there’s always a little bit of crystal ball in there and you guys are going to, I think, conservatism just given the uncertainty in the market. But I just want to make sure I understand how you are thinking about it. You have equity issuance is going to be market centric, but market stabilize that probably would improve and then your M&A business is structurally larger. So all else equal, that the business trajectory over time is higher than fixed income, it feels like maybe it could remain a bit under pressure if rates remain higher. So just trying to think about how much of maybe there’s more muted near-term outlook is just purely market centric versus maybe the flip side would be maybe every business doesn’t snap back to where it was over the last year or two, because rates are higher, or there are some other structural dynamic in the markets just changed. So I just want to kind of parse through both the cyclical versus anything that maybe a little bit more impaired for a continued period?

Devin Ryan:

Okay. All right. Thanks very much.

Kyle Voigt:

Hi. Good morning. So just given the level of sorting right now and the pressure that may put on total available funding as you look out a couple of years, just completely understand the cautiousness and the tone around the size of the AFS book and maybe letting some of that runoff in order to support loan growth. So just two follow-ups on that, was what is the current duration of the AFS portfolio and how much of that portfolio would run off per year if you didn’t reinvest at all in the portfolio? And can you also remind us, are there specific minimums that you need to hold in terms of the CIP and the third-party bank sweep just so we have that as the sorting process continues here?

Kyle Voigt:

And so is there -- it is -- I guess, given your client’s allocation and then you have a certain number of charters that you can provide FDIC insurance with yourself. So is there a certain amount of minimum there, I guess, on the third-party bank side, is it a few billion dollars that needs to be held there or is it some number that’s smaller than that?

Kyle Voigt:

Understood. That’s really helpful. And I just have one follow-up related to administrative comp. I think on last quarter’s call, you mentioned there was an off-cycle bonus paid in the fiscal third quarter, which caused the PCG segment admin comp to be elevated. But we saw another $15 million sequential increase in that PCG admin comp line in the fiscal fourth quarter. So just wondering what drove that and how much of that is one-time in nature, if at all?

Kyle Voigt:

Okay. Understood. Thank you.

Michael Kelly:

Good morning. This is Michael Kelly on for Bill. Thank you for taking my question. Most questions have been asked, but I did have one follow-up on the loan mix, Paul and Paul. Are you seeing any shift in demand for the SBLs, it looks like on an end-of-period basis they dipped a little bit. The resi was pretty resilient. But are you seeing any shift in demand with higher interest rate environment that we should be worried about near-term? I understand your long-term outlook is quite positive for the balance sheet?

Michael Kelly:

Great. Thanks. And then if I just had one more follow-up, as a percentage of AUA, you still are -- the SBLs as a percentage of AUA behind some of your wirehouse peers, do you see that gap closing over time?

Michael Kelly:

Great. Thank you. Make sense.

Paul Reilly:

Well, great. I appreciate everybody being on the call and although a very strong end of the year, it’s an environment outside of the equity markets and interest rates and cash sorting and everything else, that’s hard to call. We are still -- that’s when we really appreciate the flexibility we have in the balance sheet and our capital base and everything else to be able to navigate. So optimistic about the future, don’t know what’s going to happen as you get GDP and you get people still raising rates and inflation, it’s going to be an interesting quarter, a couple of quarters, but that’s when you can see that our advisers are still 90 -- clients say 97% satisfied, with our advisers is a pretty high rate and they need them more now than ever. So, with that, appreciate your time and we will talk to you soon.

Kristie Waugh:

Good morning, everyone. And thank you for joining us. We appreciate your time and interest in Raymond James Financial. With us on the call today are Paul Reilly, Chair and Chief Executive Officer and Paul Shoukry, Chief Financial Officer. The presentation being reviewed this morning is available on Raymond James Investor Relations website. Following the prepared remarks the operator will open the line for questions. Calling your attention to slide two. Please note certain statements made during this call may constitute forward-looking statements. These statements include but are not limited to information concerning future strategic objectives, business prospects, financial results, anticipated timing and benefits of our acquisition, our level of success and integrating acquired businesses, divestitures anticipated results of litigation and regulatory developments, impacts of the COVID-19 pandemic or general economic conditions. In addition, words such as may, will, should, could, plans, intends, anticipates, expects, or believes or negative of such terms or other comparable terminology, as well as any other statement necessarily depends on future events are intended to identify forward looking statements. Please note that there can be no assurance that actual results will not differ materially from those expressed in the forward looking statements. We urge you to consider the risks described in our most recent Form 10-K and subsequent Forms 10-Q and Forms 8-K, which are available on our Investor Relations website. During today’s call, we will also use certain non-GAAP financial measures to provide information pertinent to our management’s view of ongoing business performance. A reconciliation of these non-GAAP measures to the most comparable GAAP measures may be found in the schedules accompanying our press release and presentation. Now, I’m happy to turn the call over to Chair and CEO, Paul Reilly. Paul?

Paul Shoukry:

Thank you, Paul. Starting with consolidated revenues on slide 10. Quarterly net revenues of $2.72 billion grew 10% year-over-year and 2% sequentially. As a management fees grew 13% over the prior year's fiscal third quarter, and declined 3% compared to the preceding quarter in line with the guidance we provided on last quarter’s call. As a result of the steep declines in the equity markets during the quarter, private client group assets and fee base accounts ended the fiscal third quarter down 11% compared to March 2022, creating a significant headwind for asset management revenues in the fiscal fourth quarter. Brokerage revenues of $513 million declined 7% compared to the prior year's fiscal third quarter and 9% compared to the preceding quarter. The decline in brokerage revenues was largely due to lower asset based trail revenues in the private client group, as well as decreased brokerage revenues in the capital market segment. I know some other financial services firms posted year-over-year increases in institutional fixed income brokerage revenues. But remember, we intentionally do not have a meaningful presence in a much more volatile interest rate commodities and currency trading businesses, which benefited many of those larger firms this quarter. I'll discuss accounting service fees and net interest income shortly. Investment banking revenues of $223 million declined 5% compared to the preceding quarter. While our pipelines are strong, there's a lot of uncertainty given the heightened market volatility. Given the market environment, we are really pleased with the investment banking results this quarter. And our best guess right now is that we could achieve a similar result in the fiscal fourth quarter if the markets remained relatively resilient over the next couple of months. Moving to slide 11 clients domestic cash sweep balances ended the quarter at $75.8 billion down 1% compared to the preceding quarter and representing 7.8% of domestic PCG client assets. As of this week, these balances have declined to approximately $73 billion, reflecting the quarterly fee payments, which were paid in July, and comprise of roughly half the decline this month, as well as some continued cash shorting activity during the month. Turning to slide 12. Combined net interest income and RJBDP fees from third party banks was $370 million, up an astounding 102% over the prior year’s fiscal third quarter and 65% from the preceding quarter. This revenue growth is largely a result of higher loan balances in the bank segment as well as higher short term interest rates which really reinforces our long standing approach of taking limited duration risk with a high concentration of floating rate assets. You can see on the bottom left portion of the slide, the bank segments net interest margin increases substantial 40 basis points sequentially to 2.41% for the quarter. The average yield and RJBDP balances with third party banks increased at 88 basis points in the quarter. Both the name and the average yield from third party banks are expected to increase further from the recent and anticipated rate increases. For the fiscal fourth quarter, factoring in the rate increase this week, and some assumptions around deposit beta and other variables, we would expect the average yield on RJBDP from third party banks for the fiscal fourth quarter to average around 1.7%. As for the bank segments in them, we expected to average around 2.7% for the fiscal fourth quarter, which would reflect around two months of this week’s interest rate increase and a full quarter of Tristate capital’s contribution. But these projections will obviously be impacted by the actual deposit beta we experience. We will continue to put clients first and focus on staying on the more generous end of the spectrum for our clients. So far, our cumulative deposit beta since the Fed started increasing rates in March has been around 20%. But that has accelerated with each subsequent increase to about 30% with the June increase. We would expect the deposit beta to continue increasing with each incremental rate increase. Moving to consolidated expenses on slide 13. Let me point out a significant change we made this quarter to our presentation of expenses. Namely, we eliminated the acquisition related expense line item and now are including all the expenses in their respective line items. At the same time, we are now capturing more acquisition related expenses in our non-GAAP adjustments including items such as amortization of acquired identified intangible assets, acquisition related retention, and a bank loan provision item I will discuss in more detail shortly. For example, this quarter $65 million of expenses related to acquisitions are included in the non-GAAP adjustments. As detailed on the reconciliation table on slide 21, which provides the amount of associated expense per line item as well as a five quarter history. We hope these refinements which I know have been very common across many of our peers are responsive to many of your requests and help you gain a better understanding of our operating results. And as always, we will emphasize our GAAP results alongside any adjusted results we disclose. So turning to our largest expense, compensation. The total compensation ratio for the quarter was 67.5%, which decreased from 69.3% in the preceding quarter. We also introduced an adjusted total compensation ratio this quarter, which adjusts for acquisition related retention and compensation as outlined on slide 23. The adjusted compensation ratio was 66.8% during the quarter. The sequential decline in the compensation ratio largely reflects the benefit from higher net interest income and RJBDP fees from third party banks. Non-compensation expenses of $469 million which includes $47 million of acquisition related expenses included in our non-GAAP earnings adjustments, increased 21% sequentially. Business development expenses increased $58 million, reflecting the advisor recognition events, and conferences, as well as increased, pent up travel during the quarter. To put this in perspective, prior to COVID the fiscal third quarter was typically the high watermark for this line item, and in the fiscal third quarters of both 2018 and 2019 this line item totaled $57 million. And since then, our business and revenues have grown substantially, including through several acquisitions. The bank loan provision for credit losses increased considerably to $56 million. A big portion of this increase was a $26 million initial provision associated with Tristate capital acquisition, where purchase accounting requires us to establish an initial allowance for loan losses associated with the acquired loans as the pre-closing allowance does not transfer over. To help you with comparability to prior periods we did adjust for this portion of the bank loan provision in our non-GAAP results. The remaining portion of the bank loan provision during the quarter, around $30 million was primarily associated with an 8% sequential loan growth at Raymond James bank, and a weaker macro economic outlook. Other expenses increased to $85 million for the quarter. The majority of the sequential increase was attributable to increased expenses associated with acquisitions during the quarter which are included in the non-GAAP adjustments. So I know there's been a lot of noise over the past couple of quarters with the Charles Stanley and Tristate capital acquisitions. But the main takeaway on expenses is we remain focused on the discipline manage of all compensation, and non-compensation related expenses while still investing heavily in growth and ensuring high service levels for advisors in their clients. Slide 14 shows pre-tax margin trend over the past five quarters. In the fiscal third quarter, we generated a pre-tax margin of 15.3% and then adjusted pre-tax margin of 17.7%. While the market environment has certainly become more challenging since our analysts and investment day in May, we still believe the 19% to 20% pre-tax margin target we laid out is appropriate given the significant benefits of higher short term interest rates, assuming the market stays relatively resilient at current levels. On slide 15, at the end of the quarter, total assets were at $86.1 billion an 18% sequential increase, reflecting the addition of Tristate capital, as well as solid growth of loans at Raymond James bank. Liquidity and capital remain very strong. RJF corporate cash at the apparent end of the quarter at $2 billion well above the $1.2 billion target. The tier one leverage ratio of 10.8% and the total capital ratio of 21.4% are both more than double the regulatory requirements to be well capitalized, providing significant flexibility to continue being opportunistic and invest in growth. Also, I would note that the tier one leverage ratio includes just one month of Tristate capital assets, and doesn't yet reflect the assets from SumRidge, which closed on July 1. So the spot tier one leverage ratio following the SumRidge acquisition is below 10% still well above the 5% regulatory requirement. And as I said, on the last quarter's call, we don't view the client cash we accommodating on the balance sheet at the broker dealer and the client interest program, which ended the quarter at $13.7 billion the same as our other balance sheet assets. So we still have ample balance sheet flexibility after adjusting for those excess cash balances on the balance sheet. I am very pleased with the progress we have made deploying capital over the past two years since we first disclosed our capital targets, really reinforcing our priority to utilize capital to invest in long term growth across all of our businesses and deliver attractive returns to our shareholders. The effective tax rate for the quarter increased to 27.5%, up from 25.4% in the preceding quarter, primarily due to higher non-deductible losses on the corporate owned life insurance portfolio. Slide 16 provides a summary of our capital actions over the past five quarters. Following the closing of the Tristate acquisition on June 1, we began repurchase common shares under our board authorization. We repurchased approximately 1.14 million common shares for $100 million, or approximately $88 per share. As of July 27, 2022, approximately $900 million remained available under the board approved share repurchase authorization. As we explained on prior calls and analysts investor day in May, our current plan is to offset the share issuance associated with the acquisition of Tristate over the next few quarters. And I believe our action in June demonstrates this commitment. But we will continue to closely monitor market conditions and other capital needs as we evaluate further repurchases over the coming quarters. Lastly, on slide 17, we provide key credit metrics for our bank segments and remember, these metrics reflect our newly formed bank segments, which includes Raymond James bank and Tristate capital bank. The credit quality of the loan portfolio remain strong, and most trends continue to improve. Criticize loans as a percent of total loans held for investment ended the quarter at 1.63%, down from 4.07%, at June 2021, and 2.63% at March, 2022. Now I'll turn the call back over to Paul Riley to discuss our outlook. Paul.

Operator:

Thank you. [Operator Instructions] The first question comes from Gerry O’Hara of Jefferies. Please go ahead.

Paul Reilly:

Thanks, Jerry. Good morning. Actually, the cash balances in the quarter stayed relatively resilient as you saw only down about 1% for the quarter. Now in the month of July we have seen a decline in client cash balances were at about $73 billion now, almost half of that was from the quarterly fee billings, which all come out in the first month of the quarter. And then the other portion kind of reflects the cash sorting that we've been expecting for quite some time now as rates start to increase. And just to put into context, just a year ago, we were at $63 billion of total client cash balances, which were elevated from the pre-COVID days. So I don't think it should be surprising to see some cash shorting as rates increase going forward.

Paul Shoukry:

Certainly. Business development expenses were much higher this quarter. Last quarter, seems like an eternity, but we were still dealing with Omicron. So people really weren't traveling at the beginning of the quarter. This quarter, we have our biggest advisor conference for the independent adviser business. So we -- that and this is a quarter we've had it historically, even pre-COVID, which is why it usually is the high watermark quarter and people are starting to travel again. There is a lot of pent up travel out there. People wanting to see each other in person again. So I think when you look at just stepping back and looking at non-compensation expense in the aggregate, on a GAAP basis, it ended up $469 million for the quarter. Now about $47 million of that were non-GAAP adjustments related to acquisitions. So that gets us down to on an adjusted basis for non-GAAP, a non compensation expenses, about $422 million. We still have two more months of Tristate capital to reflect there. So that's about $10 million, if you look at their $15 million run rate, but some of the expenses this quarter were elevated. So maybe a good sort of jumping off point plus or minus a few million dollars as we look at the next couple of quarters.

Gerry O’Hara:

Understood. Thanks for taking my questions this morning.

Paul Shoukry:

Thank you.

Unidentified Analyst:

Hey guys, this is Michael on for Alex. So I think we kind of want an update on the timing and size of how you're thinking about swapping TSEs deposits with [RJBDS] deposits. Any updated color you can give us would be great. Thanks.

Paul Shoukry:

Thank you. think you've covered it very well, Paul, and we've already supplemented their deposit base with about a billion dollars of our deposits and we have plans to supplement with another billion. But as Paul said, they're running an independent business, they have their clients. We want to certainly honor those their relationships with their clients. And frankly, over the next few years, those deposits in those diversified funding sources could be very valuable to us as an organization overall. So we're not focused on the short term accretion of a standalone business. We're really focused on maximizing flexibility in earnings for the organization overall.

Paul Reilly:

I'd say the trend is that way, right? So we could change based on where we can deploy the cash and what they need. But so far we're on the kind of the plan.

Paul Shoukry:

I mean, we gave you kind of the biggest component with the NIM average, for the quarter for the fiscal fourth quarter. We're expecting it to be about 2.7%, which would be almost 30 basis points higher than the 2.4%, that it averaged this particular quarter. So and we've had some nice growth and earning assets, both from Raymond James bank on a standalone basis, which grew 8% sequentially. And then of course, adding on Tristate. So I think those kind of gives you the main inputs to calculating net interest income, and then the BDP fees, which are substantial as well, they average 88 basis points this quarter. The cash had swept over to third party banks. And we said that with the rate increase that was announced yesterday, and some assumptions around deposit beta, that we expect that to increase to 1.7% on average for next quarter. So really significant tailwinds coming from net interest income, and RJBDP fees from third party banks. And I think the important thing is here is we've been criticized for quite some time for not taking more duration. I know a lot of our peers have done that. But our long standing approach of staying flexible and not trying to time, the rates, the markets and the bond curves is going to serve us very well in this rising rate environment.

Operator:

Thank you. The next question comes from Steven Chubak of Wolfe Research. Please go ahead.

Paul Reilly:

Yes, Stephen, you remember this well, because you're very close to it. 2015 we had no securities at all on the bank's balance sheet. And so we do, we have been more balanced and diversified in that regard. And I think we plan on continuing to be more balanced and diversified. But almost all of our deposits are floating rate deposits. So to take on much more duration would essentially be making a bet between and a mismatch between the assets and the deposits. So our focus is to your point be more diversified. And we are much more diversified than we were just five or six years ago with our securities portfolio. And we also have jumbo mortgages on the balance sheet that has some duration to it, tax exempt loans, etc. But we will I think you should expect us to continue to be exposed, more exposed to the short end of the curve, just given the nature of our deposit base, which is floating.

Paul Reilly:

Yes, I just think that, look, we knew a bunch of rate increases were coming, right. So and a lot of people you can take to a process, you can maximize your return. But our belief when everybody was talking about how much cash and there was too much cash is that as businesses grew and rates went up and you can see what's happened in the public markets where people haven't had access, there would be more demand for cash. And we're seeing that in the bank suite program, even the biggest banks coming back into the bank suite program, which tells you, everyone's looking to liquidity. So our view was, we could be more aggressive. We'd have chances on further increases to modify or not to be as aggressive if we could see a cooling down or going the other way but as to make sure that we first treated clients fairly, but we did a good job of retaining cash balances. And then we've lived through cycles when cash was really tight in the industry. And some people are already putting out high yield savings and other CDs and deposits to fund now, right. So they're sweetbreads may be lower, but they're also adding higher cost deposits. So we're just trying to look long term on it. Take care of clients. And yet we know in a rising rates that they keep rising, we always had time to adjust. So Paul, I don't know if you want to comment on changing beta or not. It's hard to hard to tell until we have a rate setting committee. It'll certainly be what it was, at least historically, and maybe a little higher.

Steven Chubak:

Thanks, Paul and Paul, appreciate you taking my questions.

Operator:

Thank you. The next question comes from Kyle Voigt, KBW. Please go ahead.

Paul Reilly:

Yes. So that was actually a good catch. Because what we haven't specifically drawn out in the numbers is that we've all been concerned about our associates and the impact of inflation in this environment. And a number of firms have done kind of across the board comp adjustments are common across the board salary adjustments, and we decided to take a different course, which we did this quarter is to give really just a off cycle bonus to our lower paying associates to help them cope with the inflationary costs of gasoline, housing, and everything else and not do an automatic salary adjustment really for two reasons is salaries are forever. But more importantly, is we wanted to do it thoughtfully across all of our associates in our year end process, which is actually a number of months is to make sure that people are rewarded accordingly and that the salaries are benchmarked to market and instead of just doing a raise now that it's hard to do an unraised for those who should know. We gave kind of a onetime bonus and that really hit the segment. But it really is taking care of our associates doing an unbelievable job. We've been great. Our turnover certainly been up but it's been lower than the industry. They've been doing a good job for us. And we felt we owed them to do this, which should take them to the year end until we get to our normal cycle adjustments. Paul, I don't know if you want to go through any more in terms of numbers or anything else. But that was the biggest impact of that number.

Paul Shoukry:

Total for the firm is about just under $15 million for the firm and PCG takes the majority of it just because they're by far the largest business and have the most associates.

Paul Reilly:

First, strategically we've set up and really bolstered our RIA offering just because it was and it has been the fastest growing segment in the industry. And the good news is when people have switched to RIA they haven't gone to any of our custodian, competitors. They've most, almost virtually 100% of stayed at Raymond James. So it's been a good retention tool. This was really one big firm whose business model has changed. We know what's coming. We are planning on it for a year. The good news is again, they stay with Raymond James, their assets are custodial with us. But in the RA model, they're not FINRA licensed in a way we count advisors are producing advisors who have a FINRA license, but once they go into the RA space, we can't count that anymore. So if you look at it, since really, a year and a half, it's been about 250 advisors, there was a big group that moved at the end of the year, relatively big, but it's usually three or four advisors a quarter. And this was a one off movement that really focused on kind of a changing business strategy for them. So I think it was, it's not certainly business as usual. It's one of the largest firms on the platform that went RIA and we don't see people will continue to move, but it's not a different than the movement between the rest of our channels.

Jim Mitchell:

Hey, good morning. Paul, maybe just on the Tristate deal now that it's closed. I think since you announced the deal, obviously, rates are a lot higher. You've had looks like better longer out the Tri state. So is there any way to think can you least give us maybe a sense of accretion benefits? Is it more than you expected? And is the timing sooner? Is that the way to think about it? If there's any kind of greater specificity that would be helpful?

Jim Mitchell:

But I guess it sounds like, go ahead.

Jim Mitchell:

So it sounds like you're saying there's not a lot of there's no real negative surprises on the expense side or anything that the upside and revenues is falling to the bottom line?

Jim Mitchell:

Okay. And then on the buyback, is that you said a few quarters is that the right pace that you think you can do say? The next three or four quarters you can kind of offset the dilution or the issuance?

Jim Mitchell:

Sure, but I think the plan is around your timeframe. But again deploying capital, if you had big bank growth that was very profitable, you had an acquisition, you had something else, you could redeploy some of that capital, but the plan right now is, and there's no plans on any of that right now. But I mean, the plan would be to kind of stick to that course. But we'll watch it if the economy really turns down sharply that you may slow it down. I think everything being equal, that's the plan. Right. Makes sense. Thank you.

Devin Ryan:

Hey, good morning, guys. How are you?

Paul Shoukry:

Hey Devin.

Paul Reilly:

Devin, I think that first, it's always been competitive. If you'd look at our kind of our record growth it's probably not all, it's not really just an advisor count. But it's the size of the businesses that are been joining our platform, very, very large teams, ones just a few years ago, we would never see and I really, it's kind of a testament to the platform that was built in the high net worth and ultra high net worth space. And I think when Alex Brown joined us, they brought kind of a lot of knowledge and focus to us on building the platform for the entire firm. So the recruiting is going very well. It goes in cycles, the independent channel was kind of on fire, the employee channels been the one this year that's doing really, really well. And I think that's more the sign of the economy is where people are joining and the risk they're taking, we have not seen a slowdown, we thought we would see more people typically when advisors commit in the pipeline. It'll slip. We thought we'd see a lot more slippage. And we haven't really maybe a little more. So advisors are still coming. Once they make that decision, we rarely see them decide not to leave their firm. So the pace is still very, very good. It's competitive, it's always been competitive. We always seem to have in certain spaces, certain competitors, really jumped out in the market. But I think we pay a fair transition assistance. And I can't say it's the highest in the market. But we compete very well because of the value proposition. So, so far, so good. It's been if we had any concerns about it, it still looks very, very solid right now.

Paul Reilly:

I think it's almost the latter than the former. I think that strengthening the platform by offering those services, it makes the platform more attractive and people easier to transition. The uptake on the services has been much better than we thought. Even existing advisors who have big businesses, whether they're having like everyone's the war on talent, or someone gets sick, and like has to be out of the office or we're finding an uptake of those services and they're very, very happy with it. So we're in the early scaling days, and I doubt it's going to be a line item, like brokerage revenue, but it's going to be something that certainly is going to positively impact the margins for those businesses. And so it's early. We're still scaling on but so far, it's very, very good. But we're just a few quarters really into it. But the reception even of existing advisors is higher than we thought.

Operator:

Thank you. And our final question comes from Manan Gosalia of Morgan Stanley. Please go ahead.

Paul Shoukry:

Great question Manan. We can be very flexible with the deposits to your point. The CIP balances on the balance sheet are really overflow balances for when we weren't able to sweep the third party banks because they didn't have the demand. And so as that demand picks up, which it has been picking up, still early days, but we're definitely seeing a change in tone even from the big banks who historically have not been as eager to get those type of deposits. We're starting to see significant demand from those banks as well. So as we start seeing those, that demand pickup, we wouldn't be able to sweep more from CIP to those third party banks, all else being equal. So but we do have a lot of flexibility. It's great to see the demand come back. We knew the demand would eventually come back. And so that's why we wanted to stay flexible with those deposits.

Paul Shoukry:

Yes, absolutely. I mean, the $25 billion, that's what third party banks now and the $14 billion that's with client interest programs and that has declined somewhat since the beginning of July as I said in the comments, but those deposits over time can be a good portion of a very large portion of those deposits over time could be used to fund the balance sheet growth to the extent that we find good risk adjusted returns on the balance sheet and to the extent that we can grow loans to our private client, group clients, etc. So yes, but again, we have a lot of flexibility and a lot of capacity.

Paul Reilly:

Well, first it's a good question. If you look at what's going to happen in rising rates, I think that it's still a cheaper source of borrowing for most clients. So we anticipate that rates get higher and higher and higher maybe people don't borrow but in this environment, it's still a very effective way of low cost way to borrow. From our standpoint we love two things about SPL one is the liquidity because it's callable. Secondly, it's very secured, and it's low risk, and it has, frankly, the best spreads right now but also it supports clients. So we continue to focus on that segment, we can speed up any part of the loan segment, we've done it before, I think we're one of the few banks that sold by COVID loans to reduce risk on the balance sheet. And there are times we have taken different parts of the portfolio and slowed it down for a while. Most of the portfolio even CNI as a very liquid portion and the term B loans, and so we do manage the balance sheet. So we're very happy that SPL loans are in demand and growing and we plan to support that and we'll look at the relative contribution of each item depending on where we see the risk return tradeoffs long term in the market. If we're offering, the market starts offering risky credit only, then you slow down that segment. So the TriState markets very different from our certainly. Our markets, internal their markets external to other firms. And so those are very separate, run separately, but we'd like the SPL loans in both categories, and both banks and have the capital and the cash, the funding too which is important. We have a lot of flexibility and funding.