Kristina Waugh welcomes listeners to the Raymond James Financial's Fourth Quarter and Fiscal 2023 Earnings Call. She introduces the speakers, Paul Reilly (CEO) and Paul Shoukry (CFO), and mentions that the call is being recorded and will be available for replay. She also mentions that the presentation being reviewed is available on the company's Investor Relations website. Kristina cautions listeners that certain statements made during the call may constitute forward-looking statements and urges them to consider the risks outlined in the company's recent financial reports. She also notes that non-GAAP financial measures will be used during the call to provide information on ongoing business performance.

In the second paragraph, the speaker discusses the reconciliation of non-GAAP measures to GAAP measures and introduces the Chair and CEO, Paul Reilly. Reilly then discusses the company's recent success and their core values, which have helped them achieve record net revenues and earnings for the third consecutive year. He also mentions the challenging environment they faced and their dedication to putting clients first and acting with integrity. The speaker then reviews the company's fourth quarter results, highlighting record net revenues and net income available to common shareholders. They also mention that asset management and interest-related revenues were the main drivers of revenue growth.

The quarterly results for the company were negatively impacted by legal and regulatory provisions, resulting in a decrease in earnings per share. However, the company still had strong returns and saw growth in client assets through organic growth and market appreciation. The company's focus on retaining and attracting high-quality financial advisors contributed to their strong organic growth and low attrition rates. In addition, they recruited financial advisors with significant production and client assets from other firms, and their RIA and custody services business also had a strong year. Overall, the company experienced a 7.7% annual growth rate in net new assets.

In the fourth quarter, the total domestic sweep and Enhanced Savings Program balances decreased by 3%, while total bank loans increased by 1%. The Private Client Group had record results with net revenues of $2.27 billion and pre-tax income of $477 million, driven by strong asset-based revenues and higher interest rates. The Capital Markets segment had a pre-tax loss of $7 million due to lower fixed income brokerage and investment banking revenues, but saw a sequential improvement in M&A and advisory revenues. The Asset Management segment had pre-tax income of $100 million on net revenues of $236 million.

The increase in net revenue and pre-tax income in the fourth quarter was mainly due to higher assets in PCG fee-based accounts and strong net flows in Raymond James Investment Management. The Bank segment also saw a decline in NIM due to a higher cost mix of deposits, but this was offset by higher RJBDP third-party bank fees. In fiscal 2023, the company achieved record net revenues and net income, with strong returns on equity. The growth was driven by the Private Client Group, the integration of TriState Capital, and higher interest rates.

In the fourth quarter, the company's net revenues reached a record high of $3.05 billion, an 8% increase from the previous year. This was primarily due to growth in asset management and administrative fees, offsetting weaker results in investment banking and fixed income brokerage. While there is potential for improvement in the investment banking sector, uncertainty in the market may impact results in the next fiscal quarter.

In the third quarter, other revenues decreased by 33% due to lower revenues from affordable housing investments. The company's domestic cash sweep and enhanced savings program balances decreased by 3% and represented 5.1% of domestic PCG client assets. The Enhanced Savings Program saw growth in deposits, with a large portion of the cash coming from new clients. However, the pace of flows has slowed down as many eligible clients have already taken advantage of the program. The company expects the cash sorting dynamic to end soon, but until interest rates stabilize, clients may continue to seek higher yields. The company has a large funding cushion from sweep balances with third-party banks and has been able to deploy more balances off balance sheet due to strong growth in the Enhanced Savings Program at Raymond James Bank.

The bank segment has been negatively impacted by lower-cost sweep balances being swept off balance sheet, but this has allowed for an attractive deposit solution and increased funding flexibility. Net interest income and RJBDP fees from third-party banks were nearly flat in the last quarter, with a decrease in firm-wide net interest income being offset by higher RJBDP fees. The net interest margin for the bank segment decreased, but the average yield on RJBDP balances increased. It is expected that there will be a 5% decline in combined net interest income and RJBDP fees in the first quarter, but this may prove to be conservative if cash sweep balances stabilize or bank assets grow more than anticipated. The focus is on preserving flexibility and growing net interest income and RJBDP fees over the long-term.

The company had expected to earn more interest income in the beginning of a rising rate environment, but now expects a normalization of earnings as clients move their cash to higher yielding alternatives. Compensation expenses were $1.89 billion and the total compensation ratio was 62%. Non-compensation expenses increased by 1% and included a $55 million provision related to a regulatory matter. The bank loan provision for credit losses increased by $2 million compared to the prior year. Despite some noise from legal and regulatory provisions, the company's adjusted non-compensation expenses were close to their annual expectation of $1.7 billion. The company remains focused on managing expenses and investing in growth.

In the current quarter, the company generated strong pretax and adjusted pretax margins despite industry challenges. Total assets increased by 1% and liquidity and capital remain strong. The company has excess capital and significant sources of funding. In the past five quarters, the company has repurchased $788 million in common stock and has $750 million remaining for future repurchases. Credit metrics for the company's Bank segment are solid.

The bank's criticized loans and loan allowance for credit losses are at reasonable levels, but they are closely monitoring potential impacts of inflation, supply chain constraints, higher interest rates, and a potential recession on their corporate loan portfolio. They are also monitoring their commercial real estate portfolio, specifically the office portfolio, which represents a small portion of their total loans. The CEO is pleased with their record earnings for the fiscal year and believes they are well positioned for long-term growth. However, there may be some short-term challenges due to market conditions and cash sorting activity. The CEO is optimistic about their future growth due to their client-focused values, technology, and product solutions attracting advisors.

The company's advisor recruiting activity has increased in the past two months, particularly in the Capital Market segment. While there are signs of improvement in investment banking, the pace and timing of transactions will be impacted by market conditions. The fixed income space is facing challenges due to declining deposit balances, but the company remains optimistic about growth potential. In the Asset Management segment, financial assets under management have decreased, but the company expects long-term growth through fee-based accounts and increased scale. In the Bank segment, the focus is on diversifying funding sources and growing assets to meet client demand, with a potential recovery in demand for securities-based loans.

Corporate loan growth has been slow due to low market activity, but spreads have improved. The company is well-positioned to lend in the future thanks to its ample cash and capital. The CEO thanks advisors and associates for their hard work and dedication. The company has a record backlog of advisors joining their platform and low attrition rates, despite increased industry movement.

The company has seen a significant increase in revenue from large teams in the past two months. They have a strong pipeline of potential deals and are continuing to invest in their capital markets business. The majority of expenses in this segment are related to compensation and the company is still investing in long-term growth.

The firm expects non-compensation expenses to continue growing, but they have managed them well this year. They are close to meeting their target and will continue to focus on managing expenses while supporting advisors and clients. Due to excess capital, they plan to invest in growth and are optimistic about their organic growth prospects. They will prioritize using excess capital for growth before considering repurchases.

The company is actively looking for acquisition opportunities that align with their culture and strategy. They are facing challenges in pricing for M&A, but believe they can find good opportunities through continued dialogue. They plan to use their excess capital for growth investments, dividends, and buybacks. The admin comp line in the PCG segment decreased in the quarter and grew by 15% in fiscal 2022, which includes growth investments and support staff for new advisors. The company plans to offset dilution and be opportunistic with excess capital.

The speaker discusses the growth in the company's loan book and balance sheet in the past quarter, driven by securities-based loans and residential mortgages. They expect a modest loan growth in the near future due to muted demand, but are optimistic about the securities-based loan portfolio in the next 12 months. Repayments of balances have stabilized and the speaker expects continued growth in this area.

The company is seeing new origination and benefits from existing clients recruiting new advisors. They are optimistic about the portfolio in the next 12 months. The company is open for business but loan demand is slow. Net new asset growth was 5% in the quarter, potentially impacted by an advisor program that was exited from the platform. The company believes it was the right decision for long-term profitability.

The company has had a successful month with the addition of a $3 billion bank program and 27 advisors. They are optimistic about their future performance, but it will depend on recruiting and market conditions. The spread revenue in the quarter was better than expected, likely due to the company's focus on providing FDIC insurance to clients and the increasing demand from third-party banks. As contracts renew, they are able to negotiate more favorable terms.

The speaker discusses the factors that played a role in maintaining a flexible approach to managing the balance sheet and offering clients FDIC coverage. They also provide an update on October deposit trends, including the impact of the advisor payout on sweep and ESP deposit levels. Despite some fluctuations, the balances are within expected ranges and the company has a significant amount of money in third-party banks that can be utilized if needed.

The company has not been borrowing and has flexibility due to a change in mix with higher deposit costs. The growth in the Enhanced Savings Program balance is the biggest factor in the increase in deposit costs. This has resulted in a sequential contraction in net interest margin (NIM) for the Bank segment, but a corresponding benefit for the firm with third-party fees in the PCG segment. Adoption and feedback for RCS has not been mentioned.

During an earnings call, Paul Reilly, CEO of Raymond James Financial, discussed the deceleration of the company's ESP growth and potential stabilization of rate sensitive revenue in the future. He mentioned that the company has seen growth in their RCS division, with a mix of internal advisors transitioning to the platform and new advisors joining from outside. Reilly also noted that the company's technology has improved, which may lead to long-term growth from outside advisors. He did not provide specific guidance, but suggested that the company may see stabilization of rate sensitive revenue in the future.

Paul Reilly, CEO of a financial firm, believes that it is difficult to predict when cash sorting will stabilize in the industry. He acknowledges that other firms have been trying to convince investors that it will stabilize in the next 12-18 months, but he believes his company is closer to the end of the sorting dynamic. He also mentions that his company is in a strong position with a large amount of cash and a flexible balance sheet, which will allow them to pursue growth opportunities. Another executive, Paul Shoukry, adds that the stability of interest rates will also impact sorting. The company has also added reserves for credit, but they feel comfortable with their current position.

The company's credit provision strategy is driven by macroeconomic models and proactive reserve additions. They have sold off loans during COVID but are confident in their credit risk management. This quarter, specific loans and charge-offs led to reserve additions, rather than a change in the macro outlook.

The operator introduces Devin Ryan from JMP Securities who asks about the fixed-income businesses. Paul Shoukry responds that the debt underwriting had a good quarter due to a large deal and some improvement in conditions, but the fixed-income brokerage business took a step lower. He attributes this to a lack of interest rate stability and people waiting for rates to stabilize before making moves in the market.

The speaker says that it will be difficult for interest rates to decrease significantly, but they may stabilize in the future. He also mentions that the company has done well since joining, but the low interest rate environment has affected traditional business. The speaker then discusses the impact of higher cost of capital on M&A deals and mentions that pricing has been slow to adjust. He expects the next quarter to be similar in terms of deals, but the backlog is good.

The speaker discusses the impact of lending pricing and the cost of capital on the waiting period for M&A activity to pick up. They mention that it may take six to 12 months for the market to adjust and for activity to increase. They also mention the potential impact of bank capital rules on their capital markets business, but note that it will take a long time for them to reach the threshold for those rules to apply.

The bank has no plans to acquire another bank, as it took five years to acquire TriState which was the perfect fit. They are not actively seeking to significantly increase their asset size, and are prepared for the regulatory requirements that will come with reaching the 100 billion mark. They have been hiring people and making preparations for this growth, and expect to be around for a long time due to their accommodating of client cash balances during COVID. Their loan growth will be funded by repositioning assets on and off the balance sheet.

Paul Reilly, CEO of Raymond James Financial, discusses the impact of new rules on banks and the opportunities for his company to acquire capital markets businesses. He believes that these rules will not significantly affect their asset size and that they have room to acquire more business without altering their trajectory. Reilly also mentions the company's strong financial position and their focus on managing expenses in an uncertain market.

The speaker discusses managing expenses and mentions that they have been doing so in recent quarters and will continue to do so until there is enough growth to support them. They thank the listeners for joining the call and the operator concludes the call.

This summary was generated with AI and may contain some inaccuracies.