The paragraph introduces the First Quarter Earnings Call for Raymond James, with Senior Vice President Kristie Waugh welcoming participants and introducing CEO Paul Reilly and CFO Paul Shoukry. The presentation and a replay of the call will be available on the company's Investor Relations website. Waugh cautions that certain statements made during the call may be forward-looking and encourages listeners to consider the risks outlined in the company's recent filings. Reilly then takes over to begin the call.

Despite the uncertainty of the past year, the company has achieved record results and earnings per share. This success is attributed to their focus on executing strategic priorities, including driving organic growth, investing in technology and service capabilities, and strategic M&A. In the first quarter, the company reported an 8% increase in net revenues and record net income. Client assets also reached record levels, driven by strong advisor retention and recruiting results and market performance. The Private Client Group saw strong organic growth with a 7.8% annualized growth rate in domestic net new assets.

During the quarter, Raymond James recruited financial advisors with a significant amount of production and client assets. However, the overall advisor count remained flat due to a high number of retirements, although the firm retains the majority of assets through succession plans. The firm also announced a new National Head of Advisor Recruiting and a new President for the PCG Independent Contractor Division. Additionally, the firm's Domestic Sweep and Enhanced Savings Program balances increased by 3%.

The bank's balances were boosted by growth in the Enhanced Savings Program and sweep balances. Private Client Group saw an increase in net revenues and pre-tax income due to higher asset management fees. The capital market segment also had a strong quarter, with higher investment banking revenues. The Asset Management segment had a pre-tax income of $93 million, while the Bank segment had a pre-tax income of $92 million. The net interest margin for the Bank segment declined due to a higher cost mix of deposits. Paul Shoukry will provide a more detailed review of the first quarter results.

In the first quarter, consolidated net revenues for the company were $3.01 billion, an 8% increase from the previous year but a 1% decrease from the previous quarter. Asset management and administrative fees grew by 13% from the previous year, but decreased by 3% from the previous quarter due to lower fee-based assets. Brokerage revenues increased by 8% year-over-year and 9% sequentially, driven by higher institutional fixed income brokerage revenues. Investment banking revenues increased by 28% year-over-year but declined by 10% sequentially due to lower M&A revenues. Other revenues were down by 30% compared to the previous quarter. Domestic cash sweep and enhanced saving program balances also increased by 3% from the previous quarter.

The advisors at Raymond James continue to effectively serve their clients through the use of competitive cash offerings, such as the enhanced savings program. While there has been a decrease in the pace of flows into this program, there has been a modest increase in client cash balances during the quarter. However, there is expected to be further yield-seeking activity from clients. The sweep and ESP balances have decreased in January due to quarterly fee billings, but overall there has been a 12% increase in sweep balances with third-party banks. This has allowed for more balances to be deployed off balance sheet, impacting the bank's NIM, but providing clients with attractive deposit solutions and giving the firm funding flexibility for future growth opportunities. There is ample funding and capital to support loan growth in the future.

In the fiscal first quarter, net interest income and RJBDP fees from third-party banks were down 2%, but outperformed expectations due to stable client cash balances. The net interest margin for the Bank segment decreased, but the average yield on RJBDP balances increased. For the fiscal second quarter, net interest income and RJBDP fees are expected to be 5% lower, but the company remains focused on preserving flexibility and growing these areas in the long-term. Compensation expense for the quarter was $1.92 billion, with a total compensation ratio of 63.8%. The impact of salary increases and payroll taxes will be reflected in the fiscal second quarter.

Non-compensation expenses decreased 20% sequentially due to lower provisions for legal and regulatory matters. The bank loan provision for credit losses also declined. The company remains focused on managing expenses while investing in growth and maintaining high service levels for advisors and clients. For the fiscal year, non-compensation expenses are expected to be around $1.9 billion. The company generated a pre-tax margin of 20.9% and an adjusted pre-tax margin of 21.7%, meeting its targets for pre-tax margin and compensation ratio. Total balance sheet assets increased by 2% and the company remains well capitalized with strong liquidity and capital.

In summary, the company's strong capital levels allow for continued investment in growth opportunities. The effective tax rate for the quarter was 21%, but the company expects it to be around 24-25% going forward. The company has repurchased $150 million worth of shares in the quarter and plans to repurchase at least $200 million more in the next quarter. The credit quality of the loan portfolio for the Bank segment is solid, with a low percentage of criticized loans and a sufficient loan allowance for credit losses. The company is closely monitoring economic factors that may impact the corporate loan portfolio, particularly in the commercial real estate sector.

Paul Reilly, CEO of the company, is pleased with the first quarter results and believes the company is in a strong position for long-term growth. However, there are some challenges in the near-term, such as interest rate uncertainty and cash sorting activity. Despite this, the company is focused on attracting and retaining top advisors and has a strong pipeline of potential recruits. In the capital markets segment, there is a healthy M&A pipeline but activity may pick up in the next 6 to 9 months. The fixed income business saw improvements but is still facing challenges due to declining deposit balances. Overall, the company is well-positioned for growth once market and rate conditions improve.

The company's Asset Management segment is expected to see a 9% increase in financial assets under management in the fiscal second quarter, which will benefit revenues. The Private Client Group segment is also expected to drive long-term growth in financial assets under management. The Bank segment is focused on fortifying the balance sheet and expects demand for loans to recover as clients become more comfortable with current interest rates. The company is also focused on organic growth and has increased corporate development efforts. The management thanks their advisors and associates for their dedication and concludes the prepared remarks before opening the line for questions. The first question from an analyst is about net new assets.

The speaker discusses the recent increase in M&A activity and attributes it to strong retention and recruiting efforts. They also mention the addition of a new leader to further enhance recruiting efforts. The speaker also notes that the market health and bringing in larger teams contribute to the growth of net new assets. They then switch gears to discuss the investment banking sector.

Paul Reilly, CEO of Raymond James, discusses the company's investment in talent despite a challenging market in the last 18 months. He also mentions the company's high productivity per managing director (MD) and how it could potentially exceed $10 million in a robust market. The company has continued to recruit high-quality MDs and believes it could still achieve high single-digit productivity in a reasonable market. In early 2023, the company had built up liquidity and sacrificed some interest income in anticipation of widening lending spreads.

The speaker discusses the headwinds that have affected the bank's spread revenues and the current state of their lending activity. They mention that the market has not been robust in the areas they prefer to lend to, but there are signs of growth in certain portfolios. They also mention the significant improvement in the institutional fixed income brokerage in the quarter, but note that their overall business is still down compared to 2021. They speculate that the increased activity in the depositories may be a contributing factor to this improvement.

The speaker discusses the volatility of the market and how it affects their business, particularly the traditional depository business. They mention that the market has been improving since December, but it is still too early to tell if it will continue. They also mention that their competitors have performed well despite the market conditions. The speaker believes that if rates continue to go down and liquidity stabilizes, their business will pick up. The next question asks about the speaker's expectations for cash sorting, and they respond that they expect it to continue.

Paul Shoukry and Paul Reilly discuss the recent influx of cash into the market and speculate on its origins. Shoukry mentions seasonal factors like tax loss harvesting and fee billings, while Reilly notes the competition from money market funds. They both agree that the trend may be coming to an end, but they need more data to confirm it. They also mention the time it takes for money market funds to adjust to changes in interest rates.

The analyst asks about the impact of competition on rates and the DOL's proposal on insurance and annuity products. The CEO responds that rates will take time to adjust and they have systems in place to comply with the DOL's proposal. They will wait to see the final rule and expect the industry to challenge it. On the balance sheet, the analyst asks about growing the securities portfolio to lock in yield, given the excess capital and sweep cash.

Paul Shoukry and Paul Reilly discuss their preference for a floating rate balance sheet over trying to time rates. They also mention not wanting to play the game of speculating about rate cuts. They do not want to make bets, but instead focus on consistently running the business. The non-comp expense guidance of $1.9 billion implies a 10% increase in average non-comp expenses for the remaining three quarters, with the first quarter being low across the board.

The company is expecting growth in technology expenses and legal and regulatory reserves to reach $1.9 billion by the end of the year. They typically pull back on external support during the December quarter, but expect growth to continue in the following quarters. They will provide more information on the portion of assets in retirement accounts at their upcoming Analyst Investor Day. NNA had a significant increase this quarter, possibly due to activity within the bank channel.

During the earnings call, Paul Reilly, the CEO of the company, was asked about the growth outlook for the bank channel. He stated that there were no major changes or unexpected events in this channel and it is a consistent source of growth for the company. Reilly believes that the company's NNA (net new assets) will continue to be strong and they have the potential to be at the top of the industry. The company plans to return $200 million in capital next quarter and will continue to be opportunistic with buybacks in the future. They have also recently hired a new Head of Corporate Development to help with potential inorganic opportunities.

The company is currently seeing a lot of opportunities in the market and is looking to make acquisitions to strengthen its position. They have a target of $200 million in capital and will consider buying back stock if they do not find any accretive acquisitions. The company is not trying to hoard capital and will use it for potential opportunities. They will discuss margins further at the Investor Day in the spring and are considering the potential impact of an increase in investment banking activity on margins and profitability.

Paul Shoukry discusses the potential for increased margins in the Capital Markets segment, which reached record levels two years ago. He notes that the firm's diversified business model means there are always potential offsets to consider, and they are reluctant to guide for higher margins given uncertainties in the market. He also mentions the impact of interest rates and cash balances on margins. The next question from Steven Chubak is about deposit betas and pricing flexibility in light of rate cuts.

Paul Shoukry and Steven Chubak discuss the challenges of deposit pricing and the mix of deposits at Raymond James. They mention the expected correlation of deposit rates with Fed funds effective, the impact of the TriState acquisition, and the generosity of sweep deposits. They do not provide an explicit number for incremental margins.

The concern is that NII is not compensable, but during the period of robust capital markets activity, the incremental margins were close to 50%. If there is a meaningful ramp in capital markets activity, a 50% incremental margin is a reasonable assumption. However, the mix of revenues in capital markets and other factors may affect this number. The company's diversified business model has allowed them to generate strong returns without relying on capital markets. A question was also asked about the increase in net yield from brokered sweeps.

The speaker discusses the pricing power in the industry and how it may be affected by stabilized deposits. They believe there is still pricing power but it is not significant compared to base rates. They also mention a record pipeline for large teams and their success in winning new clients. There is a lot of competition but they are doing well and have a good read on potential new clients.

The speaker discusses the use of transition assistance and loans in recruiting financial advisors, stating that it is a common practice among all firms. However, their company has consistently not offered the highest amount in order to attract advisors who believe it is the right place for them, rather than just for the highest check. They have made adjustments as transition assistance has increased in recent years, but they are still not typically the highest offer.

The speaker discusses the company's approach to matching high offers and their success rate. They also mention the increase in discussions and opportunities for inorganic growth, but note that some sellers are not adjusting their price expectations in line with market conditions.

The speaker discusses the unpredictability of timing for recruiting and the potential for it to continue given the aging advisor population and the unique value proposition of the company. They also mention the strong technology platform and competition in the industry.

The speaker discusses the changes in the competitive landscape, specifically the emergence of RIA roll-ups as a new competitor. These roll-ups pay higher prices for firms and offer the option to sell the business for a high multiple in the future. The speaker also mentions the strong market performance and the potential for a tailwind if interest rates moderate. They thank the audience for joining the call.

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