Kristie Waugh welcomes listeners to the Raymond James Financial Fiscal 2024 Second Quarter Earnings Call, which is being recorded and will be available for replay. She introduces the speakers, Paul Reilly (Chair and CEO) and Paul Shoukry (CFO), and mentions that the presentation is available on the company's Investor Relations website. She also cautions that some statements may be forward-looking and directs listeners to consider the risks outlined in the company's recent financial forms. Paul Reilly then thanks Kristie and notes that the company had strong results in the quarter.

The paragraph discusses the record results of the company for the fiscal second quarter and the first six months of the fiscal year. It also highlights the important announcement of the appointment of a new CEO and other key leadership appointments. The company's continued investments in its business, people, and technology are expected to drive growth across all its businesses. The paragraph also expresses confidence in the new leadership team to continue the company's success and help clients achieve their financial objectives.

In the third paragraph of the article, the firm reported its record quarterly net revenues, which were primarily driven by higher asset based revenues. The net income available to common shareholders was also at a record high, and excluding expenses related to acquisitions, it was even higher. The quarter also saw a reduction in the reserve related to a legal and regulatory matter, resulting in a favorable impact. The firm also generated strong returns and saw growth in client assets, driven by rising equity markets and solid advisor retention and recruitment in the Private Client Group. With a strong technology platform and client-focused values, the firm continues to attract high-quality advisors.

During the quarter, the company recruited financial advisors with a significant amount of production and client assets, resulting in a 45% increase in trailing 12-month production and a 77% increase in related assets compared to the previous six-month period. The company also saw success in its RIA and custody services business, which ended the quarter with $161 billion in client assets under administration. Overall, the Private Client Group generated record quarterly net revenues and pre-tax income, driven by higher asset management fees. The Capital Markets segment also saw growth in net revenues, primarily due to higher M&A and debt underwriting revenues.

In the second quarter, the company experienced a 5% decline in revenues due to lower fixed income brokerage and M&A revenues, but saw an increase in debt underwriting revenues. The Capital Markets segment had a pre-tax loss of $17 million due to deferred compensation expenses, but the company is optimistic about the future due to healthy pipelines and new business activity in M&A. The Asset Management segment had a pre-tax income of $100 million, thanks to higher financial assets under management. The Bank segment had net revenues of $424 million and a pre-tax income of $75 million. The company had record net revenues of $6.13 billion and record net income of $971 million for the fiscal year, with strong returns on equity. The PCG and Asset Management segments performed well in the first half of the year due to strong organic growth and equity markets. Paul Shoukry, the CFO and soon-to-be CEO, will discuss the second quarter results.

In the second quarter, consolidated net revenues for the company were $3.12 billion, a 9% increase from the previous year and a 3% increase from the previous quarter. Asset management and related administrative fees saw a significant growth of 16% from the prior year and 8% from the previous quarter. Brokerage revenues also grew by 6%, driven by higher revenues in the Private Client Group (PCG) but offset by lower fixed income brokerage revenues. The company's fixed income business does not have the same exposure to high volatility currency and credit products as other players in the industry. Investment banking revenues increased by 16% year-over-year and declined slightly from the previous quarter. Client domestic cash sweep and enhanced savings program balances also saw a slight increase from the previous quarter, but have declined since the beginning of the quarter due to fee billings and income tax payments.

In the first quarter, combined net interest income and RJBDP fees from third-party banks decreased slightly due to one fewer billable day, but still performed better than expected. Going forward, these revenues will depend on short-term interest rates, client cash balances, and loan growth, which has been slow in the current rate environment. Compensation expenses were impacted by annual salary increases and payroll taxes, resulting in an adjusted compensation ratio of 65%. Non-compensation expenses increased slightly due to higher expenses in certain areas, but were partially offset by a favorable legal and regulatory reserve release. For the fiscal year, the company expects non-compensation expenses to be around $1.9 billion, with incremental growth throughout the year as they invest in growth and maintain high service levels for advisors and clients.

The company's non-compensation expenses, such as investment fees, have been growing along with revenue. Despite challenging market conditions, the company has maintained a strong pre-tax margin of 19.5% and adjusted pre-tax margin of 20.4%. Their current targets for a pre-tax margin of 20% and a compensation ratio of less than 65% are still appropriate, and they will provide an update at their upcoming Analyst and Investor Day. The company's total balance sheet assets increased by 1% to $81.2 billion, and their liquidity and capital remain strong. They have significant flexibility for future growth investments due to their strong capital levels. The effective tax rate for the quarter was 21.8%, but they expect it to be around 24% going forward. The company repurchased 1.7 million shares of common stock for $207 million during the quarter and completed their expected $250 million share repurchase commitment.

The remaining amount of the board's approved common stock repurchase authorization is $1.14 billion as of April 19, 2024. The company plans to continue offsetting share-based compensation dilution and making opportunistic repurchases. They are committed to maintaining their capital levels and will discuss their capital management strategy at an upcoming Investor Day. The credit quality of the loan portfolio for their Bank segment is solid, with a low percentage of criticized loans and a sufficient loan allowance for credit losses. The speaker is honored to be named the future CEO and is optimistic about the company's future, citing their strong businesses, potential for growth, and competent management team. The call is then turned back over to Paul Reilly to discuss the company's outlook.

The speaker is pleased with the company's results for the fiscal second quarter and first half of the year, which includes record client assets. They are confident in their ability to drive growth in all of their businesses despite economic uncertainty. In the Private Client Group, they expect positive results in the next quarter due to an increase in fee-based accounts and strong recruitment efforts. The Capital Markets segment is also seeing positive activity, but their expectations for a gradual recovery are dependent on market conditions. The fixed income business is facing challenges, but they hope to see improvement once rates and cash balances stabilize. The Asset Management segment is also expected to see growth in financial assets under management due to an increase in fee-based accounts in the Private Client Group.

The company expects Raymond James Investment Management to drive growth in the future. In the Bank segment, they are focused on strengthening the balance sheet and growing assets. They anticipate a recovery in demand for securities-based loans and are prepared to lend when market activity increases. They are also looking for M&A opportunities and have a strong capital and liquidity base for future growth. The company thanks their advisors and associates for their dedication. During the earnings call, they discussed the impact of seasonal factors on compensation and their target of a 65% comp rate for the year, but also aim to stay below that.

Paul Shoukry, speaking at the Analyst Investor Day, stated that their target for the adjusted comp ratio is 65%. The performance in the first two quarters has been in line with this target, but the Capital Markets segment will play a big role in determining the ratio for the rest of the year. Despite challenges in this segment, the firm was able to achieve a 65.2% adjusted comp ratio. The payroll tax reset and salary increases had a significant impact on the quarter, but this will decline throughout the year. In terms of recruiting activity, the net new asset growth has been lower than historical trends, with the independent headcount remaining relatively flat. This is due to larger teams being hired and some headcount moving to the RIA channel.

The speaker discusses the impact of recent changes on the company's headcount and assets. They mention that they will provide more information on this at an upcoming event. The speaker also talks about the difficulty in measuring the RIA and the expectation of continued strong recruiting. They then address the trend of cash sweep balances, noting that they were flat in the first quarter and may see an increase now that tax season is over. They mention a decline in the enhanced savings program and payments to the IRS as possible factors.

The speaker discusses the company's performance in the past quarter, specifically the stability of cash sweep balances and the impact of the new DoL rule on the industry. They mention that the rule itself may not have a high impact, but there are concerns about the Department of Labor's authority and the need for an extra rule. The speaker also mentions a healthy M&A pipeline for the company.

The speaker discusses the recent performance of the company and notes that while there was some slower growth in the quarter, the overall trend is positive. They mention strong recruiting efforts and growth in net assets. They also discuss the impact of advisors moving to RIA and their success in retaining them. The speaker then shifts to discussing the Capital Markets business and the potential for investing in talent in the advisory business in the next 9-12 months.

The business is highly leveraged and has the potential for significant revenue growth, which could greatly improve margins. The company is open to hiring talent, even in tough markets, and has a strong capital position to support this. As capital markets pick up, there is potential for margins to increase significantly, with a history of peaking in the mid-20s. This quarter's margins were impacted by deferred compensation amortization, but this will decrease over the next 12-18 months.

The company's Investment Banking segment is performing well and has a strong franchise. The current market environment makes it difficult to predict closings, but there is potential for growth in both the top and bottom line. The company has prudently cut expenses and believes they have a great team. As the market recovers, there may be opportunities for capital returns and buybacks, but the company's capital philosophy remains focused on investing in the business first. They will meet with the board to discuss potential buybacks, but their current capital levels are high and they are actively managing them.

The speaker is asked about M&A and what the company is looking for in terms of strategic fit. They mention their primary geographies of North America and Europe and how opportunities vary in different areas of the business. They believe there are areas in all parts of the firm where they can strategically grow through acquisitions. They also discuss loan growth and how it has been slow due to the rising interest rates, but they are optimistic about it going forward.

The company is anticipating an increase in demand for M&A and investments in the future. They are maintaining strong capital and funding positions to be prepared for this growth. The competition for advisors is still strong, with private equity investments causing more movement to independent channels. The company has been investing in their RIA channels to remain competitive. The competition is not just about money, and the company's advisor count is still lower than most firms.

The company's transition assistance has improved over the past few years due to competition, but it is still a difficult process. There is a lot of movement in the market, with both small and large teams becoming RIAs. The RIA industry is more dynamic and allows for multi-custodians, which can lead to asset gains. The company has enough capital flexibility to act on opportunities, but may want to maintain some flexibility for potential acquisitions.

Paul Reilly, CEO of Raymond James, discusses the company's flexibility in terms of capital and how it relates to M&A activity. He mentions that while they have had success in executing deals, it is not always easy to predict or forecast when opportunities will arise. He also mentions that the company has a strong cash position and is not highly leveraged, which allows them to close deals quickly. Reilly acknowledges that there is no exact science to M&A activity and that there is an element of art to it. He concludes by saying that if they had a magic formula, they would share it, but they do not want to give their competitors an advantage. In response to a question about loan balances, Reilly mentions that they had seen some decent demand for SBLs in the past, but the growth has stalled out in the past quarter due to pay down slowing.

The speaker discusses the recent flatlining of the SBL book and suggests that it may not necessarily require a decrease in rates for demand to broaden again. They also mention the focus on existing advisors and providing them with tools and technology to enhance their efficiency and attract new clients, which is seen as the most cost-effective way to drive growth.

The market has been stable for a while, and advisors are not leaving because they can make a lot of money at the company. The company focuses on retaining advisors and believes that their growth is driven by their high retention rates. They are under-penetrated in terms of loans compared to wirehouses, but they prioritize doing what is best for clients and providing competitive products rather than pushing for sales through incentives. They educate advisors on the products and services available.

The speaker discusses how their company plans to allocate capital and grow loans in different areas. They mention their focus on Private Client Group loans, SBLs, and mortgages due to their good risk-adjusted return and flexibility for clients. They also mention their plans for investment in securities and their lower penetration rate. The speaker then addresses a question about the net interest margin, stating that it will be more influenced by rates and asset mix going forward, and that they are currently heavy on cash balances but are prepared for when loan demand recovers.

The decrease in the NIM due to holding more cash balances has a negative impact on NII and earnings, but the company is not actively shifting cash balances off balance sheets. The company is consistently investing in all of its businesses, with a focus on the Private Client Group. The company will continue to invest in high service levels and technology to enhance efficiency for advisors.

The speaker discusses how there will not be a dramatic change in the company's operations as they have been successful since their founding in 1962. They also congratulate the leadership team and discuss the increase and subsequent decrease in fixed income brokerage in the first and second quarters, respectively. The decrease was due to a shift in activity and depositories being cautious with reinvesting in securities. Overall, depositories are struggling to grow deposit balances.

The company expects some challenges in their securities portfolio until deposit balances increase and confidence in investing returns. SumRidge has diversified their fixed income revenue streams, but they rely on volatility which was not significant in the past quarter. The CEO, Paul Reilly, is pleased with the quarter and looks forward to future success. The conference call has ended.

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