The paragraph is an introduction to Raymond James Financial's Fiscal 2025 First Quarter Earnings Call, presented by Kristina Waugh, Senior Vice President of Investor Relations. She introduces the key speakers, including Chair and CEO Paul Reilly, President Paul Shoukry, and CFO Butch Oorlog, and mentions that the presentation is available on the company's Investor Relations website. She notes that forward-looking statements will be made during the call, which may include predictions about future objectives and market conditions, and advises listeners to consider risks detailed in the company's recent filings. Paul Reilly then begins his remarks, mentioning it is his final earnings call as CEO.

The paragraph outlines a positive quarterly report for a company undergoing leadership transition, with Paul Shoukry set to take over as CEO following the annual meeting, supported by the current CEO who will become Executive Chairman. The company achieved record net revenues and strong net income in the first fiscal quarter, indicating successful performance across its diverse businesses. It recorded $3.54 billion in net revenues and $599 million in net income to common shareholders. Excluding acquisition-related expenses, adjusted net income was $614 million, showcasing stability and potential for future growth, backed by ample capital and funding.

The firm reported strong financial performance for the quarter, with notable returns on equity and an increase in total client assets under administration by 14% year-over-year to $1.56 trillion. The Private Client Group and fee-based accounts set a record with $877 billion, while financial assets under management remained stable at $244 billion. Domestic net new assets grew by $14 billion, despite a $5 billion impact from the departure of a large branch. Adjusting for this, growth would have been 5.4%. Over the past year, the firm successfully recruited financial advisors managing significant client asset volumes, totaling nearly $61 billion across various platforms. The RIA and Custody Services division saw a 28% increase in assets, reaching $188 billion.

In fiscal 2024, Raymond James experienced strong recruitment momentum under Jodi Perry, contributing to both short-term and long-term growth due to a strong pipeline of high-quality advisors. The firm emphasized enhancing service capabilities and technology to retain and attract advisors. By the end of the quarter, client cash sweep and savings balances reached $59.7 billion, with a growth in suite balances and bank loans, particularly in securities-based loans and mortgages. The Private Client Group reported pretax income of $462 million on net revenue of $2.55 billion due to increased assets under administration, while the Capital Markets segment achieved $480 million in net revenues and $74 million in pretax income, with significant growth in M&A revenues.

The Asset Management segment achieved a record pretax income of $125 million with net revenues of $294 million, driven by increased financial assets under management due to market appreciation and net inflows. The Bank segment reported net revenues of $425 million and pretax income of $118 million, with a slight increase in net interest income but a decline in net interest margin. Consolidated net revenues hit a record $3.54 billion in the first quarter, a 17% year-over-year and 2% sequential increase. Asset management fees rose by 24% year-over-year, while PCG domestic fee-based assets grew 17%. However, a decrease in asset management fees is expected in the next quarter due to fewer billing days. Brokerage revenues increased by 7% year-over-year, and investment banking revenues rose 80% year-over-year, driven by strong M&A activity.

The paragraph discusses the financial performance and projections of a company. Other revenues decreased by $21 million mainly due to a seasonal decline in affordable housing investments. Domestic cash sweep and enhanced savings program balances increased by 3% to $59.7 billion, constituting 4.3% of domestic client assets. However, these balances decreased by $1.8 billion early in the fiscal second quarter due to quarterly fee billings. Net interest income and RJBDP fees from third-party banks amounted to $673 million, a 1% decline from the previous quarter. This was influenced by a decrease in the net interest margin and yield on RJBDP balances, partly due to Fed rate cuts. The company anticipates a 2% to 3% decline in net interest income and fees in the fiscal second quarter, affected by fewer billing days among other factors. Compensation expenses totaled $2.27 billion, with an adjusted compensation ratio (excluding acquisition-related expenses) of 64%.

The paragraph provides an overview of financial and operational performance, noting that salary increases and payroll tax resets will impact the fiscal second quarter compensation expenses. Non-compensation expenses decreased by 5% sequentially, attributed to lower bank loan provisions and professional fees. For the fiscal year, adjusted non-compensation expenses are projected to grow by 10% to approximately $2.1 billion, with investments focused on technology and business growth. The company achieved a pretax margin of 21.2%, exceeding its 20% target, and reported a slight decline in total assets to $82.3 billion. Liquidity and capital remain strong, with corporate cash at $2.3 billion, and the company is well-capitalized with flexibility for future growth investments.

The paragraph outlines the company's financial activities and metrics for the quarter. The effective tax rate was 19.9%, with a fiscal 2025 estimate of 24-25%. The Board increased the quarterly dividend by 11% to $0.50 per share and authorized $1.5 billion for stock repurchases, with $1.45 billion remaining. The firm repurchased 310,000 shares at an average of $161 per share. The company's capital and liquidity levels are strong, and they plan to offset share-based compensation and consider additional repurchases. Credit quality of the loan portfolio is robust, with low non-performing assets and a shift towards securities-based loans and residential mortgages, leading to lower allowance levels.

The company is satisfied with its strong quarterly results and optimistic about the fiscal future, despite some seasonal challenges such as fewer billable days impacting the Private Client Group. Advisor recruiting remains robust, and the Capital Markets segment, particularly M&A and investment banking, shows significant improvement, reflecting strategic investments made over the years. Although the fixed income market remains tough, there are signs of recovery, with depository clients becoming more active as short-term rates moderate and the yield curve steepens.

In the Asset Management segment, strong growth in assets and fee-based accounts is expected to drive long-term financial asset growth, supported by Raymond James Investment Management. In the Bank segment, increased securities-based loan demand, due to client comfort with current rates and Fed rate cuts, positions the company well for lending. The company is equipped to invest in organic growth and acquisitions that align culturally and strategically, though share buybacks have slowed this quarter. The Board raised the dividend by 11% and authorized $1.5 billion in stock repurchases. The company's leadership expresses confidence and excitement about the future, emphasizing a unique value proposition and strong culture focused on client needs.

The paragraph discusses the attractiveness of Raymond James as a destination for financial advisors, bankers, and associates, highlighting their satisfaction with affiliating with the company. The speaker thanks advisors and associates for contributing to Raymond James' success and opens the floor for questions. Devin Ryan from Citizens JMP congratulates Paul Reilly on his career and asks about capital allocation at Raymond James. He refers to their robust Tier 1 leverage ratio and anticipates excess capital generation, inquiring about loan demand and other capital use priorities.

Paul M. Shoukry discusses the company's strategy to manage its excess capital and maintain a Tier 1 ratio target of 10%, which is twice the regulatory requirement for being well-capitalized. The focus is primarily on organic growth through investing in the business, advisors, clients, and associates, as well as strengthening recruitment across all business areas like investment banking, asset management, and the bank. There is also an emphasis on growing the bank's balance sheet with loan growth, particularly securities-based loans for Private Client Group clients, due to their favorable risk-adjusted returns. Additionally, the company is actively exploring acquisition opportunities, ensuring that any potential acquisition is a good cultural and strategic fit and offers a fair price for shareholders. They aim to avoid large buybacks during this period while conducting due diligence on potential acquisitions, to prevent needing to raise capital later.

The paragraph discusses the company's use of buybacks as a flexible tool for capital deployment, emphasizing their ability to adjust depending on other financial priorities. Devin Ryan inquires about the potential recovery in Capital Markets segment margins, which previously reached above 20%. Paul M. Shoukry explains that achieving such levels again would require strong performance across both equities and fixed income sectors. Typical results, with one sector performing strongly and the other moderately, would likely yield margins around 15-16%. The above 20% margins seen during COVID were exceptional due to both sectors performing exceptionally well, which is unusual.

The discussion involves Kyle Voigt asking about the advisor compensation ratio, which has been around 74% for the past two quarters, compared to the usual 75-76% over the last seven years. Paul C. Reilly responds by indicating that it's hard to discern a new trend based on a couple of quarters, suggesting that the annual rate is about 74.5%. He explains that the mix of advisors and the growth of production can influence this figure, as there are scale advantages linked to transition assistance that amortizes over time. Despite ongoing recruitment, revenue growth has outpaced the increase in transition assistance costs.

The paragraph discusses the growth and recruitment dynamics in the financial sector. Paul C. Reilly explains that recruiting efforts can be inconsistent, with a strong previous year and a healthy pipeline indicating ongoing growth. It takes time for new recruits to build their asset bases. Although the industry has seen a slight slowdown, there's optimism for continued strong mergers and acquisitions (M&A) as long as advisors continue joining. Bill Katz asks about prioritizing growth areas, to which Paul M. Shoukry responds that their main focus remains on expanding the Private Client Group, their largest business segment.

The paragraph discusses the company's strategic priorities, focusing on both organic growth and acquisitions. It highlights the challenges in finding acquisitions that align strategically and culturally while providing shareholder value, especially due to aggressive private equity activity. They prioritize expanding through niche acquisitions and team hires, which have been successful. In asset management, they seek deals with good organic growth potential. The company aims to grow market share, particularly in underdeveloped areas like the West Coast, as well as in Canada and the UK, primarily through recruitment of top advisors.

The paragraph is part of a discussion during an earnings call where Bill Katz and Paul M. Shoukry address financial growth and expenses. Katz asks about the flexibility of non-compensation expenses if revenues were to decline and how to think about a sustainable operating margin. Shoukry explains that while there is some flexibility, they prefer not to experience it because many expenses grow alongside revenues, such as fees for investment sub-advisory groups and FDIC insurance. Although there's some short-term discretionary flexibility, the focus is on long-term investment, irrelevant to short-term economic or revenue conditions. In a follow-up, Dan Fannon asks if a 10% increase in non-compensation expenses is a reasonable expectation on a multi-year basis.

In the conversation, Paul M. Shoukry discusses the growth in investment sub-advisory fees, noting a 33% year-over-year increase, which reflects the growth in fee-based assets. He mentions that while revenue growth has been strong, associated expenses have also been reasonable at around 10% annually, but cautions that this may decelerate if revenue drivers slow down. Dan Fannon inquires about organic growth, recruitment, and attrition. Paul C. Reilly responds, stating that most significant attrition issues are resolved, with some advisors moving to RIA while retaining assets. He notes some credit attrition historically but doesn't foresee major departures. He emphasizes a strong pipeline and references a significant recruitment event in the fourth quarter.

The paragraph discusses the nature of business operations and financial trends, specifically focusing on the variability seen in quarterly performance. It mentions the strong pipeline and growth in assets, highlighting confidence in the business despite the fluctuations. The conversation shifts to financial specifics, with Brennan Hawken asking about the RJBDP's average yield drop and whether the offset by deposit beta is primarily aligned with policy rate changes. Paul C. Reilly confirms the importance of the deposit beta, indicating that it's been around 35% for sweep balances and near 100% for higher-yield products like ESP. They also note that these trends are expected to continue similarly as interest rates change. Lastly, they touch on the strong growth of SBL amid increasing business optimism.

In the paragraph, Paul C. Reilly discusses the current state and outlook for Commercial and Industrial (C&I) loan growth, noting that while their firm remains active in the space, new origination flow has been relatively low and spreads tight. They are not willing to pursue growth that compromises their risk-adjusted return thresholds and hope for recovery in spreads and volumes by 2025. They are also focusing on growth in the securities-based loan portfolio. Brennan Hawken congratulates Reilly and his colleagues on their new roles. Alex Blostein from Goldman Sachs asks about capital management, highlighting the firm’s consistent discussions over time and their accumulation of capital. He seeks a framework or timeline for when the firm expects to reach its capital targets, noting that while they are closer to engaging in deals, the firm's interest in various potential deals has been consistently mentioned in the past.

In the paragraph, Butch Oorlog and Paul C. Reilly discuss their company's approach to capital allocation, particularly regarding buybacks and acquisitions. They emphasize that the primary goal of any acquisition is to achieve strategic and long-term shareholder benefits, not merely to adjust the capital ratio. They highlight their commitment to maintaining a capital ratio closer to 10% rather than the current 13%, and explain that the slower pace of acquisitions in recent years has been due to a lack of opportunities that align with their strategic and cultural criteria. They acknowledge that while it feels like a long time since they operated at the desired 10% ratio, industry-wide challenges have impacted balance sheet growth and acquisition opportunities over the last two years.

The paragraph discusses the company's recent financial performance and future outlook. They acknowledge exceeding their 10% target with a 13% result due to a series of acquisitions and ask for patience over the next two years as they aim to return to their target. The advisory revenues in their investment banking segment have been strong, exceeding $200 million for two quarters, yet they caution against assuming this is a trend, attributing it to specific large fees and noting the unpredictable nature of M&A activity. The pipeline looks robust, but they advise caution in predicting future revenue levels based on these recent results.

In the paragraph, the conversation involves a financial discussion about Net Interest Income (NII) and Net Interest Margin (NIM) with Paul C. Reilly, Butch Oorlog, and James Mitchell. James Mitchell of Seaport Global Securities asks about the future trajectory of NII, considering factors like loan and deposit growth, asset repricing, and potential rate cuts. Paul C. Reilly responds, acknowledging the hope for NII improvement despite challenges like fewer billable days, and anticipates asset growth to aid NII if rates and NIM stabilize. James Mitchell then inquires about the timeline for securities and mortgage books to reach current market rates. Butch Oorlog explains that $1.5 billion of the available for sale book will reprice over the next year, with about $500 million maturing in the next quarter.

The paragraph discusses a financial institution's strategy for reinvesting funds from loan repricing into loan growth, particularly in SBL loans. Paul C. Reilly notes that maturing securities will be reinvested into higher-yielding assets, turning a financial headwind into a tailwind. The conversation then shifts to Michael Cyprys's inquiry about the institution's $2.1 billion non-compensation expense guide for the fiscal year, focusing on major areas of investment. Reilly highlights significant investments in technology, which aim to help advisors save time and provide better client services. The institution plans to discuss these investments in greater detail at the next Analyst Investor Day.

In the paragraph, the speaker discusses Raymond James' strong technology infrastructure, which is often underestimated by outsiders but appreciated by advisers. They emphasize the importance of highlighting this strength and mention ongoing investments in automation to enhance efficiency. The speaker then addresses a question from Michael Cyprys about artificial intelligence (AI), stating that AI is a key topic for their upcoming analyst Investor Day. They acknowledge ongoing interest and active exploration in AI at the firm, hinting at its potential impact on the business in the coming years.

The paragraph discusses ongoing efforts and strategies within a business to monitor and adapt to changes driven by new developments in their industry. The management is actively investing in and establishing a team to oversee these changes and explore potential use cases, with plans to discuss the progress at an upcoming analyst Investor Day. The conversation then shifts to Steven Chubak from Wolfe Research asking about sweep cash trends and actions affecting cash growth. Paul M. Shoukry responds by highlighting the company's focus on putting clients first and suggests looking at year-over-year trends for a clearer picture of cash balance growth, with an indication that net interest income is expected to stabilize within the year.

The paragraph discusses a company's competitive cash programs, which have consistently prioritized client interests, yielding success over time despite fluctuating rates and industry skepticism. Steven Chubak asks about the capital markets compensation ratio and declines in assets under management (AUM) despite positive equity markets. Paul C. Reilly explains that unusual factors impacted results, particularly foreign exchange issues with UK and Canada markets and a firm's departure, which otherwise would have resulted in positive AUM trends.

The paragraph consists of a discussion during an earnings call where Paul Reilly and Butch Oorlog talk about strong asset growth and maintaining their compensation ratio under 65% despite fluctuating interest rates. Oorlog mentions the difficulty in comparing different fiscal quarters due to factors like year-end reversals and suggests focusing on long-term trends. Steven Chubak congratulates the team, and Paul Reilly thanks everyone for their participation, emphasizing the importance of open dialogue and accurate information. The call concludes with the operator thanking the participants.

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