Raymond James Financial Inc

NYSE:RJF

Earnings Call Analysis

Robust Earnings Amid Economic Uncertainty

RJBDP sweep balances increased 12%, though net interest margin (NIM) compressed, impacting net interest income by a 2% decline QoQ. Adjusted compensation costs reflect salary hikes and payroll tax reset, with a total expense forecast of $1.9 billion. Capital actions included $150 million in share repurchases, with plans for $200 million more next quarter. Credit quality remains solid with criticized loans at 1.09%. Despite economic uncertainty, significant achievements include record EPS and client assets, with a positive outlook bolstered by a 9% hike in fee-based account assets, robust adviser recruitment, and potential for capital market recovery. With financial assets under management up 9%, the firm's strong positioning suggests readiness for sustained growth.

Optimistic Start with Record Results amid Market Uncertainties

The company kicked off the earnings call with a positive tone, underscoring the record achievements despite the past year's uncertain climate. Paul Reilly, the CEO, highlighted the strategic priorities that have led to sustained success across varying market conditions. Focus areas include driving organic growth, investing in technology, and prioritizing strategic mergers and acquisitions (M&A).

Substantial Growth in Financial Figures Reflect Steady Strategy

Financial highlights from the call included a marked 8% increase in quarterly net revenues, reaching $3.01 billion, primarily due to higher asset-based revenues. Net income available to common shareholders stood at $497 million, equating to a record $2.32 per diluted share. Adjusted figures excluding certain expenses showed even higher records of $514 million net income and $2.40 per diluted share. These strong returns boasted an impressive annualized return on common equity of 19.1% and adjusted return on tangible common equity of 23.8%.

Record Levels of Client Assets and Focused Recruitment

Client assets soared to a record $1.37 trillion due to robust adviser retention and recruitment strategies. The Private Client Group (PCG) assets in fee-based accounts grew to $747 billion, with financial assets under management at $215 billion. Importantly, the domestic net new assets were a notable $21.6 billion. Recruitment efforts were successful, bringing in financial advisers from larger teams, though the overall financial adviser count remained flat due to retirements and advisers moving to their RIA channel. Management changes were also a focal point, with Jodi Perry assuming a new role to enhance adviser recruitment efforts.

Segments Display Strength and Opportunity amid Interest Rate Challenges

The Private Client Group excelled with $2.23 billion net revenues and $439 million pre-tax income. The Capital Markets segment, despite a challenging environment, achieved $338 million in revenues. Asset Management and Bank segments also displayed growth, although the bank segment saw a slight net interest margin decline due to deposit cost mix changes. The company has ample funding and capital to support loan growth despite muted demand and highlighted a focus on long-term growth of net interest income.

Expense Management and Capital Strength Provide Growth Opportunities

Total compensation for the quarter was $1.92 billion with a compensation ratio of 63.8%. Non-compensation expenses of $462 million decreased by 20% sequentially. The firm remains committed to managing expenses while investing in its growth strategy. With a $1.9 billion projection for non-compensation expenses this fiscal year, the company expects to balance investment with continued high levels of service. Capital levels, reinforced by strong earnings, provide the flexibility needed to explore strategic investment opportunities, with $1.39 billion allocated for stock repurchase authorizations.

Conservative Outlook in an Unpredictable Market

In discussing the company's outlook, CEO Paul Reilly emphasized the unpredictability of the current market but took a confident stance towards continued success in client asset retention and recruitment, particularly of large teams. Despite uncertainties, the firm remains conservative in its approach, aiming to preserve financial flexibility and exploring potential lucrative acquisitions. The company's diversified business model and careful resource allocation are designed to weather market volatility and maintain robust margins. Current targets include a pre-tax margin above 20% and a compensation ratio below 65%, with an update expected at their next Analyst and Investor Day.

Earnings Call Transcript 2024-Q1

[Kristina Waugh, executive]

[ Welcome to ] our first quarter earnings call. This call is being recorded and will be available for replay on the company's Investor Relations website. I'm Kristi Waugh, Senior Vice President of Investor Relations. Thank you for joining us today. With me on the call today are Paul Reilly, Chair and Chief Executive Officer; and Paul Shoukry, Chief Financial Officer. The presentation being reviewed today is available on Raymond James' Investor Relations website. In the prepared remarks, the operator will open the line for questions. Calling your attention to Slide 2. Please note that 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, industry or market conditions, anticipated timing and benefits of our acquisitions and our level of success integrating acquired businesses, anticipated results of litigation and regulatory developments and general economic conditions.

In addition, words such as believes, expects, anticipates, intends, plans, estimates, projects, forecasts and future or conditional verbs such as may, will, could, should and would as well as any other statements 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 the Form 8-K, which are available on our website. Now I'm happy to turn the call over to Chair and CEO, Paul Reilly. Paul?

[Paul Reilly, executive]

Thank you, Kristi. 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 [indiscernible] focused cultures. These priorities have remained consistent over many years. They are to drive organic growth throughout our businesses, invest in technology and service capabilities and to maintain focus on strategic M&A and effective integrations. Through our relentless focus on these priorities, we have maintained long-term success across changing market environments. Now to review the first quarter results, starting on Slide 4. The firm reported quarterly net revenues of $3.01 billion, an increase of 8% over the prior year quarter, primarily due to higher asset-based revenues. Quarterly net income available to common shareholders was $497 million or a record $2.32 per diluted share. Excluding expenses related to acquisitions, adjusted net income available to common shareholders was $514 million or $2.40 per diluted share, both records.

We generated strong returns for the quarter with annualized return on common equity of 19.1% and annualized adjusted return on tangible common equity of 23.8%, a great result, particularly given our strong capital base. Moving to Slide 5. Client assets grew to record levels this quarter, driven by strong adviser retention and recruiting results, along with the strong market. Total client assets under administration increased 9% sequentially to $1.37 trillion Private Client Group assets and fee-based accounts grew to $747 billion and financial assets under management reached $215 billion. PCG continues to generate strong organic growth evidenced this quarter with domestic net new assets of $21.6 billion, representing a 7.8% annualized growth rate on beginning-of-period domestic PCG assets. Advisers are attracted to our robust technology capabilities and client-first values, and through our long-established multiple affiliation options, they can find the right fit for their business.

During the quarter, we recruited to our domestic independent contractor and employee channels. financial advisers with approximately $60 million of trailing 12 production and $13 billion of client assets at their previous firms. These results do not include our RIA and custody services, businesses, which also continued to have recruiting success and finished the quarter with $147 billion of assets. Despite strong recruiting activity, the financial adviser count was sequentially flat, mostly due to an elevated number of retirements, which are seasonally higher in the first quarter but where the firm typically retains the vast majority of assets through previously established succession plans. In addition, advisers moving to our RIA channel are excluded from the adviser count since they no longer carry a FINRA license with us. We announced that the President of our PCG independent contractor division, Jodi Perry, transition to a newly created role of National Head of Advisor Recruiting. Jodi has generated outstanding results in every role she has held in her nearly 30-year career with Raymond James, and I am confident she will continue to strengthen this key growth engine for the firm. This key leadership appointment continues to highlight the importance and focus on adviser recruiting.

With this transition, we are excited about Shannon Reed becoming the PCG Independent Contractor division President and joining the firm's executive committee. Shannon's most recently served as Senior Vice President of our Northeast division. She has background and has been a stellar leader in an important market. Total clients' domestic suite and enhanced program balances ended the quarter at $58 billion, up 3% over September 2023. Balances were boosted by growth in both the enhanced savings program as well as the client sweep balances. Bank loans increased 1% from the preceding quarter to a record $44.2 billion although loan demand remains relatively muted given higher rates. Moving to Slide 6. Private Client Group generated quarterly net revenues of $2.23 billion and pretax income of $439 million. Year-over-year, results were driven by higher asset management fees, reflecting 18% growth of assets in fee-based accounts. The Capital Markets segment generated quarterly net revenues of $338 million and a pretax income of $3 million. Investment Banking revenues grew 15% compared to a year ago quarter due to higher M&A and underwriting revenues. Sequentially, robust fixed income brokerage revenue growth largely offset weaker M&A and affordable housing investment results.

While fixed income results were stronger during the quarter, investment banking activity industry-wide appear to be on a gradual recovery. The uncertain market environment, along with the impact of the amortization of share-based compensation granted in the preceding periods, has strained the near-term profitability of segment results. We remain focused on managing controllable expenses. The Asset Management segment generated pretax income of $93 million on net revenues of $235 million. Results were largely attributable to higher financial assets under management compared to the prior year quarter, due to market appreciation and added inflows into PCG fee-based accounts. The bank segment generated net revenues of $441 million and pretax income of $92 million. Bank segment net interest margin of 2.74% declined 13 basis points compared to the preceding quarter, primarily due to a higher cost mix of deposits as enhanced savings program balances that replaced a portion of lower RJBDP cash suite balances. Now I'll turn it over to Paul Shoukry for a more detailed review of the first quarter results. Paul?

[Paul Shoukry, executive]

Thank you, Paul. Starting on Slide 8. Consolidated net revenues were $3.01 billion in the first quarter, up 8% over the prior year and down 1% sequentially compared to the record set in the preceding quarter. Asset Management and related administrative fees grew 13% over the prior year and declined 3% compared to the preceding quarter. The sequential decline was largely the result of lower fee-based assets at the beginning of the quarter compared to the beginning of the preceding quarter. This quarter, fee-based assets increased 9%, which will be a strong tailwind for asset management and related administrative fees in the fiscal second quarter. Brokerage revenues of $522 million grew 8% year-over-year mostly due to higher transactional activity in PCG. Sequentially, brokerage revenues increased 9%, the result of higher institutional fixed income brokerage revenues as client activity increased and the trading environment was more favorable. I'll discuss account and service fees and net interest income shortly. Investment Banking revenues of $181 million increased 28% year-over-year. Sequentially, the 10% decline was driven predominantly by lower M&A revenues.

We are cautiously optimistic that the environment for M&A is improving, and we continue to see a healthy investment banking pipeline and solid new business activity. However, there remains a lot of uncertainty, and we are hopeful a gradual recovery will lead to better results over the next 6 to 9 months. Other revenues of $38 million were down 30% compared to the preceding quarter, primarily due to lower affordable housing investment revenues compared to the seasonally high fiscal fourth quarter. Moving to Slide 9. Clients' domestic cash sweep and enhanced saving program balances ended the quarter at $58 billion, up 3% compared to the preceding quarter and representing 4.8% of domestic PCG client assets. Advisers continue to serve their clients effectively, leveraging our competitive cash offerings. Many clients have now taken advantage of the attractive enhanced saving program and other high-yielding products. Thus, the pace of flows into this program has decelerated as we expected, growing approximately $900 million or 7% this quarter. A large portion of the total cash coming into ESP has been new cash brought into the firm by advisers, highlighting the attractiveness of this product and Raymond James being viewed as a source of strength and stability.

While we are encouraged by the modest sequential growth of client cash balances during the quarter, which was helped by seasonal tailwinds in the fourth calendar quarter we continue to expect some further yield-seeking activity by clients. Through Monday of this week, sweep and ESP balances are down approximately $1.5 billion for the month of January, primarily due to quarterly fee billings of $1.35 billion. RJBDP sweep balances with third-party banks were $17.8 billion at quarter end up 12% from September 2023. The strong growth of enhanced savings program balances at Raymond James Bank has allowed for more balances to be deployed off balance sheet with third-party banks. While this dynamic has negatively impacted the bank segment's NIM because of the lower-cost sweep balances being swept off balance sheet, it ultimately provides clients when an attractive deposit solution while also optimizing the firm's funding flexibility by providing a large funding cushion for when attractive growth opportunities emerge. Looking forward, we have ample funding and capital to support attractive loan growth.

Turning to Slide 10. Combined net interest income and RJBDP fees from third-party banks was $698 million, down 2% from the preceding quarter due to lower firm-wide net interest income resulting from NIM compression, but outperforming our expectations on the last earnings call as client cash balance were more stable than we expected at that time. The bank segment's net interest margin decreased 13 basis points sequentially to 2.74% for the quarter. and the average yield on RJBDP balances with third-party banks increased 6 basis points to 3.66%. While there are many variables that will impact actual results, absent any changes to short-term interest rates, we currently expect combined net interest income and RJBDP fees from third-party banks to be about 5% lower in the fiscal second quarter compared to the fiscal first quarter just based on spot balances after the fee billings this quarter and our expectation of some continued client cash sorting activity. Hopefully, we can outperform this expectation again this quarter, but we believe it's prudent to err on the side of conservatism, given the continued uncertainty around client cash balance trends. We remain focused on preserving flexibility in growing net interest income and RJBDP fees over the long term, which we believe we are well positioned to do.

Moving to consolidated expenses on Slide 11. Compensation expense was $1.92 billion, and the total compensation ratio for the quarter was 63.8%. Excluding acquisition-related compensation expenses, the adjusted compensation ratio was 63.4%. Looking ahead, the impact of salary increases effective on January 1 and the reset of payroll taxes at the beginning of the calendar year will be reflected in the fiscal second quarter. Non-compensation expenses of $462 million decreased 20% sequentially, largely due to elevated provisions for legal and regulatory matters in the preceding quarter. Whereas this quarter was a relatively quiet quarter for legal and regulatory reserves. The bank loan provision for credit losses for the quarter declined to $12 million. I'll discuss more related to the credit quality in the bank segment shortly. We remain focused on managing expenses while continuing to invest in growth and ensuring high service levels for advisers and their clients. For the fiscal year, we expect non-compensation expenses, excluding provision for credit losses, unexpected legal and regulatory items or non-GAAP adjustments to be around $1.9 billion. This implies incremental non-compensation growth throughout the year as we continue to invest in growth and ensure high service levels for advisers and their clients throughout our businesses.

And remember, many of the non-compensation expenses, such as investment sub-advisory fees, represent healthy growth that follows the corresponding revenue growth. Slide 12 shows the pretax margin trend over the past 5 quarters. This quarter, we generated a pretax margin of 20.9% and an adjusted pretax margin of 21.7%, a strong result given the industry-wide challenges impacting capital markets. As a reminder, our current targets provided at our Analyst and Investor Day last May, are for a pretax margin of 20-plus percent and a compensation ratio of less than 65%. We still think these targets are appropriate, and we will provide an update as needed at the next Analyst and Investor Day scheduled for May 22. On Slide 13, at quarter end, total balance sheet assets were $80.1 billion, a 2% sequential increase. Liquidity and capital remained very strong. RGF corporate cash at the parent ended the quarter at $2.1 billion, well above our $1.2 billion target. And we remain well capitalized with a Tier 1 leverage ratio of 12.1% and a total capital ratio of 23%.

Our capital levels continue to provide significant flexibility to continue being opportunistic and invest in growth. The effective tax rate for the quarter was 21%, reflecting a tax benefit recognized for share-based compensation that vested during the period. Going forward, we still believe that 24% to 25% is an appropriate estimate to use in your models. Slide 14 provides a summary of our capital actions over the past 5 quarters. During the quarter, the firm repurchased 1.4 million shares of common stock for $150 million at an average price of $107 per share. As of January 24, 2024, a approximately $1.39 billion remained available under the Board's approved common stock repurchase authorization. Our current plan, which is subject to change, is to repurchase at least $200 million of shares in the fiscal second quarter to complete the remaining repurchases associated with the dilution from the TriState Capital acquisition. Following the second quarter, we expect to continue to offset share-based compensation dilution and to be opportunistic with incremental repurchases.

Lastly, on Slide 15, we provide key credit metrics for our bank segment, which includes Raymond James Bank and TriState Capital Bank. The credit quality of the loan portfolio is solid. Criticized loans as a percentage of total loans held for investment ended the quarter at 1.09%. The bank loan allowance for credit losses as a percentage of total loans held for investment ended the quarter at 1.08%. The bank loan loss allowance for credit losses on corporate loans as a percentage of corporate loans held for investment was 2.06% at quarter end. We believe this represents an appropriate reserve, but we continue to closely monitor economic factors that may impact our corporate loan portfolio, including the commercial real estate portfolio. Within the CRE portfolio, we have prudently limited the exposure to office loans, which represent just 3% of the bank segment's total loans. Now I'll turn the call back over to Paul Reilly to discuss our outlook. Paul?

[Paul Reilly, executive]

Thank you, Paul. As I said at the start of the call, I am pleased with our results for the first fiscal quarter, generating record earnings per share and ending the quarter with record client assets. And while there is still 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 positively impacted by the 9% sequential increase of assets in fee-based accounts. Near term, we expect some headwinds to the interest-sensitive earnings at both PCG and the bank segment, given ongoing cash sorting activity in uncertain rate environment. However, we are already seeing some of the higher-yield competitor rates coming in. Despite this, I believe our effort and focus on being a destination of choice for our current and prospective advisers will continue to drive industry-leading growth. Our adviser recruiting activity remains robust, including a record number of large teams in the pipeline.

In the Capital Markets segment, we continue to have a healthy M&A pipeline and good engagement levels. But our expectations for a gradual recovery are heavily influenced by market conditions, and we would expect activity to likely pick up over the next 6 to 9 months. And the fixed income business we saw improvements in this quarter with higher activity, but the dynamics of the past year persists. Depository clients are experiencing flat to 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 will start to see an improvement. Despite some of the near-term challenges, we believe capital markets business is well positioned for growth once the market and rate environment become conducive. In the Asset Management segment, financial assets under management are starting the fiscal second quarter, up 9% over the preceding quarter, which should provide a tailwind to revenues. We remain confident that strong growth of assets in 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 diversified funding sources and prudently growing assets to support client demand. We have seen security-based loans 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 muted. However, spreads have improved and with ample client cash balances and capital, we are well positioned to lend once activity increases in our conservative risk parameters. In addition to our focus on organic growth across our businesses, we have also ramped up corporate development efforts.

In closing, we are well positioned entering the second fiscal quarter with strong competitive positioning in all of our businesses and solid capital and liquidity base to invest in future growth. As always, I would be remiss if I did not thank our advisers and associates for their continued dedication to providing excellent service to their clients. Thank you for all you do. That concludes our prepared remarks. Operator, will you please open the line for questions?

[Operator]

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

[Y. Cho, analyst]

For my first question, I just wanted to touch on net new assets. I mean, clearly, there seems to be a pickup in M&A and you continue to call out a robust recruiting backdrop. The question is what do you think is driving that NNA acceleration now? And how much do you think a more stable macro outlook could contribute for M&A acceleration from here?

[Paul Reilly, executive]

Well, historically, like this quarter, it's a pretty good M&A 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 in retirement, so 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 [ FINER ] license. So if you look at the net asset -- net new assets, you go over the last few years. I mean we continue to be near the top of the market or at the top of the market. And it's really just the great retention and robust recruiting. And as we recruit larger and larger teams, a lot of those teams are -- their businesses are still growing significantly, and it's really generating net new assets. And of course, there's market help, right? If the market goes up, you bring people over the assets or higher. So, but we feel pretty comfortable. And as we announced, we brought over Jodi Perry to really even add more robust the store recruiting efforts, which were kind of diversified or spread out between the channels, but really bring them together to a more unified effort. We think we can do better than we have been doing

[Y. Cho, analyst]

Okay. Great enough. I just want to switch gears on the capital markets side of 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 Raymond James now 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?

[Paul Reilly, executive]

Back in the last -- the peak of the last market, we exceeded $10 million per MD. So I mean, we generate a very, very high productive number. If you go back a few years, we were a couple of million dollars for EMV. And that really is the difference. So part of that is the market. But certainly, a part of that was the high-quality MDs recruited and the teams that joined us. So I don't know what that number is in a good market. I think we could still produce that number or better. We continue to recruit people and some of the businesses that we felt were subscale or didn't have the senior people that we wanted. And I think the productivity is still there. So if we had a market as robust as we did a couple of years ago, we could top that $10 million, but certainly we'd be much higher in the high single digits, I think, in a reasonable market. But again, the market, as we said, is we see slow improvement, but nothing that's really moving quickly up but moving up steadily.

[Operator]

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

[Devin Ryan, analyst]

Good evening, Paul and Paul. So first question, if we go back to early calendar 2023, you guys have built a fair amount of liquidity and maybe gave up some interest income short term. And I think the view was that lending spreads could widen out. And so you wanted to have some capacity, and obviously, there's also a reason to be conservative at that time. But it did seem like some of that maybe the headwinds to spread revenues was more of a timing dynamic and intentional. So looking at today, you still have a lot of excess liquidity to grow loans if you see attractive risk-adjusted returns. So I'm just curious if kind of that view still holds that you had kind of through most of calendar 2023. And then are those better spreads materializing as maybe you thought they would? Or are you still waiting for that? Are you trying to think about the interplay with that and then accelerating the lending activity into that as well.

[Paul Reilly, executive]

Yes. I think there's two pieces to that, Devin, is that we have seen spreads widen. The problem 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 are 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 the SBL loans and things which was deteriorating. We've seen that the payoffs 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.

[Devin Ryan, analyst]

Okay. And then just a follow-up on the institutional fixed income brokerage. Obviously, really material improvement in the quarter and you kind of run rating over $400 million last year you did mid-300s. And just looking at like 2023, relative to 2021, you're down over 30% even though you have some ridge today and arguably a bigger, better business. So I'd love to just think about kind of the -- some of the momentum that you saw in the quarter in the depositories, maybe becoming more active again? And just how to think about kind of what a normalization in that business looks like. Is it the, call it, a little bit over $400 million run rate that we saw in this quarter? Or is it something better? And is this quarter kind of a good jumping off point because it is like to start change from the prior quarter.

[Paul Reilly, executive]

Yes. So it's first a pretty fickle market. [ Some ridge ] has done well a whole time. They created on volatility. So if you look at volatility, you could probably look at their results. They're really good, very hedged, very focused corporate training 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 look like they were going to come down, they got much more active. So I think that environment, which has been okay beginning of the year, but it's too early to tell is what happens with the rates. People really think these are peak rate and liquidity continues to feel settled, they'll get more active or at least be active as they are today. But I don't see the return to 2 years ago until the market really gets a lot better and a lot stable. But the guys, they've performed very, very well. And it's just if rates go up, it's going to be a headwind if rates go down some or the view of rates going down materializes or people get confident I think it will pick up.

[Operator]

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

[Daniel Fannon, analyst]

Wanted to follow up on your comments around cash sorting and your expectation that you expect that to continue. And curious if that's just some of the seasonal cash coming back into the market that may be built up in December and/or what other factors you think that are going to continue to have that be an ongoing trend beyond the billing and other things you mentioned so far in January?

[Paul Shoukry, executive]

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. But really money market funds are the yields there are really the biggest competitor we have, if you will. And those yields are still attractive. And so we still have to have attractive alternatives to bring in new cash to compete against the money market funds. So as I said in the last couple of calls, I think we're much closer to the end of that cash sorting dynamic than we get closer and closer, I feel like every quarter, but we're not going to declare that it's over until we have several months of history to prove it out.

[Paul Reilly, executive]

And I think that people look at kind of the beta there is we'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 market, 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 saw.

[Daniel Fannon, analyst]

And then just as a follow-up, within PCG, insurance and annuity products have been growing in a bigger contributor. Just curious with the DOL's proposal, how you think that these products might be impacted or momentum that might be impacted by the proposal.

[Paul Reilly, executive]

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 have 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 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 kind of early to speculate on that, so it's finalized until we see if it really can withstand the third quarter challenge.

[Operator]

Your next question comes from the line of Kyle Voigt from KBW.

[Kyle Voigt, analyst]

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 Shoukry, executive]

Yes, Kyle, our position on taking duration on the balance sheet has remained very consistent through different rate cycles, which certainly positioned us well this time last year, which is really to keep more of a floating rate balance sheet and not try to time rates one way or the other. To the extent that we do take duration on the balance sheet, we really wanted to be to support and accommodate client needs. -- mortgages and those tax exempt loans, et cetera. And so we're really not looking to try to time what might happen to rates. I know the forward curve has been wrong more than right in the last 2 to 3 years and have misguided a lot of other firms. And so we're just going to remain flexible and really focus on getting clients versus making best for our own benefit.

[Paul Reilly, executive]

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

[Kyle Voigt, analyst]

Yes. Understood. Maybe just a question on the noncomp expense guidance of $1.9 billion. I think that implies a 10% increase or so in the average noncomp expenses for the remaining three quarters versus the first quarter run rate. I know there's some variable expenses that you laid out in terms of the investment advisory fees, but just wondering if you could expand a bit on some of the other areas where you may be ramping investments through the remainder of the year.

[Paul Shoukry, executive]

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 -- and so we -- and so 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, an unexpected legal and regulatory reserves because it's just -- it's impossible for us to try to forecast those over the next 3 quarters.

[Paul Reilly, executive]

And that was kind of our initial guidance was the 1.9%. So we're just -- it is lumpy, but we still think that's a good number.

[Operator]

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

[Brennan Hawken, analyst]

Curious if you could maybe disclose what portion of your client asset base is in retirement accounts. And also when you think about recruiting, typically, how much of those assets tend to come in, in the form of retirement accounts, IRAs and the like.

[Paul Shoukry, executive]

Yes, we'll provide more of that breakout at our Analyst Investor Day in May. When we 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.

[Brennan Hawken, analyst]

Okay. And then when you think about NNA had a nice jump here this quarter, was there a bank activity within the bank channel here in the quarter that might have caused some of the significant quarter-over-quarter changes. And generally, what's your outlook for growth coming from that channel in the near term?

[Paul Reilly, executive]

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 giving our competitors this quarter and still believe we have opportunity to keep -- we don't forecast a number, but I think we can be right at the top of NNA.

[Operator]

Our next question comes from the line of Bill Katz from TD Cowen.

[William Katz, analyst]

Maybe to mix up the topics a little bit. I was wondering if you 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 that subset to that, what's your incremental thinking of inorganic opportunities at this point? And what might you be looking at?

[Paul Reilly, executive]

So we think, first, we were a little late into the quarter because we had [indiscernible] blackout given an accrual for our off-platform communications. So we get a little late jump. And so we weren't in a rush we had a good period in that market, so we didn't try to catch up. But we're committed to next quarter, the $200 million, which I think will catch us up on the Tri-State commitment and continue on our dilution and as we go forward, to be opportunistic, we are trying to balance, as we've said, we've put a new Head of Corporate Development. We're seeing a lot of opportunities in the market. We want to make sure that -- just like -- I remember timing 2 years ago, we present [indiscernible] we're going to spend the cash when we got over 12%. And we did 6 acquisitions in 18 months, right? And got our ratio down to 10%. So -- and the reason we could do them is we have capital on the balance sheet. And we think there are opportunities. The problem is you never know if they're actionable. You can talk a lot but we're certainly out in the market and looking. And so we just try to balance those two. The good news is we have strong earnings, so we understand we'll keep adding the capital base. But we were just trying to balance the two of them. We think $200 million is a good target. And if we can get -- if we get to the point where we don't think there are accretive acquisitions that would be accretive to the positioning of firm, not just earnings. We will buy back stock. We're not trying to hoard capital. RSUs at least half of them are we and TSR base, so we're not trying to work capital just for fun. We just think it's the right thing to do, looking at the potential opportunities.

[William Katz, analyst]

Okay. Just a follow-up. Maybe talk about margins for a moment. I appreciate we look forward to the Investor Day in the spring. Just conceptually, though, to the extent that the investment banking backdrop were to pick up, how do we think about the incremental margin in both the segment and how that might translate down to the holding company at this point in time? Obviously, you're running about breakeven if you will. I'm just trying to think through the puts and takes of some pressure on NII offset by maybe a little bit more countercyclical pickup in the iBank and then how that might fill it down to profitability.

[Paul Shoukry, executive]

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. But we have a diversified business. So there's always puts and takes. And what we don't try to do is sell you on a story that just adds the incremental margin of everything happening to the plus side without factoring in potential offsets. And so we think that's a more balanced approach. But obviously, all else being equal, if we had the same exact sort of performance from the other businesses with the upside potential of capital markets that would be accretive to the margins overall for the firm, but we're just reluctant to guide that now given all the uncertainties, particularly around cash sorting dynamics, which is a huge driver of margins. The cash balances and where interest rates are as a big driver of margins for the firm. So we're going to be conservative there until things stabilize.

[Operator]

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

[Steven Chubak, analyst]

Wanted to start off with a question on deposit betas and pricing flex amid rate cuts. Just one of the challenges that we collectively are grappling with is that your mix of deposits is quite different than peers. You have a lower concentration of higher beta savings deposits that should carry very high deposit betas with rate cuts. At the same time, your current payout on your sweep deposits is actually much more competitive than your peer set. So I was hoping you could frame separately what your expectation is for deposit pricing flex on the ESP piece versus the sweep deposits within the bank channel?

[Paul Shoukry, executive]

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 Tri-State acquisition, we have -- they have $18 billion of deposits now, which are higher cost deposits and a 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. And then as you point out, the BDP, the sweep deposits we were much more generous than most of our competitors on the way up, which gives us more kind of cushion on the way down as well with those deposits. So as Paul said, it's going to be a competitive dynamic, something that we'll look at as rates move, but we feel really good about the position we're in right now.

[Steven Chubak, analyst]

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?

[Paul Shoukry, executive]

Yes. I mean, I guess what I would say is if you kind of look at the revenues now versus the revenues of the peak of capital markets and being breakeven now versus getting a 26% margin, during the peak of capital markets. I mean it's pretty linear. There's a lot of incremental margin as you grow revenues from the current base to where we were at that point in time. So it also depends on, frankly, the mix of revenues in capital markets, how much comes from M&A versus underwriting versus fixed income. All those businesses have different incremental margins, too. So we can make up a simplistic number for modeling purposes, but frankly, I think it would be false precision. And we also know that the dynamics that may help the capital markets business may be dynamics that may positively or negatively impact our other businesses. So with generating a 20% plus margin and generating record earnings in the last 3 years in very different market environments, is something that really reinforces the value of having our diversified business model and being able to generate return -- adjusted returns on tangible common equity of over 20% -- 23% this quarter. On our strong capital basis without the support of capital markets is something we're really happy about.

[Operator]

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

[James Mitchell, analyst]

Maybe just a quick question on the brokered sweeps. You've your yield 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?

[Paul Shoukry, executive]

Yes. We're still seeing a lot of demand for these deposits across the banks that we deal with. So we still think that there's pricing power. But in fairness, the pricing power we're talking about is 5 basis points to 10 basis points, which on the balances of $17 billion is meaningful, but it pales in comparison to what's happening with the base rates nowadays. So -- and what might happen going down or up. So -- we still think there's pricing power. There's a lot of demand for these deposits. But we're hopeful that over the next year or 2, we're using more of these deposits to grow the balance sheet and support clients with loan activity, which generates a higher yield and returns for the firm overall.

[James Mitchell, analyst]

Great. Makes sense. And then maybe as a follow-up on just sort of the large team pipeline sort of had 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?

[Paul Reilly, executive]

Yes. I don't know if I have those exact numbers, I will say, we didn't see $10 million teams a year or 2 to go. Now we see $20 million and $30 million teams that are the batting average is pretty good, but there's a lot of competition. We're not the highest payer, but we still we're still doing really, really well. Yes, we have a lot in the door. But right now, when we say in the pipeline, they're not committed. We're in the middle of -- we're right there neck and neck, and we I think we have a pretty good read on who will come in or not or who are close and you stay at it. So, but it's a large number, and we're actually honestly a little surprised. I think it's -- it's both the growth of our firm and our platform, the high net worth initiatives that we've had and what we've built really since Alex Brown has joined us with their help being a place for people in the high ethanol ultra-high net worth feel very comfortable. And then our technology and our systems and culture, it's all combined to add it to a place where, frankly, if you'd asked us a couple of years ago, we would say we wouldn't have told you would expect $10 million, $20 million, $30 million teams, multiple teams at one time. So our job is to get them in the door, right? So the good ones. So that's what we work hard on.

[Operator]

Your next question comes from the line of Mark McLaughlin from Bank of America.

[Mark McLaughlin, analyst]

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?

[Paul Reilly, executive]

Yes. First, everyone uses them. So if you want to recruit with 0 transition system to [ lock them in ] you might bring some people in but not much. I mean advisers feel there's a value to their practices. And want a fair return on those. So that is part of recruiting for all the firms. Not so much in the RA channel, but certainly in the employee and independent channel. We've consistently since my time and before have not been the highest on purpose. And -- we want -- we've always said it's part of self-selection that we want people to come because they believe it's the right place, not for the highest check. Now having said that in the last few years, transition as systems has gone up. So we've had to make adjustments, but I mean we're rarely ever the highest offer. I mean, we rarely match the highest offer, and we still have a very good batting average. So but that's part of the business.

[Operator]

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

[Alexander Blostein, analyst]

Paul, I was wondering if you could just expand a little bit on the comment earlier to Bill's point around building excess capital position and the fact that the last time you guys were over 12% Tier 1 leverage you went out and did a significant number of deals. So maybe articulate a little bit more what the M&A pipelines look like for the business today? And what areas within Raymond James look most interesting from an inorganic perspective?

[Paul Reilly, executive]

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, somewhere 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, we're just 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 taking 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 are 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. And so part of that sometimes solves over timing or part of that people say, well, at this valuation, we're not going to sell, and that happens in all the segments. But the number of dialogues are up, the interest, I mean, sustained dialogue, and some we walk from. Some they walk from some we just say, hey, maybe it's not the right timing price-wise, and that was no different than the dynamic a few years ago and then all of a sudden, for we were after for a while and to, we came out of the blue almost, so we found all closed. So we can't predict that timing. And don't want to even try because there's nothing concrete to predict it. But when there's enough activity, we want to make sure you have enough capital that if that time does come that you can execute.

[Operator]

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

[Michael Cyprys, analyst]

I wanted to come back to some of your comments on the recruiting backdrop. I was hoping you might be able to elaborate a bit on the competitive environment today versus, say, 6 or 12 months ago for recruiting? And how you might expect that to evolve if rates come down over the next year

[Paul Reilly, executive]

Recruiting, my 15th year, I think, in this role. I mean, since I've been everybody told me recruiting was going to slow down, and it's just picked up. They're the aging adviser there'd be no more advisers left. And we see teams in their 40's 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 -- in 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 as they want to leave. The technology platform and well, we think is second to none, and that's what the industry awards would say. So you got to keep competing. And it hasn't slowed down yet. Probably the biggest change in the competitive [ labscape ] has been RA roll-ups that pay prices that we can't quite figure out and it's a bet on aggregating and being able to go to market at some point, even though those private multiples are much higher than the public multiples. So that's a new competitor. Its kind of lead price. Now people are selling their firms versus having people still kind of owning their businesses. So that's the newest dynamic. And in an area which is I call a new competitor. But again, the advisers choice, right, how do they want to practice, that they want to own their business and get all the support of a leading technology for a great place if they want to sell their business at a pretty high multiple to roll up, so we're trying to aggregate and then monetize later. I mean that's certainly a viable market option that wasn't really there in 3 years.

[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.

[Paul Reilly, executive]

Great. I just want to thank you all for attending. I think we're in great shape with certainly, good tailwinds with that asset number being up 9%. The markets may be a surprise us all continue to be robust. But if they continue, we're in great shape there. And the cash dynamic will sort itself at some time. If the Board curves right at all, even if it's delayed, that will ultimately [indiscernible] when that happens. But right now, we just -- as you know, we're conservative, so we always look at it as I said, Paul, about this 5% decline in the last few quarters. We haven't quite hit that yet. You get it again, but we don't know. So we try to be conservative and if rates do moderate or come in, we'll get some tailwinds there for the industry. So thanks for joining, and we'll talk to you again.

[Operator]

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