Raymond James Financial Inc

NYSE:RJF

Earnings Call Analysis

Raymond James Posts Record Earnings and Strong Asset Growth

In fiscal 2024, Raymond James achieved record fourth-quarter net revenues of $3.46 billion and net income of $601 million. Client assets surged to $1.57 trillion, a 6% increase, with a robust $60.7 billion in domestic net new assets for the year, marking 5.5% growth. Despite losing $3 billion in advisor assets, the firm expects continued growth driven by strong recruiting and improved capital markets. Share repurchases totaled $900 million in the fiscal year, with guidance indicating further buybacks to offset dilution. Looking ahead, asset management fees are predicted to benefit by about 6% in the next quarter from increased fee-based assets.

Record Performance Amid Challenges

In the fourth quarter of fiscal 2024, Raymond James Financial reported record net revenues of $3.46 billion, a 13% increase year-over-year. This achievement capped off a fiscal year with net income available to common shareholders reaching $2.06 billion, a 19% increase from the prior year. Despite challenges posed by recent hurricanes affecting operations in the Southeast, the company managed to deliver outstanding financial results, demonstrating resilience and strategic management amid adversity.

Strong Asset Growth and Recruiting Success

Total client assets reached record levels in the fourth quarter, climbing to $1.57 trillion due to a combination of market appreciation and successful adviser recruitment. The Private Client Group (PCG) saw a sequential growth of 6% in fee-based accounts and reported $875 billion in financial assets under management. Notably, the company successfully recruited advisers with approximately $335 million of trailing 12-month production and $56.7 billion of client assets throughout the fiscal year, evidencing its status as a destination of choice for advisers.

Investment Banking and Capital Markets Show Robust Growth

The company's Investment Banking segment reported revenues of $315 million for the fourth quarter, representing a 56% increase year-over-year. This significant growth was powered by an uptick in mergers and acquisitions (M&A) activity. The market environment has become progressively more favorable for investment banking, and a healthy pipeline is anticipated for continued momentum into the next fiscal year.

Cost Management and Margin Performance

Consolidated expenses for the quarter totaled $2.16 billion, leading to a compensation ratio of 62.4%. Despite numerous challenges, the company maintained a pretax margin of 22%, an improvement from previous quarters. The robust performance in both revenue growth and effective cost controls helped bolster overall margins, positioning the company for favorable operating leverage moving forward.

Outlook and Guidance for Fiscal 2025

Looking ahead, management remains optimistic about fiscal 2025, expecting that the sequential increase in assets will benefit asset management and related fees by approximately 6% in the upcoming fiscal quarter. The company's advisers' recruiting efforts are projected to bolster growth, particularly in the Capital Markets and Asset Management segments, with expectations of continued strong demand for investment services as market conditions improve.

Commitment to Return Capital to Shareholders

During the fourth quarter, Raymond James repurchased 2.6 million shares for $300 million. For the fiscal year, total share repurchases reached 7.7 million shares at approximately $117 each, marking a commitment to return $1.3 billion in capital to shareholders through dividends and buybacks. This strategy not only supports share price but also reflects confidence in the company’s financial strength and stable cash flow.

Sustained Focus on Technology and Growth

The management highlighted ongoing investments in technology, which they believe will be crucial in maintaining competitiveness in an evolving financial services landscape. These investments aim to enhance advisers' capabilities and improve client service, which is essential for long-term growth and operational success.

Earnings Call Transcript 2024-Q4

[Kristina Waugh, executive]

Good evening, and welcome to Raymond James Financial's Fiscal 2024 Fourth Quarter Earnings Call. This call is being recorded and will be available for replay on the company's Investor Relations website. I'm Kristie Waugh, Senior Vice President of Investor Relations, and thank you for joining us.

With me on the call today are Chair and Chief Executive Officer, Paul Reilly; President, Paul Shoukry; and Chief Financial Officer, Butch Oorlog. The presentation being reviewed today is available on our Investor Relations website. Following 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 in 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 statement 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 Forms 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, Kristie. Good evening, and thank you for joining us today. Before I discuss our fourth quarter and fiscal year earnings, I want to start by acknowledging the heartbreaking devastation our associates, advisers, friends and neighbors experienced over the last several weeks. With hurricanes, Helene and Milton impacting communities throughout the Southeast, including the St. Petersburg, Tampa Bay area where Raymond James is headquartered as well as the Carolinas and Georgias, thousands across the region experienced unprecedented flooding, power outages, property damage and devastation. We enacted our business continuity plans and with our service workforce almost equally distributed across offices in St. Pete, Memphis and Southfield Michigan, colleagues outside impacted areas stepped in to ensure continuous service coverage. Even those affected associates and advisers continue to serve clients while facing storm and evacuations, often working remotely from safe locations.

The storm left a long recovery road ahead of us for all of their path. And while it's been difficult to bear witness to the pain and loss, I have also been humbled by the resilience of our associates, advisers and our community. Following the hurricane, the firm and leadership team have contributed almost $11 million to associate and community relief, including stipends to eligible associates and donations, The Friends of Raymond James, the American Red Cross, the United Way Suncoast and other charitable organizations across impacted communities.

In addition to granting associates the time needed to navigate recovery efforts, the firm continues to provide comprehensive resources and benefits, including information about financial support, immediate aid, relocation services and wellness benefits. Challenging times like these highlight the importance of always putting people first, which has always been the foundation of Raymond James. The preparation perseverance and response to the storm reflect the long history of Raymond James service culture, and I'm especially proud to represent our team today.

Now moving to our quarterly performance. We achieved strong results once again, concluding another fiscal year with outstanding achievements. In fiscal 2024, we generated record net revenues and record net income, showcasing the strength of our diverse and complementary businesses. We ended the year with record client assets, healthy pipelines for growth across our business and ample funding to support the balance sheet. We remain well positioned to continue to invest in our business, our people and technology to help drive growth across all of our businesses.

Beginning on Slide 4. The firm reported record fiscal fourth quarter net revenues of $3.46 billion, net income available to common shareholders of $601 million and earnings per diluted share of $2.86. Excluding expenses related to acquisitions, adjusted net income available to common shareholders was $621 million or $2.95 per diluted share. We generated strong returns for the quarter with annualized return on common equity of 21.2% and annualized adjusted return on tangible common equity of 25.8%, a great result, particularly given our strong capital base.

During the fiscal quarter, we repurchased 2.6 million shares of common stock for $300 million, bringing our fiscal year total to 7.7 million shares for $900 million at an average price of $117 per share. In total, we returned nearly $1.3 billion of capital to shareholders through a combination of share repurchases and dividends in the fiscal year.

Moving to Slide 5. Client assets grew to record levels this quarter, driven by rising equity markets and solid adviser retention and recruiting in the Private Client Group. Total assets under administration increased 6% sequentially to $1.57 trillion. Private Client Group assets and fee-based accounts grew to $875 billion in financial assets under management to $245 billion. Domestic net new assets during the quarter were $13 billion, representing a 4% annualized growth rate on the beginning of the period domestic PCG assets. And for the fiscal year, domestic net new assets were $60.7 billion, representing a 5.5% growth rate on beginning of the period domestic Private Client Group assets. A key contributor to the net new asset growth is our continued recruiting results, which were really strong this quarter.

To our domestic independent contractor and employee channels, we recruited financial advisers with approximately $100 million of trailing 12-month production and a $17.5 billion of client assets at their previous firms. Including assets recruited into our growing RIA & Custody Services division, which we refer to as RCS, we recruited across all platforms total client assets during the quarter of $22.3 billion, surpassing the previous best quarter, which occurred in 2021 in terms of recruited assets. For the fiscal year, we recruited financial advisers with approximately $335 million of trailing 12-month production and $56.7 billion of client assets at [ your ] previous firms.

Recruiting in the year production and assets equal to that of a pretty good sized firm. RCS asset growth is bolstered by both external joins as well as from internal transfers and RCS finished the quarter with $181 billion of client assets under administration, up 36% over the prior year level. This quarter, we reported financial advisers of 8,787. Overall, these fantastic recruiting results reflect the continuous focus of the entire firm to ensure Raymond James remains a destination of choice for advisers.

As we had mentioned in previous quarters, there are a couple of OSJ relationships in our independent contractor division who had decided to leave the platform. It takes time to effect these movements, but a portion of those assets left the firm in the fiscal fourth quarter totaling roughly $3 billion of AUA. We anticipate approximately $5 billion of assets associated with these firms to complete their transfers off the platform in early fiscal 2025. Adjusting for these transferred assets, net new assets growth in the quarter would have been approximately 5%. Overall, we remain focused on serving advisers across our multiple affiliation options. Our robust technology capabilities and client-first values continue to enable us to retain and attract high-quality advisers.

Total client domestic cash sweep and enhanced savings program balances ended the quarter at $57.9 billion, up 3% over June of 2024. Bank loans grew at 2% over the preceding quarter to a record $46 billion primarily due to higher securities-based loans, which grew 5% in the quarter as well as continued residential mortgage growth.

Moving to Slide 6. Private Client Group generated record quarterly net revenues of $2.48 billion and pretax income of $461 million. Year-over-year, results were bolstered by higher PCG assets under administration due to a strong equity market and net new assets brought into the firm, reflecting positive results from our long-term focus and patience to hold the course in our capital markets businesses generated quarterly net revenues of $483 million and a pretax income of $95 million. Net revenues grew 42% year-over-year and 46% sequentially, driven primarily by higher M&A revenues as the market environment became more supportive of transaction closings in the quarter. Market conditions seem to be improving, and we are optimistic about our healthy pipeline and new business activity and M&A.

The Asset Management segment generated record pretax income of $116 million on record net revenues of $275 million. Results were largely attributable to higher financial assets under management compared to the prior year quarter due to market appreciation and net inflows in PCG fee-based accounts as well as modest net inflows into Raymond James Investment Management. The bank segment generated net revenues of $433 million and pretax income of $98 million. Bank segment net interest income increased 1% due in part to higher loan balances. The net interest margin for the segment of 2.62% declined 2 basis points compared to the preceding quarter.

Looking at the fiscal year 2024 results on Slide 7, we generated record net revenues of [ $12.82 billion ] and record net income available to common shareholders of $2.06 billion, up 10% and 19%, respectively, over the record set in the prior year. Additionally, we generated strong returns on common equity of 18.9% and adjusted return on tangible common equity of 23.3% for the year.

On Slide 8, the record results in PCG and Asset Management segments for the fiscal year primarily reflected a strong organic growth in PCG along with robust equity markets. Now I'll turn the call over to our new CFO, Butch Oorlog, to review our financial results in detail. Butch?

[Jonathan Oorlog, executive]

Thank you, Paul. Turning to Slide 10. Consolidated net revenues were a record $3.46 billion in the fourth quarter, up 13% over the prior year and up 7% sequentially. Asset management and related administrative fees grew to $1.66 billion, representing 15% growth over the prior year and 3% over the preceding quarter. This quarter, PCG domestic fee-based assets increased 7%, which will be an approximate 6% tailwind for asset management and related administrative fees in the fiscal first quarter. Brokerage revenues of $561 million grew 17% year-over-year, primarily due to higher brokerage revenues in PCG and fixed income capital markets. I'll discuss account and service fees and net interest income shortly. Investment Banking revenues of $315 million increased 56% year-over-year and 72% sequentially. Fourth quarter results benefited from a significant increase in M&A revenues.

Moving to Slide 11. Client domestic cash sweep and enhanced savings program balances ended the quarter at $57.9 billion, up 3% compared to the preceding quarter and representing 4.2% of domestic PCG client assets. So far, in the fiscal first quarter, domestic cash sweep balances have declined about $1.3 billion attributable to record quarterly fee billings.

Turning to Slide 12. Combined net interest income and RJBDP fees from third-party banks was $678 million, up 1% over the preceding quarter. The bank segment net interest margin was down 2 basis points to 2.62% for the quarter, while the average yield on RJBDP balances with third-party banks decreased 7 basis points to 3.34%, primarily due to the Fed rate cut. Based on current rates and balances, which reflects the September rate cut and the impact of quarterly fee billings, we would expect the aggregate of NII in RJBDP third-party fees to be down approximately 5% in the fiscal first quarter. Keep in mind, there are a lot of variables that could impact that estimate, including further rate actions, which are not assumed.

Turning to consolidated expenses on Slide 13. Compensation expense was $2.16 billion, and the total compensation ratio for the quarter was 62.4%. Excluding acquisition-related compensation expenses, the adjusted compensation ratio was 62.1%. Non-compensation expenses of $543 million increased 10% sequentially, and largely due to the bank loan provision for credit losses, which was a benefit in the preceding quarter. For the fiscal year, non-compensation expenses, excluding the bank loan provision for credit losses, unexpected legal and regulatory items and non-GAAP adjustments presented in our non-GAAP financial measures came in just under our expectation of $1.9 billion. While we maintain discipline in controlling our expenses, we continue to invest to support growth across the business.

Slide 14 shows the pretax margin trend over the past five quarters. This quarter, we generated a pretax margin of 22% and adjusted pretax margin of 22.7%, an increase over the prior quarter, arising in part from the improved capital markets results.

On Slide 15. At quarter end, our total assets were $83 billion, a 3% sequential increase, largely due to loan growth and higher cash balances primarily held in our bank segment. Liquidity and capital each remained very strong. RJF corporate cash at the parent ended the quarter at $2.2 billion, well above our $1.2 billion target with a Tier 1 leverage ratio of 12.8% and total capital ratio of 24.1%, we remain well capitalized. Our capital levels provide significant flexibility to continue being opportunistic and invest in growth. The effective tax rate was 20.8% for the quarter, primarily reflecting the favorable impact of nontaxable valuation gains associated with the corporate-owned life insurance portfolio.

Slide 16 provides a summary of our capital actions over the past five quarters. During the quarter, the firm repurchased 2.6 million shares of common stock for $300 million at an average price of $115 per share. For the fiscal year, we repurchased 7.7 million shares for $900 million. As Paul noted earlier, in total, we returned capital to shareholders of approximately $1.3 billion during the fiscal year through dividends and share repurchases. As of October 19, approximately $645 million remained under the Board's approved common stock repurchase authorization. Going forward, we expect to continue to offset share-based compensation dilution and to be opportunistic with incremental share repurchases. Given our present capital and liquidity levels, we currently expect to keep a similar pace of buyback activity as we did during this quarter or possibly more as we remain committed to maintaining capital levels in line with our stated targets.

Lastly, on Slide 17, 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 remains solid. Nonperforming assets remained low and relatively unchanged from the prior quarter level at 28 basis points of bank assets. Criticized loans as a percentage of total loans held for investment ended the quarter at 1.47%, up from 1.15% in the preceding quarter, primarily due to a small number of idiosyncratic loan downgrades. The bank allowance for credit losses as a percentage of total loans held for investment ended the quarter roughly unchanged from the prior quarter level at just under 1%. The allowance percentage has trended lower, largely due to a loan mix shift toward more securities-based loans and residential mortgages which carry lower allowance levels and now account for 35% and 20% of the total loan portfolio balances, respectively. The bank loan allowance for credit losses on corporate loans as a percent of corporate loans held for investment was largely unchanged from the preceding quarter at approximately 2% at quarter end.

We believe this represents an appropriate reserve, but we continue to closely monitor economic factors that may impact our loan portfolios. Now I'll turn the call over to Paul Shoukry to discuss our outlook. Paul?

[Paul Shoukry, executive]

Thank you, Butch. You definitely covered the financials a lot better than I did when I was a CFO. Great job. Now on to our outlook. We are pleased with our record results this quarter and for the fiscal year. More importantly, we are well positioned entering fiscal 2025 with record client asset levels, healthy pipelines for growth across the business and ample capital and funding to support balance sheet growth.

In the Private Client Group, next quarter's results will be positively impacted by the sequential increase of assets and fee-based accounts, which we expect will benefit asset management and related fees by approximately 6%. Our adviser recruiting activity remains robust, and we're encouraged by the number of large teams joining us and remaining in the pipeline. We are focused on being a destination of choice for current and prospective advisers, which we believe over the long term should continue to drive industry-leading growth.

In the Capital Markets segment, we were pleased to see significantly improved results this quarter as the market environment became more constructive for investment banking results and particularly M&A. Our M&A pipeline remains healthy, and we are optimistic that the consistent investments in our platform and people should continue to drive growth in fiscal 2025. And in the fixed income business, the market is still challenging but we've begun to see some improvement in the depository sector of our business. With short-term rates decreasing and the yield curve steepening, depository clients are starting to be more engaged in managing their securities portfolio. Overall, despite the headwinds over the past two years, we believe our long-term patient approach along with opportunistic investments we've made have well positioned us for growth as the market and rate environment become more conducive for the Capital Markets segment.

In the Asset Management segment, we remain confident that strong growth of assets and fee-based accounts in the Private Client Group 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. And while the entire industry has been challenged by high levels of redemption activity, the record levels of sales in fiscal 2024 are a testament to our strong portfolio management and sales teams.

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 securities-based loan demand increase as clients get comfortable with the current level of rates, further supported by the recent Fed rate cut. Corporate loan growth has been muted as new origination activity in the credits we target remain low, but we will remain patient and we are confident that loan demand in this category will rebound as well. With ample client cash balances and capital, we are very well positioned to lend across the loan segments as activity increases within our conservative risk guidelines.

In addition to driving organic growth across our businesses, we also remain focused on corporate development efforts. While we prefer to deploy capital to invest in growth, we plan to maintain this past quarter's pace of buybacks or potentially increase it as we continue to look for opportunities that may meet our disciplined M&A parameters.

I want to quickly touch on short-term rates because all too often lower interest rates are viewed as a negative for our business. I would just say that there are a lot of potential positive outcomes as well. Two potential examples are higher loan growth and better investment banking results across the industry, both which have been really low over the past couple of years. Again, this reinforces the value of having diversified and complementary businesses.

In closing, we are well positioned entering fiscal 2025 with strong competitive positioning in all of our businesses and solid capital and liquidity to invest in future growth. I want to thank our advisers and associates for their continued dedication to providing excellent service to their clients. I also want to thank our fantastic leadership team, many who took on larger roles starting on October 1 as part of our long-term CEO succession process. I really look forward to partnering even more closely with all of our leaders and associates for many years to come. And of course, I want to thank Paul Reilly for developing the strong team over the past 15 years.

What is reinforced in the most challenging of times, including with the 200-year hurricanes that hit us in a two-week period is that we have something really special here at Raymond James. And my #1 job when I take over as CEO is to do everything we possibly can to fiercely protect our culture and values.

That concludes our prepared remarks. Operator, will you please open the line for questions?

[Operator]

We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Michael Cho with JPMorgan.

[Y. Cho, analyst]

I just wanted to touch on the Capital Markets segment here. [indiscernible] two-parter but clearly, a nice pickup, as you noted, in the advisory segment. Can you give any color or anything incremental in terms of maybe what you saw in the quarter, or what -- and if there's anything in particular that drove the quarterly results in advisory? And maybe anything more on the pipeline as you look ahead as well?

And then secondly, Paul, if you kind of talk through, you've invested in people and platform in this business over the last number of years. And so when we think about operating leverage ahead, I mean, is there a way to frame the incremental margins ahead maybe relative to maybe what you've achieved in prior environments of better capital markets activity?

[Paul Reilly, executive]

Well, first, I think the whole market is pretty much shown an improving M&A environment, and I think it's rate expectation, and frankly, a lot of capital on the sidelines. So we had a big pickup this quarter, but we're seeing that both in activity in this current quarter coming up. So a lot of bigger transactions, it's a lot of people who have been on the sidelines sort of reached deals to close them.

So in terms of activity, we could go by a number of MDs. We'd have to speculate with what the rate is. Certainly, I think we've had a year -- a couple of years ago, that's hard to beat the benchmark because it was an exceptional year. But we've got room to grow from here. And I wouldn't really put a number on it yet, but we've got a lot of productive capacity.

[Paul Shoukry, executive]

As far as the margin goes, the margin portion of your question, for the year is 20.6%. And that's pretty healthy margin given the mix of businesses that we're in. Now capital markets really wasn't hitting on all cylinders until this past quarter's final quarter of the fiscal year. But we have puts and takes in our businesses. So I'd say, over time, our goal has always been to grow revenues faster than expenses and therefore, grow earnings and margins beyond that. But in any one quarter, any one year, there could be a lot of puts and takes in our various businesses.

[Y. Cho, analyst]

And then just a quick follow-up on the balance sheet. I know you've had [indiscernible] willingness to ultimately grow the balance sheet, and you've called out that corporate loan growth, particularly has been somewhat tepid. I'm just curious what you're hearing from clients and what ultimately drives more demand area if it's really just simply lower rates or if you're hearing anything else in terms of that [indiscernible].

[Paul Shoukry, executive]

On the corporate side, lower rates would certainly help as companies take advantage of the debt that they could get at more attractive rates. But also going back to your last question to Paul, M&A activity historically has been a big driver of financing needs. And so as we start seeing M&A activity pick up, hopefully, that will be a leading indicator for corporate loan demand over time.

[Operator]

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

[Daniel Fannon, analyst]

Curious on your outlook for next year with the noncomp expense, you came in slightly below the [ 1.9 ] for fiscal '24. Could talk about the areas of investment and maybe quantify growth in that noncomp as you think about the next 12 months?

[Paul Shoukry, executive]

A lot of our noncomp items, as we've said in the past, is really growth related investment adviser sub-advisory fees, for example, that grows with fee-based assets, which have been growing really nicely, 7% sequentially, as an example. And then the other expenses, we're going to continue to invest heavily in technology.

If you look at it on a percentage basis, that's been our biggest grower consistently year in and year out and on an absolute dollar basis, for that matter. And that's really to remain competitive and provide advisers the very best technology that we can very competitive in the industry to help them find time and serve their clients more efficiently and effectively. And so technology will continue to be an area of focus. And then of course, as you grow as an organization and grow the businesses, you're going to need to grow the branch and office space and other aspects of noncomp to invest in the business.

[Daniel Fannon, analyst]

And then the comments around the backlog for advisers sounded pretty similar to what we've heard from previous quarters. I was hoping to get a little more context maybe around numbers for retention in the period. And then I think the larger books of business coming on board, maybe talk about the size today that you're recruiting average size versus, say, a year ago?

[Paul Reilly, executive]

I think that both of those are up is that the biggest change probably over the last few years is a fewer advisers in total, but much, much bigger books. So not only was this year an onboarding of probably the largest books we ever have, but also the same in the pipeline. So we've become a destination for very large teams. I think both because of our technology platform and our high net worth offerings over the last couple of years that we've developed have really taken off and made us a destination. So we're very comfortable, not only do we have a very good recruiting year, but we're very comfortable with the backlog that's in there too.

[Operator]

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

[Devin Ryan, analyst]

First question just on -- coming back to the balance sheet, just lending capacity as demand picks up here. So you have, obviously, plenty of capital. You seem to be holding at least a couple of billion dollars of excess liquidity on the balance sheet. Then I think you have $18 billion of cash at third-party banks. So I appreciate this isn't going to happen overnight, and you're not going to force the lending, but how you would frame the amount of loan growth that could come from just remixing the current balance sheet? And then how much of that third-party cash you guys are comfortable moving on to the balance sheet over time with the assumption that deposits are stabilizing to maybe starting to grow a bit here?

[Paul Reilly, executive]

Well, Devin, you answered the question just by [ giving this path ], we have a ton of cash and capital. And I think that what's limited our growth on -- is just we've been very consistent in our risk appetite and having low risk on the C&I side of the portfolio and just the spreads and the demand haven't been there. They're just -- I think a lot of that is, as Paul talked about earlier, because of lack of M&A activity. Certainly, the opportunities to lend at the spreads and the risk tolerances we like haven't been there. But we're more unwilling when that returns to invest in them. So that's holding it back there.

On the other side, the SBL loans as rates went way up and mortgages as rates went up, it just cooled the appetite. Now that we've seen even after just the 50 basis point drop, we've seen a pickup in SBLs right away. I think people have gotten used to the rates and figured they're going to be aroundish to stay, and they are floating. So if they -- the SBLs, when they go down, the rates will go down and clients seem to be more active. So we're waiting on the commercial side to see a risk reward in terms of spreads and the risk part we like and are comfortable with.

And on the client side for SBLs and mortgages, it's really their appetite. We're here and ready and we have plenty of cash. So we're not trying to limit the bank growth seen over the years, we'll have quarters whether we've had fairly sizable growth and then quarters where we've had none just based on really what we think that market risk appetite is.

[Devin Ryan, analyst]

I guess where I was going was more that you have $18 billion of third-party cash, you want to have some liquidity parameters there, I'm sure, for risk management purposes. So like are you comfortable moving $5 billion of that or $10 billion of that? Like what's the threshold that we should be looking at? I know there's been thresholds over time. So just curious how you guys think about that and where you're comfortable.

[Paul Shoukry, executive]

Well, I mean the major thing that drives that is we offer clients FDIC insurance up to $3 million through the multi-suite program. And so we want to make sure that we avail our clients to those third-party banks to maximize their FDIC insurance. Not a lot of other firms do that anymore, especially firms with affiliated banks. And so we think it's important to protect, to give that client that type of protection. And so that would limit all $18 billion, for example, to being deployed in our own bank, probably would limit half of that, I would say, something in that range from being deployed to our own bank to give the clients the FDIC insurance that they could get to the multi-suite program.

[Devin Ryan, analyst]

And then a follow-up, I'd love to ask about fixed income brokerage. I think performing reasonably in an environment that's been challenged. I think you guys highlighted, starting to see some light at the end of the tunnel with depository clients. So just trying to think about where we could go from here. If there's a kind of a framing of whether it's historical levels of revenue? Or how we should think about like how maybe much that part of the business is under punching relative to its potential if liquidity builds in the system and banks are more active? Like just where that could go relative to where we currently are?

[Paul Shoukry, executive]

I would say the [ period string ] COVID with very low rates. Those were kind of record levels for fixed income brokerage, and it was a perfect environment for that business. There's lots of excess cash in the system, short-term rates were close to zero, and there is benefit for taking on some duration. And so somewhere between kind of where we've been running in the last couple of years in COVID is probably a reasonable place to kind of think of a healthy level would be over time. And then, of course, as we grow the business and we take market share and we grow tangential opportunities like Sunridge has been a great addition beyond the depository spaces that diversifies and further strengthens our business as well. So we'll continue to look to add to our capabilities and also our balance sheet is getting bigger. So over time, we'll also use our balance sheet in a very prudent way to continue supporting that business as well. So it's still a growth business for us over time. But just from the pure depository space, the COVID period was sort of a the components of that business were sort of perfectly aligned.

[Operator]

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

[Brennan Hawken, analyst]

So I wanted to ask about advisory. So it's one of the themes we've been noticing and has been sort of nagging has been that sponsors have been sort of slow to reengage. But I know your adviser business has a lot of leverage there and certainly encouraging to see that strength. So hoping you could get maybe a little more color around what you're seeing. Is this a good sign that sponsors are beginning to reengage in the mid-market space? Or were there some lumpy results that benefited the [ revenues ]?

[Paul Reilly, executive]

I think there's a general reengagement and across a lot of sectors. So it's a sign, we've always been, I guess, pretty conservative on our outlook there when any time we talked, we talked about a backlog, but the market wasn't conducive. We're seeing people engage. And it's not only on inventory, I mean, existing things that were up for being sold, but we're seeing new engagement and discussions about new mandates. So we think -- I'm not going to say it's going to boom overnight, but we're seeing a much, much more conducive market both in interest on buyers and sellers. So at least for the near term, we see a fairly good market and recovering market. But I don't know if we can give you more color because one quarter doesn't always paint a long-term trend, but we can tell you the backlog looks pretty good for the near term anyway.

[Brennan Hawken, analyst]

And then ESP, given where the yields were on that product, I would expect that in the recent Fed cut, that had a very high beta. Should we just assume that, that's a roughly 100 beta product as we see cuts? And have you noticed any change in behavior or engagement since yields have started to come down around that offering?

[Paul Shoukry, executive]

I would say ESP balances are higher yielding balances sort of at the same rate range as money market funds. So that is typically a 100% deposit beta type product. And we have others, we have balances and opportunities and certain balances in the bank segment as well. In total, when you look at our total balances at the bank [ segment ] deposits, the bank segment and the suite balances, roughly half of those balances are of highest -- higher rate, higher deposit beta type balances. So we have a lot of protection to downside rates, which will give us some offsets as rates decrease because our assets are mostly floating rate assets. And what was the other part of the question?

[Brennan Hawken, analyst]

Any changes in engagement with those higher yield products as we've seen rates come down?

[Paul Shoukry, executive]

Not really. I think a lot of the cash reinvestment activity, we are slowing down and decelerating well before the rate decrease. And so we haven't seen sort of an acceleration or deceleration, frankly, that's notable following the decrease.

[Operator]

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

[Steven Chubak, analyst]

I wanted to start with a question just on the spread revenue guide for next quarter the growth in sweep deposits was encouraging, even inclusive of the fee billings. Just wanted to drill down to some of the inputs that are underpinning that lower spread revenue guide. Maybe more specifically, just what deposit pricing changes are embedded in the guide? And does it contemplate any favorable cash seasonality, which we typically see around year-end?

[Paul Shoukry, executive]

Yes. I mean we've been accused of being conservative with our guidance in the past, particularly on this guidance. So hopefully, that proves to be the case this time around because loan balances are continuing to grow. We're not really factoring in ongoing loan balance. This is more of a snapshot type view in terms of what the full run rate of rate changes would be to both the [ BDP ] fees and NII. And so to your point, balances can increase throughout the quarter, whether it be cash balances, but hopefully, more loan balances and that could offset some of the reduction in rate and the sensitivity around that. And I just gave you the breakout of the deposits that are higher yielding and higher deposit beta versus the ones that are lower yielding, lower deposit beta. And so that's kind of what went into our math.

[Steven Chubak, analyst]

And for a follow-up, I wanted to drill down to some of the earlier comments you made on net new asset growth in the pipeline. For both you and industry peers this past year, we did see the moderation in industry flow trends. I understand you struck a positive tone in terms of the pipeline of new advisers, but just trying to gauge what drove the slowdown in industry growth, whether we should interpret the comments on the pipeline as supportive of an acceleration in that flow rate? And which channels are seeing the fastest growth across the platform given the omnichannel offering?

[Paul Reilly, executive]

They -- it depends on how you want to look at it in our [ RAA ] part RCS, it's by far the highest percentage growth and is consistent with industry trends, and that's been growing quickly. If you look at total dollars, and this goes back and forth a couple of years ago, it was independent this year, the employee channel really led the way. And it's -- we used to have -- independents grow faster than down markets, I mean, in up markets and employees and slow markets. We don't see that trend anymore. It's really just where we can meet the teams that like an affiliation option. And so employee led the way, I actually think that we'll get some improvement in the independent contractor model because it's just cyclical. And the employee size [ seems ] to have a very good backlog, as does RCS. So we're encouraged. But it's a process both to get people to commit and then get people in the door. So we can never predict the timing, but we're encouraged even with the great results that we could do better.

[Operator]

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

[Alexander Blostein, analyst]

I wanted to follow up to Steve's question around cash trends. Is it possible to unpack sort of sources of growth you saw in the third quarter, your fiscal fourth quarter across the cash stack and curious whether it is really kind of abating of the sorting? Or are you starting to see more cash coming on to the sidelines as net new assets coming in?

[Paul Shoukry, executive]

I mean we continue to grow a lot as a business. And as we grow and bring on new advisers, they bring on their clients, they're going to bring on their clients cash balance. And that's been happening throughout the last couple of years has just been masked by the fact that there's been a lot of reinvestment activity. And so as that reinvestment activity decelerates and subsides, then you're going to start seeing the pure the growth coming in from the addition of advisers and their clients.

[Alexander Blostein, analyst]

So your point is kind of like, look, from this point on like your cash balances are likely to grow and trend more in line with net new assets like we've seen in the past?

[Paul Shoukry, executive]

Well, you took my comments a couple of steps further, but I'm not sure we're willing to declare a total end to the cash reinvestment, but that's the dynamic that you've seen over the last call it, four to six quarters as that dynamic has decelerated.

[Alexander Blostein, analyst]

And then a quick follow-up on the buyback. I just want to make sure I'm interpreting your comments correctly. So $300 million share repurchases this quarter, a nice step-up. Should we assume that to be kind of run rate quarterly pace of buybacks from here as well or [ absent ] obviously like M&A or anything like that? And if there are opportunities to do more, you're likely to do that as well? I'm just trying to understand what the criteria are from here for trajectory of share repurchases.

[Paul Shoukry, executive]

I mean, to your point, we'd much rather use the capital to grow the business, whether it's through organic growth, acquisitions or balance sheet growth with loan growth. And we are optimistic on those fronts as well. But to the extent that we're not using the capital and we're generating pretty good earnings, then we want to make sure that we limit further expansion of the capital ratio. And that's where we come up with the sort of pace that we've been out here for the last quarter or maybe even a little bit more depending on all those factors and price and other things that we want to show our commitment to limiting further capital ratio growth given how strong it is now and it is over our target of 10%.

[Operator]

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

[William Katz, analyst]

Just coming back to the margin discussion. Just wondering if you could unpack a little bit from the top-down view of driving operating leverage to maybe the segment lines. So if I look at maybe the private client business and the Capital Markets business, in particular, the margins there improved reasonably strongly, particularly in capital markets. So how do we think about the marginal margin in those segments?

And then coming back, Paul, to your comments, Paul Shoukry, your comments of 22% margin is pretty [ fulsome ] at this point. So how do we think about the incremental margin at the segment level and then that sort of translating into the overall margin outlook for [ holdco ]?

[Paul Shoukry, executive]

Yes, I mean, I think, listen, to the extent that revenues grow in our segments, then that should result in margin expansion for each one of our segments. So interest rates and spreads play a big role in that, both at the Private Client Group segment and the Bank segment. And we just had a 50 basis point reduction. Now I think we can, over time, offset that impact by growing the balance sheet at the bank as loan demand comes back. So over time, I think we can do that. And then to the extent, capital markets margin improved this past quarter, but it hasn't been exactly great the first three quarters of the fiscal year. So the incremental margin when you're operating at a loss is pretty significant especially with the significant revenue increase we had in the segment this quarter. So I'm just saying over time, what I caution the [ Street ] from doing is just assuming that the margin gets better in every segment because everything goes in the right direction, and then that generates a substantially higher margin than we generated this year. I think that's maybe not factoring in the puts and takes that are natural and are diverse and complementary businesses.

[William Katz, analyst]

And then just one follow-up, just coming back to client cash for a moment. Sort of seen this as some of your peers, you've seen a big pickup in client cash into the end of the quarter, and some have pointed to just some fixed income liquidity, maturities coming in, some uncertainty around interest rate expectations given some of the moves by the Fed and obviously, election coming up in just a couple of weeks from now. So are you seeing a structural shift in the client cash? Or is this more of a timing element on asset allocation that is somewhat pumping up client cash, all else being equal, and could sort of move back into more sort of AUM type of levels and not so much on the NII side?

[Paul Shoukry, executive]

I would say our asset mix has been remarkably consistent. Advisers have been doing a very good job through different cycles, both market cycles and rate cycles, keeping client's asset mix relatively aligned with their long-term investment objectives. And so like, for example, equities for us right now is roughly 60% on an x-rate basis of assets and that's been consistent within two or three percentage points for the last several years in various environments. And so the mix shift that you've seen over the last five years has really been within the cash category when it's a low rate environment, there's more in transactional cash. And when you're in a higher rate environment, there's more investable cash there. And so that's the only shift I think we've seen over the long term. And one quarter -- the difference, I think, in just the last couple of quarters is the deceleration I talked about of the sorting activity. And now you're starting to see more of that growth coming in from just bringing on advisers as they bring on their clients and existing advisers bring on new clients.

[Operator]

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

[Kyle Voigt, analyst]

Paul, you noted a continued focus on corporate development efforts and remaining disciplined there. Just curious if you can give us an update on the M&A environment. Are you seeing more or less opportunities today compared to earlier in 2024? Is the rate certainty helping to narrow bid-ask spreads for potential targets? And any areas of focus we should really be thinking about in terms of the wealth segment? Or are there other areas you're considering for inorganic growth?

[Paul Reilly, executive]

We look across all of our businesses for growth. We really believe we're positioned for the right opportunities to grow. And I'd say our corporate development team has done a great job of bringing opportunities to us, right? So we look at a lot of deals. Some, we just don't like the deals, the way they fit in our environment, some are not culturally there. And some we like, and we just can't get the terms on what we think is the long-term price. So we're constantly looking, we take them very seriously. We're, as you know, a conservative buyer and that will be competitive, but we won't stretch way out to buy an asset. And so it really just depends when they click, and that's the hard thing on timing. Like a few years ago, people say, "Well, you guys aren't going to buy anything. You're hoarding all this capital" and we closed four deals in the next few months. I mean it just took a while and they just all happened to hit around the same time. So we're still in that mode. But we're not going to do a deal just to do a deal. It has to be something that fits and makes sense for the firm and shareholders.

[Kyle Voigt, analyst]

And for my follow-up, maybe just a question on the balance sheet. On the [ AFS ] portfolio. I know that continued to run off in the quarter. I guess, with some more clarity on the rate environment in terms of the direction of travel with the Fed and still with significant excess capital. Is there any desire to change your stance on that and begin holding that steady or growing those balances in fiscal 2025? Or do you anticipate letting that portfolio continuing to run off?

[Paul Shoukry, executive]

Yes. We let that portfolio grow modestly just really to accommodate client cash balances when the banks during the COVID period didn't really want those balances. And so now all we're doing is getting back to sort of a normalized liquidity level at both banks and primarily at Raymond James Bank, where we were accommodating those balances. So once they get to that normal state, then we'll maintain the balance for the securities portfolio. Banks typically need to run at maybe around the 10% to 15% liquidity ratio between cash and securities. And so Raymond James Bank is still well above that. And so we'll let those securities run off. And then once they get to that type of range, then we'll maintain the balances. But the point is we're not taking bets on duration. We're not taking bets on where the Fed may or may not take rates. That got a lot of our peers in trouble and so we want to just stay focused on serving clients and keeping the balance sheet as flexible as possible for anything that the market or the interest rate environment may bring us.

[Operator]

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

[Michael Cyprys, analyst]

I wanted to ask about the PCG business [indiscernible] elaborate on how that's performing and contributing across Canada and the U.K. today? I know you've done some acquisitions there over the years. Just curious what you're seeing in terms of organic growth contribution over the past year versus, say, fiscal '23.

And then Canada and the U.K. Maybe you could talk a little bit about some of the initiatives there to accelerate organic growth and improve scale and profitability.

[Paul Reilly, executive]

It's a little bit of tale of two cities for different reasons. But the Private Client Group in Canada is doing great growth in recruiting. When we acquired that business, it was really a capital markets business and with the small PCG business and today, it's a very strong [ like ] -- similar to the U.S., really a big capital Private Client Group base continuing to recruit similar profit margins, good growth. same kind of platforms that we have here in the U.S. where you have advisers choice and they've executed very, very well to where we're really getting to the size of the smallest to the largest banks, which is quite unusual in Canada, but we are up there. We feel like a Canadian firm. They just have a U.S. parent but they operate very, very well.

The U.K., because we've done a recent acquisition are still in integration. The growth has been kind of flat. And that as we get people and systems and everything really hooked together and going through that integration process, the growth is much slower but we anticipate once we're able to do that and get the integration, we expect to be able to grow there, but it's a smaller business, too. So we won't have as big of an impact consolidated.

[Michael Cyprys, analyst]

And just on the RCS business, maybe you could help remind us just in terms of the economics there, how that compares to your traditional channel, say, for $1 billion of assets. Just maybe you can walk us through the P&L impact across revenue [indiscernible]?

[Paul Reilly, executive]

Yes. What we've disclosed so far, so maybe it's something we covered at Analyst Day or something we haven't really disclosed in detail, but we really get an asset fee there. So if you looked at pure RIA, the way they measure margins they're higher margins. If you look at our net on basis points on assets are lower. So part of the service model is different too. You don't have all the supervision and compliance requirements that an RIA has those responsibilities or certain things that they do. They are clients of ours, their clients are their clients, they're not our clients. And outside of some [ AML ] responsibilities and just oversight to make sure they have a process. There's a lot less cost that goes into it, although we're a higher service model. So it's not easy to give a quick answer, but it might be something that we can show in more detail at maybe the next Analyst Day.

[Michael Cyprys, analyst]

Just any sense ballpark directionally [ PBT ] margin, revenue [ Roka ], just how to think about that versus the firm or versus [indiscernible]?

[Paul Shoukry, executive]

Yes. It's complicated. Again, as Paul said, at Analyst and Investor Day would be a good time to talk about the margin on a P&L basis is actually higher because the attachment revenue that you book is much lower whereas our other business as we gross up the revenues pre payout. And then the Roka just varies dramatically depending on the asset mix that the RIA has and the pricing structure because there's different pricing structures depending on the RIA as well. So we can get probably more time than we have now to discuss, but Analyst and Investor Day is probably the right forum for that.

[Paul Reilly, executive]

Great. Well, we appreciate everybody's attendance, and we're very proud of the quarter, but we're already working on the next quarter because that's just what we do here. And Butch has done a great job and we've had a great transition and we'll continue to do that over the next year. So appreciate you joining us, and we'll talk to you next call.

[Operator]

Thank you. And this concludes today's conference call. Thank you all for participating. You may now disconnect.