Raymond James Financial Inc (RJF) — Q1 2026 Earnings Call Transcript

Good evening, and welcome to Raymond James Financial's Fiscal First Quarter 2026 Earnings Call. This call is being recorded and will be available for replay for 30 days on the company's Investor Relations website. Thank you for joining us. With me on the call today are Chief Executive Officer, Paul Shoukry; and Chief Financial Officer, Jonathan 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 statements that necessarily depend 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 CEO, Paul Shoukry. Paul?

Thank you, Christy. Good evening, and thank you for joining us. Before we start, we acknowledge that challenging weather conditions are affecting many of you and communities across the U.S. Our thoughts are with everyone impacted, and we appreciate our teams' commitment as they continue to support clients during this time. Our goal of being the best firm for financial professionals and their clients has led to strong results this quarter. The consistency of our client-first culture, paired with a robust technology and product platform and our solid balance sheet, continues to attract financial advisers. This is evident in our strong recruiting momentum and annualized net asset growth of 8% this quarter. We are focused on long-term capital deployment, which is shown by our strong organic growth, ongoing investments in technology, consistent dividend payments, recent acquisitions, and share repurchases. In the first fiscal quarter, we recruited financial advisers to our domestic independent contractor and employee channels, achieving trailing 12-month production of $96 million and approximately $13 billion of client assets at their previous firms, a solid outcome for a quarter that usually sees a seasonal slowdown. Over the past year, we recruited financial advisers with trailing 12-month production of nearly $460 million and over $63 billion of client assets, including those brought into our RIA and custody service division, resulting in total client assets of more than $69 billion across all our platforms. We are optimistic about future growth due to our strong adviser recruiting pipeline and commitments to join in the upcoming quarters. Our unique mix of adviser and client-oriented culture, along with cutting-edge technology and solutions, is proving to be appealing to advisers exploring options. To retain and attract top advisers, we keep investing in our platform and offerings, such as our private wealth adviser program and enhanced alternative investments platform to serve high net worth clients. We are also working on automation and streamlining processes that allow advisers more time to focus on their client relationships. Notably, we've launched our proprietary digital AI operations agent named Ray, building on our service-oriented long-term AI strategy. Our suite of AI tools and technologies aims to empower financial advisers across the firm by using artificial intelligence to improve service models in secure, scalable formats. Capital Markets results decreased this quarter, mainly due to lower M&A and advisory revenues, as well as a decline in debt underwriting and affordable housing investment revenues sequentially. We faced tough comparisons given the robust M&A results of the previous year and sequential quarters. Nonetheless, we entered the second quarter with a strong pipeline that reflects the potential from the strategic investments we have made in this area over the past few years. We are confident that we are well-positioned with motivated buyers and sellers, backed by deep expertise in the industries we cover. We remain committed to enhancing the platform strategically, by broadening and deepening its capabilities through hiring or acquisitions, as shown by our announcement of acquiring the boutique Investment Bank Greens Labs this quarter, which we expect to close later this year. In the Asset Management segment, net inflows into managed fee-based programs in the Private Client Group were strong this quarter, annualizing at nearly 10% and reflecting the positive impact of offering high-quality investment alternatives to our financial advisers, along with growth from our successful recruiting efforts. In the Bank segment, loans reached a record $53.4 billion, primarily reflecting impressive 28% growth in securities-based lending balances and a 10% increase this quarter alone, demonstrating another synergistic effect of our growing private client business as we leverage our strong balance sheet in support of clients. Importantly, the credit quality of the loan portfolio remains robust. Regarding capital deployment, we continue to focus on long-term strategies as evidenced by our strong organic growth, ongoing investments in technology, and recently announced acquisitions. In January, we announced the acquisition of Clark Capital Management, a leading asset management firm specializing in wealth-focused solutions for financial advisers and their clients, with expertise in model portfolios and SMA and UMA wrappers. With over $46 billion in combined discretionary and nondiscretionary assets, Clark Capital is noted as a high-growth firm in the industry and has a history of strong inflows. We look forward to welcoming Clark Capital into the Raymond James family, where it will maintain its independence going forward. We believe their services and capabilities will enhance Raymond James Investment Management's existing investment and wealth planning offerings. This acquisition, along with Green'sledge, reflects our steady pursuit of acquisitions that align with our culture, strategy, and generate attractive returns for our shareholders. As we pursue both organic and inorganic growth opportunities, we also maintain our share repurchase program to manage capital levels effectively. This quarter, we repurchased $400 million of common stock at an average share price of $162. We ended the quarter with a Tier 1 leverage ratio of 12.7%. Now I will turn the call over to Butch Oorlog to review our financial results in detail.

I'll begin on Slide 6. The firm reported record net revenues of $3.7 billion for the fiscal first quarter. Net income available to common shareholders was $562 million with earnings per diluted share of $2.79. Excluding expenses related to acquisitions, adjusted net income available to common shareholders equaled $577 million, resulting in adjusted earnings per diluted share of $2.86. Our pretax margin for the quarter was 19.5% and adjusted pretax margin was 20%. We generated annualized return on common equity of 18% and annualized adjusted return on tangible common equity of 21.4%. Solid results for the quarter, particularly given our conservative capital base. Turning to Slide 7. Private Client Group generated pretax income of $439 million on record quarterly net revenues of $2.77 billion. Results were driven by higher PCG assets under administration compared to the previous year, resulting from the impact of market appreciation, retention and the consistent addition of net new assets. Pretax income declined 5% year-over-year, primarily due to the impact on the segment of interest rate reductions, which reduced our non-compensable revenues. Interest rates have declined 125 basis points since early November 2024. Our Capital Markets segment generated quarterly net revenues of $380 million and a pretax income of $9 million. Segment net revenues declined year-over-year and sequentially due to the factors Paul already mentioned. The Asset Management segment generated record pretax income of $143 million on record net revenues of $326 million. Results were largely attributable to higher financial assets under management compared to the prior year quarter due to the market appreciation over the 12-month period and strong net inflows in the PCG fee-based accounts. The bank segment generated net revenues of $487 and record pretax income of $173 million. On a sequential basis, the bank segment net interest income grew 6%, primarily driven by strong loan growth fueled by securities-based loans and lower funding costs, driven by the decline in short-term rates and a favorable mix shift in deposits. Turning to consolidated revenues on Slide 8. Asset management and related administrative fees of nearly $2 billion grew 15% over prior year and 6% over the preceding quarter. Record PCG fee-based assets equaled $1.04 trillion at quarter end, up 19% year-over-year and 3% over the preceding quarter. As we look ahead, we expect fiscal second quarter 2026 asset management and related administrative fees to be higher by approximately 1% over the first quarter level, driven by the impact of 2 fewer billing days in our second quarter, which partially offsets the impact of the 3% increase in PCG assets and fee-based accounts at quarter end. Moving to Slide 9. Clients' domestic cash sweep and enhanced savings program balances ended the quarter at $58.1 billion, up 3% over the preceding quarter and representing 3.7% of domestic PCG client assets. Based on January activity to date, domestic cash sweep and enhanced savings program balances have declined as a result of the collection of record quarterly fee billing of $1.8 billion and with further decline due to client reinvestment activity. Turning to Slide 10. Combined net interest income and RJBDP fees from third-party bank grew 2% over the prior quarter to $667 million. Net interest margin in the bank segment increased 10 basis points to 2.81% for the quarter, driven by the factors I previously mentioned. The average yield on RJBDP balances with third-party banks decreased 15 basis points to 2.76% primarily due to the impact of the Fed interest rate cuts since mid-September 2025. Based on current interest rates, including the full impact of the October and December rate cuts and assuming unchanged quarter-end balances, net of the $1.8 billion fiscal second quarter fee billing collections, we would expect the aggregate of NII and RJBDP to be down from the first quarter level. The decline due to 2 fewer interest earning days in the second quarter impacts of the recent Fed rate cuts are partially set by the higher interest-earning asset balances as of the beginning of the quarter. Keep in mind, there are many variables which could influence actual results, including any interest rate actions during the upcoming quarter and factors affecting our balance sheet, including changes in our loan and deposit balances. Turning to consolidated expense on Slide 11. Compensation expense was $2.45 billion and the total compensation ratio for the quarter was 65.6%, excluding acquisition-related compensation expenses, the adjusted compensation ratio was 65.4%. Commencing this quarter, we presented recruiting and retention-related compensation expense in the PCG segment for each reporting period to aid the understanding of the impact of such costs on our business. These costs have increased as a direct result of our strong recruiting successes and reflect a component of the execution of our highest capital deployment priority of investing in organic growth. Non-compensation expenses of $557 million increased 8% over the year-ago quarter, but decreased 7% sequentially. For the fiscal year, we expect non-compensation expenses, excluding the bank loan loss provision for credit losses, unexpected legal and regulatory items and non-GAAP adjustments presented on the non-GAAP financial measures to be approximately $2.3 billion, representing about 8% growth over the same adjusted non-compensation metric for the prior year. Importantly, we will continue to invest to support growth across our businesses while maintaining discipline over controllable expenses. The majority of the projected increase reflects our continued investment in leading technology supporting our financial advisers as well as our expectations for overall growth in our businesses. This projection, therefore, includes, for example, incremental recruiting-related and transition support costs, which are driven by continued successful recruiting, higher sub-advisor fees which grow as fee-based client assets increase and FDIC insurance premium, which grows as the bank's segment balance sheet increases. Slide 12 presents the pretax margin trends for the past 5 quarters. The achievement of our 20% adjusted pretax margin target this quarter despite the headwinds we experienced at lower interest-related and investment banking revenues highlights stability and strength of our diversified businesses to consistently generate strong margins. On Slide 13, at quarter end, our total assets were $88.8 billion, a 1% sequential increase, resulting primarily from loan growth, partially offset by lower corporate cash balances, which declined primarily due to corporate share actions as well as seasonal funding obligations, record bank loans of $53.4 billion grew 13% over the year-ago quarter and 4% sequentially with that loan growth largely in support of our clients. Securities-based loans and residential mortgages represent 60% of our total loan book, reflecting approximately 40% and 20% of the total, respectively. We continue to have strong levels of liquidity and capital. Our day of corporate cash at the parent ended the quarter at approximately $3.3 billion, providing liquidity of $2.1 billion, well above our $1.2 billion target. Our capital levels provide significant flexibility to continue being opportunistic in our pursuit of strategic acquisitions and to invest in organic growth. With a Tier 1 leverage ratio of 12.7% and a total capital ratio of 24.3%, we remain well above regulatory requirements with approximately $2.4 billion of excess capital capacity to deploy before reaching our targeted Tier 1 capital ratio of 10%. The effective tax rate for the quarter was 22.7%, reflecting a seasonal tax benefit arising from share-based compensation that settled during the quarter. Looking ahead, we continue to estimate our tax rates for fiscal 2026 to be approximately 24% to 25%. Slide 14 provides a summary of our capital actions over the past 5 quarters through the combination of common dividends paid and share repurchases, we returned $511 million of capital to shareholders during the quarter. In January, the firm opportunistically redeemed all of the shares of Series B preferred stock for an aggregate redemption value of $81 million, which reduces Tier 1 capital in the fiscal second quarter. Taking this capital action into consideration, we expect to target approximately $400 million of common share repurchases again in the fiscal second quarter. Over the past 12 months, we have repurchased $1.45 billion of common shares and including dividends paid, we have returned nearly $1.87 billion of capital to common shareholders, reflecting a combined return of 89% of our earnings. We maintain our long-term commitment to operating our businesses at capital levels consistent with established targets. I'll now turn the call back to Paul for his final remarks.

Thank you, Butch. In summary, we are off to a strong start in fiscal 2026, and I believe we are very well positioned entering the second quarter with record client assets and strong competitive positioning across all of our businesses. Financial adviser recruiting activity remains strong, and the investment banking pipeline is robust. Near term, there are headwinds with lower interest rates and seasonal impacts typical in the second fiscal quarter with fewer billing days in the quarter and payroll taxes resetting at the beginning of the calendar year. However, that doesn't distract us from our focus on generating long-term sustainable growth. While in some ways, there's more competition in our space. We are confident that our established approach and focus on the power of personal is setting us apart in our industry more than ever. We are focused on the long term and providing a tail platform for advisers, bankers, and associates with a foundation of deeply personal relationships. We attract and retain financial advisers with our unique culture leading service and robust platform. We value independence to foster an environment where our advisers can provide objective advice to their clients. We are focused on sustainable growth and quality over quantity. We strive to maintain a strong balance sheet with strong levels of capital and liquidity and a conservative amount of leverage. We are confident our long-standing approach will continue to endure in both good times and more challenging times and help us deliver on our vision of being the absolute best firm for financial professionals and their clients. So I want to thank our advisers, bankers, and associates for the great service and advice they provide to their clients and delivering our firm's mission to help clients achieve their financial objectives. That concludes our prepared remarks. Operator, will you please open the line with the questions.

I just want to start on net new assets. It's been seen a pretty nice acceleration over the last several quarters at 8% this quarter. I mean, are there areas that saw any particular strength this quarter? And if you look back maybe over the last 4 quarters, what segment or tweaks in Raymond James' approach? Do you think it's been supporting that acceleration and how would you frame that pipeline today relative to the past couple of quarters?

Thanks, Michael. Yes, $31 billion in net new assets this quarter marks our second best quarter ever. To provide some perspective, our recruiting activity continues to be strong and is widespread across our different affiliation options, with a notable tilt towards independent contractors in the past six months. What truly stands out is our established reputation as a leading destination for financial advisers. Additionally, the retention of our current advisers remains robust. While we are facing increased competitive pressures from private equity-backed roll-ups, adviser satisfaction is at its highest since 2014. Our platform fosters a culture that values independence and clients' ownership, which is crucial. This, combined with our investments of nearly $1.1 billion this year in technology and AI to enhance efficiency and decision-making, supports our advisers in managing client operations. We're also focused on personal relationships, setting us apart in a crowded market where other firms emphasize metrics and exit strategies. We are committed to strengthening the personal connections our advisers have with their clients, which is resonating with both existing and prospective advisers and driving our strong recruiting results.

Great. Paul, I would like to quickly follow up on a question regarding expenses. Was there anything noteworthy regarding compensation expenses or the compensation ratio during the quarter? I understand it typically grows seasonally from this point. Paul, you mentioned payroll taxes. How should we approach modeling the compensation ratio for the fiscal second quarter or even fiscal '26?

I mean the comp ratio target that we laid out on the last analyst Investor Day was 65% or better. And really, this quarter, it was impacted by revenue mix. So Private Client Group business with the independent channel, which has a higher payout. Some firms break that out of compensation. We included in compensation drives a higher mix of compensation relative to the capital markets business, which, for us, largely due to timing of the investment banking pipeline, we still feel very good about. But this quarter, it was a weaker quarter. And so due to the revenue mix, also with lower interest on short-term rates, when you look at those mixes of revenue, it ended up being slightly above 65%, but really at 65.4% for the quarter, with lower rates in a very tough quarter for capital markets, again, due to timing. We're really pleased with that result.

Following up on Michael's first question about NNAs, it was a solid quarter, but it seems from competitor feedback and media coverage that competitive intensity is increasing significantly, with more incentives and aggressive retention of existing advisers. I'm curious if you're noticing this as well and how you plan to respond. Was there anything unusual about this quarter, or do you believe that growth is sustainable in the upcoming quarters? I would appreciate your thoughts on this matter.

Thanks, Ben, and welcome aboard as one of our covering analysts. The competitive environment has certainly changed, particularly with the rise of private equity roll-ups over the past five years. This year will be crucial for those firms, many of which have not achieved the liquidity events they were aiming for, and I expect we will see more developments in the next year or two. These outcomes will influence whether they can continue to afford the increasing amounts they have been paying. While we do face short-term competitive pressures, the advisers we are recruiting are more interested in long-term stability rather than a temporary situation with another liquidity event that could disrupt their relationships with clients. We aim to provide a stable platform for advisers, their teams, and their clients, ensuring they don’t have to deal with further disruptions every few years. Advisers are looking at our financial health—our tangible equity, leverage, and cash flow—because they want an independent and secure platform. We are committed to maintaining our independence since advisers do not want to change platforms frequently. In spite of the increased competition in the industry, we believe we have less competition than ever because of our long-term focus. We prioritize personal relationships and have invested $1 billion in technology, while many competitors with similar values invest significantly less in technology. This disparity makes it difficult for them to keep up in terms of AI and the tools essential for helping advisers enhance their efficiency in client interactions.

All very helpful. For my follow-up, I’m curious if you could elaborate on the near-term outlook for the capital market side. It seems you're still confident about the pipeline. Given that revenues can vary significantly from quarter to quarter, could you provide any insights from a modeling perspective on how we should view the very near term? We're about a third of the way through Q1, so any information you can share would be appreciated.

The pipeline is very robust with significant pent-up demand from both buyers and sellers. There are buyers ready to invest and sellers looking to enter the market. Most of our mergers and acquisitions activity is being driven by financial sponsors on either the buying or selling side. Additionally, many funds are well past their original holding periods. We are executing numerous engagement letters and feel positive about the level of demand. However, predicting the timing of closings is challenging. We do not attempt to speculate on when transactions will finalize, as favorable market conditions must exist, alongside agreements on pricing and terms between buyers and sellers.

Good evening, Paul. Just a big congrats on the 8%. But there actually has been a wide range in recent quarters. We saw 2% a couple of quarters ago, 8% this past quarter. So I was wondering if you can comment on the sustainability of the 8%? And in your view as maybe the midpoint, something like 5% to 6% a better go-forward run rate to model.

Yes. The 8% growth was supported by strong retention and recruitment results, as well as favorable year-end dynamics that benefited all firms in the industry through dividends and interest payments. However, we're confident in our current pipelines and the retention rates I mentioned earlier, which suggest we can continue to lead in wealth management, a position we've maintained consistently. Our approach emphasizes quality over quantity, focusing on attracting higher quality teams that cater to higher net worth clients. This strategy allows us to maintain a high-touch service model and reinforces the value proposition of Power personal.

And then given the stronger recurring that we've seen and we're seeing the results today, but also elevated competition. Could we see the PCG comp ratio creep up in 2026? Or does the 5- to 10-year smoothing really protect the operating margins if recruiting NNAs remain robust?

Yes. I mean there's a lot of investment that goes into recruiting. The reason we broke out the retention and transition assistance-related expenses for the first time this quarter because in the last 12 months, we recruited advisers who had $460 million at their prior firm. That's equivalent to a pretty decent-sized acquisition in our space, especially when you look at what is remaining out there. And we'd much rather recruit one by one where we know the advisers are a good cultural fit, and 100% of what we pay in transition assistance is going to retention versus the seller. And if we did do acquisitions, that type of expense would typically be non-GAAP. So we wanted to at least break it out for you to see because that is a part of the expense. But so as we pay recruiters and we have to pay for account transfer fees and other things that support that growth. But again, organic growth is the #1 capital priority in terms of capital deployment. So we'll continue to invest in that organic growth. We are confident that generates the best long-term returns for our shareholders, and then growing the top line gives more opportunities for everyone and allows us to reinvest in the platform overall.

I completely understand your point about the strong capital markets pipelines and the necessity for sponsors to engage. It seems like you are positioning yourselves for solid revenue growth as we approach the next year. Is that accurate? Or do you believe it may take a bit longer to enter the market? The translation of that anticipated revenue has been somewhat prolonged. Once you do start seeing revenue, how should we consider the operating leverage related to that growth? Is there a way we can approach this to ensure our forecasts are aligned correctly?

Yes. No, I mean we had a really strong quarter in investment banking just last quarter. So if you look at Capital Markets last quarter, it was over $500 million in revenues, and we certainly don't think that's a ceiling, but you saw how that impacted the operating leverage relative to this quarter. I think the pretax margin last quarter was around 17.5% in that segment. So there's a lot of operating leverage with higher levels of revenue in capital markets. We are optimistic about the pipeline. And we would be disappointed for the rest of the year if the revenue in the Capital Markets segment doesn't improve meaningfully above the $380 million level that it's achieved this quarter.

Okay, understood. There are many questions about the outlook for crude oil. This quarter saw strong net new asset growth, following Craig's question. Given the volatility, there are some deals in the marketplace that are receiving significant attention and may lead to increased movement. Did you experience any impact from this? Were you able to take advantage of the fluctuations? How long do you anticipate this disruption will create opportunities for your company?

Yes, I prefer not to comment on specific mergers and acquisitions or transactions. We have many friendly competitors, and they are effectively managing their advisers through these deals. Instead, I would like to highlight the overall strength we are experiencing. Success is not limited to one firm; many different firms are contributing. Advisers are transitioning from wirehouses, regional firms, and other independents. Our value proposition is that we offer the largest addressable market across our affiliation options, which includes employees, independent contractors, and RIA custody. We have substantial scale and decades of experience in all these areas. This is not a new initiative for us; it is not something we are experimenting with to see how it performs. Therefore, our value proposition, cultural compatibility, the platform I mentioned, and our various affiliation options are attracting advisers from numerous firms.

Regarding the M&A, I understand your focus on organic growth, and it appears that the pipeline is quite promising. Could you elaborate on the Clark transaction, specifically regarding its accretion? Additionally, how should we consider potential incremental inorganic opportunities, given your strong balance sheet, and what is the path back to a 10% Tier 1 leverage ratio?

Thank you, Bill. Clark Capital exemplifies our M&A priorities, particularly in terms of cultural alignment. The founding Card family and the entire team share our commitment to client focus and a long-term business approach that aligns closely with our values and culture. Additionally, they strategically emphasize treating advisers like clients. We intend to preserve Clark's independence regarding both their brand and client relationships. The cultural and strategic fit, along with sound financial terms for both parties, was crucial in this case. We are very excited about their significant organic growth, unique products, and the strong personal connections they maintain with clients, which made Clark Capital particularly attractive. We will seek similar deals across all our operations—firms that align culturally, strategically, and financially. We are active in corporate development, have significant capital, and are confident in our integration capabilities. We will continue to pursue sensible deals, ensuring they benefit our shareholders in the long term without feeling pressured to close transactions simply for the sake of it.

Okay. And just as a follow-up, maybe just a 2-part, so I apologize for squeezing it in. Can you talk a little bit about the path to support the interest-earning asset growth from here? And how you sort of see the interplay of the sort of liquidity on the third party versus maybe cash coming in to doing net new assets. And then if you could just review what you said in terms of the January numbers, the way it was phrased. I wasn't quite clear. If you were down 1.8% for the quarter or down something less than that inclusive of billings and activity. If you could just clarify, that would be helpful.

Yes, in January, our total combined program, including sweep and ESP balances, decreased by $2.6 billion, which accounts for the $1.8 billion in fees already deducted from the account as we previously mentioned. The difference is mainly due to strong client reinvestment of their remaining balance. Specifically, within the $2.6 billion decline, $2.1 billion was related to the suite program, while around $500 million was from the ESP program since the end of the quarter. We've noticed a trend similar to other reports, where there has been a significant percentage decline in the enhanced saving program balances as interest rates have dropped. Clients find the high-yield savings rates less attractive compared to market options. Consequently, there has been an increased investment in the market rather than in higher-yield alternatives over the past couple of quarters as rates have decreased, affecting the average cost of deposits between suites and enhanced savings. Regarding long-term growth, securities-based loans grew nearly $2 billion this past quarter, which is promising. The decline in rates makes floating-rate loans more appealing, as seen recently. We will support this growth using our diversified funding sources, including sweep cash, third-party cash for redeployment, and our deposit gathering capabilities, particularly at TriState Capital Bank. We will utilize all these resources to drive future growth.

So I wanted to drill down into the M&A results and the outlook recognizing that pipeline strength you cited, also acknowledge 1 quarter does not a trend make. But if I compare for the calendar year, full year '25 versus '24 advisory results. The gap between you and peers was quite substantial. I think you guys were down 20%. Peers big and small, were both up about 20. And I was hoping you could just speak to any factors that might have weighed disproportionately on your results, whether it's a function of client or sector mix. And just bigger picture, in the past, you talked about this $1 billion target in M&A fees based on your current scale? Do you still view that as a credible target? And what actions are you taking to help narrow that gap?

Yes, we have been adding numerous high-quality MDs in investment banking across various sectors over the past several years. Comparing our performance to larger firms can be challenging. Last year was a stronger year for public company M&A, which is not a space we typically compete in. When looking at mid-market growth-oriented firms versus public companies last year, the larger firms certainly led the recovery in M&A, which tends to follow historical patterns of public company M&A taking the lead both during upswings and downturns. Each firm, including regional and growth-oriented ones, has unique strengths in different sectors. For example, some firms have established deep operations in the depository sector, which has experienced growth recently due to new administration deals. It's essential to evaluate each sector individually. We feel very confident in our expertise and the sectors we excel in. I would caution against making short-term comparisons, as results can vary from quarter to quarter due to timing. This quarter, if our performance seems lower, I advise against placing too much emphasis on that as well. Investment banking is not a recurring revenue business compared to Private Client Group businesses, so focusing on long-term trends is crucial. Over the past 5 to 7 years, our long-term growth in investment banking has been strong and favorable compared to our peers, which we will showcase further at our Analyst Investor Day.

And Paul, you just squeeze into more tight modeling questions. Non-comps have grown double digits in the last 3 years, 8% guide is encouraging, reflects the moderation in growth. Just given the commitment to investing, do you feel like you can continue to hold the line and then the cost curve on non-comps? And I'll just mention the other 1 now. The M&A growth is impressive. The AUM growth admittedly lagged our expectations given strong organic flows and market appreciation. I was hoping you could speak to why that better NNA flow rate didn't necessarily translate into a strong AUM conversion, which I know can happen from time to time.

Yes. Let me take the last part of the question first, and then I'll have Butch touch on your first part of the question on the cost curve. But it is a good question around AUA because I was comparing our overall AUA and flows to some of the others that have reported. I think really where you see that relationship makes sense is if you look at our fee-based assets. And the fee-based assets were up 19%, which if you compare it to the other firms that are reported and their net new assets, you would see the relationship that you're expecting. So I would kind of look at that as a proxy fee-based assets versus overall firm-wide AUA. And I'll have Butch talk about the non-comp trajectory?

We continue to prioritize our non-compensation expenses, particularly in technology, as we invest in leading solutions that support financial advisers. This focus is a key part of our culture and value proposition at Raymond James. While we manage non-compensation expense levels, we will persist in investing in technology. The majority of our year-over-year expense increase is attributed to technology, and as a growth-oriented company, we also face varying expenses driven by our successful growth, including recruiting costs and additional expenses tied to net new assets. Furthermore, as our balance sheet expands, we encounter growth-related expenses. Our objective remains to enhance our operating leverage over time, and we believe we have the scale to achieve this goal. Consequently, we are concentrating on improving our operating margin and seeking long-term opportunities for its growth.

This is Michael on for Alex. Maybe back to the non-comp growth that you guys are laying out for '26. So you mentioned this year will include further investments in tech and support of recruiting efforts as well. Can you maybe elaborate on what specifically is going into that growth this year? And I'll stop there.

If you examine our investment in cybersecurity, the rise of AI investments, and our application development across all of our businesses, along with infrastructure investment, there's a lot involved. This is why I mentioned earlier that it is becoming increasingly difficult for smaller firms to stay independent and competitive without the capability to invest $1 billion annually in technology. We hired advisers from another reputable firm, and six months later, they expressed that they hadn’t realized until moving that they were essentially at a standstill in their previous firm. They simply cannot keep pace with technology. There’s nothing wrong with that firm, but you need scale and critical mass to make such investments. As Butch mentioned, we will continue to prioritize technology. I believe that, especially in the long term with AI, we will discover greater efficiencies in our cost structure as we implement AI and automation. We're not going to quantify that or set a timeline yet because we are still in the early stages. However, we are beginning to see significant benefits already. We just launched Ray, with a recent press release about Ray AI tied to Raymond James. It’s a natural language Q&A model that uses generative AI to answer questions for advisers and their teams, which will mean they won't have to make calls for assistance. This will create efficiencies for them and allow our service teams to focus on more valuable challenges, solutions, and opportunities. Once again, we are still in the early stages of uncovering these opportunities. It is crucial for us to maintain the critical mass and expertise necessary to invest and leverage these opportunities in the medium and long term.

That's helpful. Maybe one modeling question. On when you guys originally increased the kind of cadence of the share repurchases, I think the original range was $400 million to $500 million a quarter. It seems the past couple of quarters has been closer to like $350 to $400 million range, including the target for the fiscal second. Can you kind of walk through the rationale? Is that because you guys are allocating capital to other things? Is the target going to remain in the $400 million to $500 million range? Or is $400 million a better run rate for the rest of the year?

Yes. So as you noted, we did repurchase $400 million this most recent quarter, which was within the guidelines, the guidance that we had provided. And we have indicated an expectation that we'll repurchase at $400 million levels, what we're targeting for this current quarter. And keep in mind that we just had another capital deployment action this quarter where we redeemed $80 million of preferred equity, that has the same effect on Tier 1 capital as the share repurchase doesn't have the same EPS effect as a share repurchase. So I would say we're deployed in capital actions this quarter, targeting $480 million of activity. And going forward, we remain committed to that $400 million to $500 million quarterly level going forward as we continue to monitor our Tier 1 leverage ratio until such time that we've deployed it in our other priorities.

Just on the deposit mix, you had ESP balances down $1 billion quarter-over-quarter, another $500 million so far. Is that just demand driven? Or are you actively looking to shrink those deposits and just trying to think through the trajectory of those balances and the mix going forward.

No, Jim, it's really driven by demand because we've experienced a 100% deposit beta. We haven't been speeding up any efforts to change the demand. If you look at the outflows, they have remained fairly stable. The real change has been in inflows, which have slowed as rates have started to come down, and I believe more clients and funds are getting invested in the markets. This aligns with what you’ve observed with other firms and their higher-yielding savings products. As rates decrease, it's expected that the demand for placing cash there declines.

That's fair. So when we consider everything together, including the mix of deposits, the forward curve, and the significant loan growth occurring at lower rates, how do you view the combination of net interest income and RJBDP fees for the remainder of the year?

Yes, it really depends on the trajectory of interest rates from this point onward. The market is anticipating between zero and two rate cuts, and the lower the rates, the better our deposit beta is, which helps maintain both the net interest margin and the B2P yield. However, regarding the balances in ESP, I believe clients are still sensitive to the interest they earn on their cash balances, even if rates are cut further. It's challenging to determine how much that sensitivity will decrease as rates decline, and we don't have a definitive answer yet; we will need to keep monitoring this moving forward.

I wanted to ask about the platform that you've been investing in. Could you provide more details on how you've been expanding that platform and where it currently stands compared to your goals? Additionally, what can we expect from Raymond James over the next 12 to 24 months regarding the platform?

With our platform, we have a similar approach to growing the number of advisers by focusing on quality over quantity. We're not interested in offering every product simply to generate headlines or attract short-term interest. It's important to ensure there is sufficient interest and demand, but most importantly, that each product is thoroughly vetted from both an operational and investment standpoint, and that it has ongoing support, which necessitates continued servicing. To execute this effectively, we want to ensure there is substantial demand for the products we offer, so we're being intentional about our choices. We also invest heavily in education. Unlike some firms that use alternative investments as a means of creating friction for advisers transitioning to other firms or as a way to drive profits, we take a different approach. We view all advisers as free agents, and if they wish to leave on good terms, we'll assist them in the transition without pushing products that complicate that process for them or their clients. In the long run, focusing on products as profit drivers rather than prioritizing the best interests of clients can be problematic. That's why we prioritize education and ensure advisers help their clients understand the implications of investing in private equity, including the right allocation based on each client's liquidity needs, which vary significantly. This understanding is crucial for advisers to grasp their clients' risk tolerance and investment stages. Therefore, we maintain a balanced and long-term approach when offering any product, particularly private equity, as it is generally less liquid than traditional investments and even less so when cash is urgently needed. Ultimately, we aim for a balanced and sustainable strategy in this area.

Great. And then just a follow-up question on AI. You spoke about automating processes, the launching AI operations agent Ray. I was hoping you could speak to your aspirations there. How you see this ramping in terms of usage and adoption compared to where adoption is today for Ray, what sort of ROI do you anticipate? And then just more broadly, where is there scope to launch additional agents and how you're thinking about the potential for an agented workforce at Raymond James?

It's a great question. I've spent a lot of time with our technology leadership discussing this. Honestly, we don’t have a definitive answer yet. It's still early in the process, just the beginning of the opportunities and deployment. Currently, we have over 10,000 associates regularly using AI in various capacities. The integration has been quite significant. In fact, more than 3 million lines of code are written each month using AI, with guidance from our technologists. While we are already utilizing AI to a considerable degree, it’s still early in its development. The potential to expand its use as these tools become smarter and more efficient is substantial.

Thanks, everyone. I think we've covered everything here. I want to delve into the growth of securities-based loans, which has been exceptional. As we look ahead to the next year, I understand that lower rates will help, but I believe there's a lot of education happening in this space. I'd like to know more about the other factors driving this growth and also about capacity, as this is a key area for you. It seems there is a positive remixing element to it, so I'm interested in understanding how much more potential there is for customer penetration.

Yes. No. As you said, the growth has been phenomenal. Lower rates have certainly helped that growth. But as you point out, education, technology, the tools to tap into the securities-based lending product has been significant as well. And also recruiting has driven growth. A lot of the advisers were recruited coming with substantial SBL balances to their clients. So it's really all of the above approach, and we're optimistic long term about SBL continuing to be used by clients because it's a great product for clients relative to other borrowing solutions out there that's much more flexible, for example, than a home equity loan. And so there's other substitutes out there that are much more mature that people have much higher awareness of. And as they learn about security-based loans, there's a lot of clients that are interested in it.

Paul, I was just hoping to get some context around the industry and how you're thinking about adviser movement here in 2026 and how that might differ from, say, last year.

I think it's going to be based on our pipelines, we're optimistic about adviser movement to Raymond James. While I can't comment on movement to other firms, we are confident about our appeal as a destination of choice and as a leading grower in the wealth sector. It’s early in the calendar year, so we'll see how it unfolds. The outcome may hinge on what happens with some of these roll-ups over the next year, acting as a potential catalyst. We don't focus on timing our recruitment, whether it's this year, next year, or five years down the line. Our decisions are made with a long-term view of five to ten years. We aim to reinforce our unique culture, maintain personal relationships, and uphold our client-first, long-term values. It's important for us to invest in our platform to ensure competitiveness in technology, products, and support, while also keeping adviser and client satisfaction high. We recently won the J.D. Power award for trust in our industry, which is crucial. If we continue to preserve what makes Raymond James attractive, we will recruit new advisers and retain our existing ones with a high level of satisfaction. Frankly, I’m indifferent about when that happens, as it’s a long-term process rather than a quick sprint. Other firms may focus on short-term recruitment efforts, but that approach isn’t sustainable. Effective recruiting demands consistent investment, and if we frequently adjust recruiting efforts, we won’t attract high-quality advisers. We aim for advisers who are committed to being here long-term and finding satisfaction in their careers, rather than those looking for the highest paycheck.

I think we answered all your questions, trying to interrupt, but I think we answered all your questions. I really appreciate your time on behalf of the Raymond James leadership team. We do not take your time or interest in Raymond James for granted and stay warm over the next several days here and look forward to seeing and talking to all of you soon.