Good evening, and welcome to Raymond James Financial's Fiscal 2024 Second Quarter Earnings Call. This call is being recorded and will be available for replay on the company's Investor Relations website. I'm Kristina Waugh, Senior Vice President of Investor Relations. Thank you for joining us. With me on the call today are Paul Reilly, Chair and Chief Executive Officer; and Paul Shoukry, President and Chief Financial Officer. The presentation being reviewed today is available on Raymond James' Investor Relations website. Following the prepared remarks, the operator will open the line for questions. Calling your attention to Slide 2. Please note, certain statements made during this call may constitute forward-looking statements. These statements include but are not limited to, information concerning future strategic objectives, business prospects, financial results, industry or market conditions, anticipated timing and benefits of our acquisitions and our level of success integrating acquired businesses, anticipated results of litigation and regulatory developments, and general economic conditions. In addition, words such as believes, expects, anticipates, intends, plans, estimates, projects, forecasts and future or conditional verbs such as may, will, could, should and would, as well as any other 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 Form 8-K, which are available on our website. Now I'm happy to turn the call over to Chair and CEO, Paul Reilly. Paul?

Thank you, Kristie. Good evening, everyone, and thank you for joining us today. Once again, we delivered strong results in the quarter. Highlighting our diversified platform, we generated record results for the fiscal second quarter and the first six months of the fiscal year. We continue to invest in our business, our people and technology to help drive growth across all our businesses. Before discussing quarterly results, I want to highlight an important announcement made last month. Following a multiyear succession planning process, the Board of Directors appointed Paul Shoukry, our CFO, as President of Raymond James. Following a transition period, Paul is expected to become the firm's CEO sometime during the fiscal year 2025, becoming only the fourth Chief Executive in the company's 60-plus-year history. Paul has been an exceptional leader and a major contributor to Raymond James' steady growth and financial stability. I am confident he will continue to guide the firm with the same conservative, long-term approach and laser focus on our advisors and client-first culture that has helped shape our success over the many years. In addition, we're proud to announce other key leadership appointments to take effect October 1, 2024. Private Client Group President, Scott Curtis, will become COO of Raymond James Financial, moving into the role following the retirement of Jeff Dowdle at the end of the fiscal year; Tash Elwyn, current Raymond James & Associates CEO, will become President of PCG; and Global Equities and Investment Banking President, Jim Bunn, will become President of the Capital Markets segment. These expanded roles are a direct reflection of the significant leadership and contributions that Scott, Tash and Jim have made over the years. I am confident, along with Paul, they will continue delivering on our mission to help clients achieve their financial objectives. Now to review the second quarter results, starting on Slide 4. The firm reported record quarterly net revenues of $3.12 billion, an increase of 9% over the preceding year quarter, primarily due to higher asset-based revenues. Quarterly net income available to common shareholders was $474 million or $2.22 per diluted share. Excluding expenses related to acquisitions, adjusted net income available to common shareholders was $494 million or $2.31 per diluted share. The quarter included the favorable impact of a legal and regulatory net reserve release of $32 million, predominantly driven by a reduction in the reserve related to the FCC off-platform communications matter. We generated strong returns for the quarter with an annualized return on common equity of 17.5% and annualized adjusted returns on tangible common equity of 21.8%, a great result, particularly given our strong capital base. Moving on to Slide 5. Client assets grew to record levels during the quarter, driven by rising equity markets and solid advisor retention and recruiting in the Private Client Group. Total client assets under administration increased 6% sequentially to $1.45 trillion. Private Client Group assets and fee-based accounts grew to $799 billion and financial assets under management reached $227 billion. Domestic net new assets were $9.6 billion, representing a 3.2% annualized growth rate on the beginning of the period domestic Private Client Group assets. This quarter does reflect some seasonality typical in the first calendar quarter. And as we've seen before, net new assets can be volatile quarter-to-quarter as we onboard newly recruited advisors and have advisors retire or leave the platform from time to time. With our robust technology capabilities, client-first values and long-time multiple affiliated options, PCG continues to attract high-quality advisors to the platform. For example, during the quarter, we recruited to our domestic independent contractor and employee channels, financial advisors with approximately $80 million of trailing 12-month production and $12.8 billion of client assets at their previous firm. Fiscal year-to-date, trailing 12-month production of recruited advisors is up 45% and related assets up 77% over the prior six-month period. There is a lag between recruiting results and net new assets as it takes some time for clients to transition to the Raymond James platform, but we are encouraged by the recruiting success so far this fiscal year. And these results do not include our RIA & Custody Services business which also continues to have recruiting success and finished the quarter with $161 billion of client assets under administration. Looking to our fiscal year-to-date results, domestic net new assets were $31.2 billion, representing a 5.7% annualized growth rate on the beginning of period domestic PCG assets, a strong result compared to our peers. Total clients' domestic cash sweep and Enhanced Savings Program balances ended the quarter at $58.2 billion, up slightly over December 2023. Bank loans were essentially flat from the preceding quarter at $44.1 billion as loan demand remains relatively muted given higher rates. Moving on to Slide 6. Private Client Group generated record quarterly net revenues of $2.34 billion and pretax income of $444 million. Year-over-year results were driven by higher asset management fees, reflecting the nearly 20% growth of assets in fee-based accounts at the beginning of the current quarter, compared with the same prior year period. The Capital Markets segment generated quarterly net revenues of $321 million and a pretax loss of $17 million. Net revenues grew 6% compared to a year ago quarter primarily due to higher M&A and debt underwriting revenues. Sequentially, revenues declined 5% due to lower fixed income brokerage revenues and M&A and advisory revenues, partially offset by higher debt underwriting revenues. The pretax loss in Capital Markets of $17 million reflects the impact of amortization of deferred compensation granted in preceding periods which totaled $20 million this quarter. While the timing of closings remains difficult to predict, we are encouraged by the healthy pipelines and new business activity in M&A. We continue to expect investment banking revenues to improve along with the industry-wide gradual recovery. The Asset Management segment generated pretax income of $100 million on record net revenues of $252 million. Results were largely attributable to higher financial assets under management compared to the prior year quarter due to market appreciation and net inflows into PCG fee-based accounts. The Bank segment generated net revenues of $424 million and pretax income of $75 million. Bank segment net interest margin of 2.66% declined 8 basis points compared to the preceding quarter primarily due to the higher cost mix of deposits as the Enhanced Savings Program balances replaced a portion of the lower-cost RJBDP cash suite balances. Looking to the fiscal year-to-date results on Slide 7. We generated record net revenues of $6.13 billion, and record net income available to common shareholders of $971 million, up 8% and 4%, respectively, over the prior year's record. Additionally, we generated strong annualized return on common equity of 18.3% and an annualized adjusted return on tangible common equity of 22.8% for the six-month period. On Slide 8, the strength of the PCG and Asset Management segment for the first half of the year primarily reflects the strong organic growth in PCG with robust equity markets. And now I'll turn over to Paul Shoukry, our CFO; and soon to be CEO for the second quarter results. Paul?

Thank you, Paul. Starting on Slide 10. Consolidated net revenues were $3.12 billion in the second quarter, up 9% over the prior year and up 3% sequentially. Asset management and related administrative fees grew to $1.52 billion, representing 16% growth over the prior year and 8% over the preceding quarter. This quarter, PCG fee-based assets increased 7%, which will be a strong tailwind for asset management and related administrative fees in the fiscal first quarter. Brokerage revenues of $528 million grew 6% year-over-year, mostly due to higher brokerage revenues in PCG which were partially offset by lower fixed income brokerage revenues as depository clients continue to experience flat to declining deposit balances and have less cash available for investing in securities. Remember, in our Fixed Income business, we do not have the same exposure to the higher volatility, currency, and credit products that have benefited many of the larger players in our industry during the quarter. I'll discuss account and service fees and net interest income shortly. Investment Banking revenues of $179 million increased 16% year-over-year and declined 1% sequentially. Compared to the prior year quarter, second quarter results benefited from stronger debt underwriting revenues in both fixed income and public finance, as well as improvement in M&A and advisory revenues which continued to be subdued. Moving to Slide 11. Clients' domestic cash sweep and Enhanced Savings Program balances ended the quarter at $58.2 billion, up slightly over the preceding quarter, and representing 4.6% of domestic PCG client assets. Sweep balances were essentially flat, and ESP balances increased 3% sequentially, both outperforming our expectations on the last call. Since the beginning of this quarter, domestic cash sweep balances have declined about $1.7 billion, mostly due to quarterly fee billings, along with income tax payments. Turning to Slide 12. Combined net interest income and RJBDP fees from third-party banks was $689 million, down 1% from the preceding quarter, largely reflecting one fewer billable day. Again, this result outperformed our guidance on last quarter's call, given the more stable client cash balances. Going forward, net interest income and RJBDP third-party fees will largely be dependent on the level of short-term interest rates, the stability of client cash balances, and the trajectory of loan growth which has been subdued in this rate environment. Fortunately, we are well positioned for the eventual recovery in loan growth with ample capital and funding flexibility. Moving to consolidated expenses on Slide 13. Compensation expense was $2.04 billion, and the total compensation ratio for the quarter was 65.5%. Excluding acquisition-related compensation expenses, the adjusted compensation ratio was 65.2%. As is typical in the first calendar quarter, compensation expenses were impacted by annual salary increases and the reset of payroll taxes. All in, an adjusted compensation ratio close to 65% is in line with our current target and is a satisfactory result given the challenging environment for the Capital Markets segment. Non-compensation expenses of $466 million increased 1% sequentially, largely due to higher communications and information processing expenses and a higher bank loan loss provision, which were partially offset by a favorable legal and regulatory net reserve release of $32 million in the quarter, which Paul mentioned earlier. For the fiscal year, we still expect non-compensation expenses, excluding provision for credit losses, unexpected legal and regulatory items, or non-GAAP adjustments to be around $1.9 billion. This implies incremental non-compensation growth throughout the year as we continue to invest in growth and ensure high service levels for advisors and their clients throughout our businesses. Keep in mind, many of our non-compensation expenses, such as investment sub-advisory fees, represent healthy growth that follows the corresponding revenue growth. Slide 14 shows the pretax margin trend over the past five quarters. This quarter, we generated a pretax margin of 19.5% and adjusted pretax margin of 20.4%, a strong result, especially given the challenging market conditions impacting capital markets. As a reminder, our current targets provided at our Analyst and Investor Day last May, are for pretax margin of 20% plus and a compensation ratio of less than 65%. We still think these targets are appropriate, and we will provide an update as needed at our upcoming Analyst Investor Day scheduled for May 23. On Slide 15, at quarter-end, total balance sheet assets were $81.2 billion, a 1% sequential increase. Liquidity and capital remain very strong. RJF corporate cash at the parent ended the quarter at $2 billion, well above our $1.2 billion target. And we remain well capitalized with Tier 1 leverage ratio of 12.3% and a total capital ratio of 23.3%. Our capital levels continue to provide significant flexibility to continue being opportunistic and invest in growth. The effective tax rate for the quarter was 21.8%, reflecting the favorable impact of non-taxable corporate-owned life insurance gains in the quarter. Looking ahead, we believe 24% is an appropriate estimate for the effective tax rate. Slide 16 provides a summary of our capital actions over the past five quarters. During the quarter, the firm repurchased 1.7 million shares of common stock for $207 million at an average price of $122 per share. Including $43 million of shares repurchased in April, we completed the expected $250 million of these share repurchases since January 1 and fulfilled the repurchase commitment associated with the dilution from the TriState Capital acquisition. As of April 19, 2024, approximately $1.14 billion 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 repurchases. We are committed to maintaining capital levels in line with our stated targets, and we'll discuss more on our overall capital management strategy at our upcoming Analyst Investor Day. 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 is solid. Criticized loans as a percentage of total loans held for investment ended the quarter at 1.21%, up from 1.06% from the preceding quarter. The bank loan allowance for credit losses as a percentage of total loans held for investment ended the quarter at 1.06%. The bank loan allowance for credit losses on corporate loans as a percentage of the corporate loans held for investment was 2.05% at quarter-end. We believe this represents an appropriate reserve, but we continue to closely monitor economic factors that may impact our loan portfolios. Before I turn the call back over to Paul, I just want to say that I am absolutely honored to be named President and future CEO of this great firm. I'm excited to partner with my colleagues and friends Scott Curtis, Tash Elwyn and Jim Bunn in their expanded roles to continue leading Raymond James with the same values that guided Bob James, Tom James and Paul Reilly since our founding. I am optimistic about our future, as all our businesses have critical mass, significant headroom for continued growth, and highly competent management teams that embody our firm's advisor- and client-first values. Now I'll turn the call back over to Paul Reilly to discuss our outlook. Paul?

Thank you, Paul. As I said at the start of the call, I'm pleased with our results for fiscal second quarter and through the first half of the fiscal year, generating record results and ending the quarter with record client assets. And while there is still economic uncertainty, I believe we are in a position of strength to drive growth over the long-term across all our businesses. In the Private Client Group, next quarter's results will be positively impacted by the 7% sequential increase of assets in fee-based accounts. Our advisor recruiting activity remains robust and I'm encouraged by a record number of large teams in the pipeline. We are focused on being a destination of choice for current and prospective advisors which we believe over the long-term should continue to drive industry-leading growth. In the Capital Markets segment, we continue to have a healthy M&A pipeline and good engagement levels, but our expectations for a gradual recovery are heavily influenced by market conditions. And we could expect activity to pick up over the next six to nine months. And in the Fixed Income business, the overall dynamic of the past year remain unchanged. Depository clients are experiencing flat to declining deposit balances and have less cash available for investing in securities, putting pressure on our brokerage activity. We hope that once rate and cash balances stabilize, we will start to see an improvement. Overall, despite some of the near-term challenges, we believe the investments we've made in the Capital Markets business have positioned us well for growth once the market rate environment becomes conducive. In the Asset Management segment, financial assets under management are starting the fiscal third quarter, up 5% over the preceding quarter, which should provide a tailwind to revenues. We remain confident that strong growth of assets in fee-based accounts in the Private Client Group segment will drive long-term growth of financial assets under management. In addition, we expect Raymond James investment management to help drive further growth over time. In the Bank segment, we remain focused on fortifying the balance sheet with diverse funding sources and prudently growing assets to support client demand. We have seen securities-based loan payoffs decelerate, and we expect demand for these loans to recover as clients get comfortable with the current level of rates. With little activity in the market, corporate loan growth has been muted. However, with ample client cash balances and capital, we are well positioned to lend once activity increases in our conservative risk guidelines. In addition to driving organic growth across our businesses, we also remain focused on the corporate development efforts for opportunities that may meet our disciplined M&A parameters. In closing, we are well positioned entering the fiscal third quarter with a strong competitive positioning in all of our business and solid capital and liquidity base to invest in future growth. As always, I want to thank our advisors who drive this business and associates for their continued dedication to providing excellent service to their clients. Thank you for all you do. That concludes our prepared remarks. Operator, will you please open the line for questions?

We'll go first today to Alex Blostein from Goldman Sachs.

Congrats to both of you guys. Well deserved. I wanted to start with a question around compensation maybe. I understand there are some seasonal factors that impacted the quarter, but maybe help break down how much is seasonal, what specifically this quarter? It feels a little bit heavier than normal. And then Paul, I think I heard you say that you're kind of on target to a 65% compensation rate for the year, but then you also said you're still shooting to be below 65% for the year. So maybe just kind of help reconcile where you guys are ultimately expect to end up for the full year.

Yes, Alex, thank you for that. We announced a target of 65% at the last Analyst Investor Day, and we have been trending towards that in the first two quarters. However, our performance for the rest of the year will largely rely on the Capital Markets segment, which is a significant factor. Normally, this segment has a lower compensation ratio compared to others, which would help improve the firm's overall ratio, but that was not the case this quarter, as you can see from the calculations. We are, however, pleased to achieve an adjusted compensation ratio of approximately 65.2% despite the difficulties in the Capital Markets segment. Regarding payroll taxes and salary increases typical for the first quarter of each year, I estimate that this had an impact of about $30 million to $35 million for the quarter, which is quite significant. Salary increases will continue throughout the year, but about two-thirds of that impact was linked to the payroll tax reset, which will decrease as the calendar year progresses.

I got you. My second question around recruiting activity. And if we look at the net new assets disclosed in the quarter, organic growth is trending at a lower end from what we've seen from you guys historically. And I guess double-clicking into that, it looks like the independent headcount continues to be pretty range-bound. So maybe kind of walk us through what's been sort of pressuring the net new asset growth so far this year, your expectations for the rest of the year? And then specifically, what you're seeing in the independent channel that's been keeping the headcount relatively flat?

I think you're noticing similar trends; our hiring teams are larger, allowing us to bring in more assets. We're experiencing a strong performance regarding assets over the trailing 12 months. We do have some headcount moving to our RIA channel, which removes them from our headcount as they aren't licensed. Despite this movement, we retain the assets, but not the headcount. We'll aim to provide you with more details on Investor Day. Additionally, we have some outs that require time to onboard. When we see a strong quarter like the $80 million in trailing 12, it typically takes nine months to a year to transfer all those assets. Our expectation is that recruitment will remain strong going forward. We also recognize the need for greater transparency regarding the RIA and how to interpret it. We're working on providing better metrics so you can have clearer insights into those figures.

Next question is from Steven Chubak, Wolfe Research.

This is Michael Anagnostakis on for Steven. I did want to ask one just on cash sweep. I appreciate the commentary about how things have trended to the start of the quarter. And it was certainly nice to see that sweep cash was flat in Q1, but seeing now tax season is behind us, are you seeing signs of cash sweeps building, inflecting positively? And maybe just speak to your level of confidence that we could see the absolute sweep cash balances build from here.

I mean we had tax season. We also had a record quarterly fee billing that came out of the cash balances already. And so I look at today's report, cash sweep balances so far in April are down $1.3 billion, which is less than the impact from the fee billings. Though we had some - a decline in the Enhanced Savings Program so far as it was able to - and again, that could have been impacted. We have tracked significant payments to the IRS with the tax season here. So - and if you look at the last couple of quarters after the fee payments remain, cash kind of built throughout the quarter, and you saw that certainly in this past quarter where cash sweep balances ended relatively flat quarter-over-quarter, which exceeded our expectations that we shared on the last call. So we are hopeful that balances are stabilizing, and so we'll kind of continue monitoring it from here.

Got it. And maybe just pivoting to DOL. Paul, on the last earnings call, I recall that you were relatively comfortable with Raymond James' positioning and that you expected the industry to challenge the new rule. With the final DOL rule now published, maybe you can update us on your views in terms of what the rule in its finalized state means for the industry, as well as any implications for Raymond James that you would highlight?

Well, yes, so I appreciate the question. We're digesting 500 pages of a regulatory rule is a little more - even more complicated than trying to get through our earnings release, so - to analyze it. So it's early. The early read is actually from the rule itself, is we - there's nothing that pops out that's overly problematic. It actually may be surprisingly so. I think the industry's concern will be 2. One is that does the Department of Labor even have the authority to oversee these accounts, and that doesn't have to do with this rule. I don't think the rule itself will have a high impact. But do we want another regulator to concede there's statutory authority for the regulator to oversee those accounts? And the other thing is if the rule is talking about really complying with best interest standard, why is there an extra rule? So - but the rule itself is I think, much more manageable than the draft rule was.

Totally appreciate that. And congratulations to you both.

Thank you.

Next question comes from Michael Cho, JPMorgan.

My first one, I just wanted to follow up on M&A again. I mean you talked through a healthy pipeline looking ahead. But just in the quarter, again, you all talked through some seasonality and some lumpiness. I'm just curious if there's anything else you can call out or any more color around nuances between maybe some of the affiliate models that you talked through? And maybe anything to call out in terms of how maybe attrition is trending as well?

If you look for the first six months, where it - I think compared to the industry in the 5s, that we did pretty well. So this quarter was slower in terms of the number. Typically it is a little lower but lower - maybe a little lower than we would have thought in terms of the number itself, but the recruiting is going well, the movement to RIA, you can see that net new assets growth was pretty robust. And that asset growth was pretty robust. So I think it actually, it was - we have quarters where things are down and quarters where things are up. And I just think it was down a little more than we anticipated from a measurement standpoint. But the recruiting, not only in what we brought in this quarter, but what we have in the pipeline, I think we have a relatively good chance of closing, I can't remember it ever being stronger. So the numbers will be impacted by the - in terms of advisor count, how many go to RIA and then hopefully, the ones that do will choose to stay with us. So - and we've had a pretty good record on it so far.

Okay. Fair enough. And then just switching gears to the Capital Markets business. I mean, I realize some of that is driven by the deferred compensation that you called out and maybe still a recovering M&A environment. I guess so with that backdrop potentially improving from here and with Raymond James' history of investing in talent as well. I mean, how would you frame your willingness to go after incremental talent in the advisory business over the next, call it, 9 to 12 months?

Yes. So we have done a lot of adjusting in terms of the cost and lowering the cost in that business, but we've also done some hiring. So the business is very leveraged to the upside as revenue comes up. I mean so the margin two years ago, we put 50% or something. I mean so now it's not. So I mean there's leverage for the revenue to grow to really help with that margin. So the question is just the market. And we're open always to bring in talent. I think we showed in '09 and the worst part of it, we were hiring when other people weren't and it really paid off for our growth for the whole next decade. The advantage of having a strong capital position is that it allows us to hire, retain, and effectively position talent even in challenging market conditions. We have made some strategic hires in Public Finance that are already yielding results this quarter and will continue to do so in the next. The current performance of Public Finance might not suggest this at first glance, but we are confident in the business and the platform. If there is great talent available, we are prepared to make long-term investments and utilize our liquidity to seize those opportunities.

The next question is Brennan Hawken, UBS.

Congrats to both of you. Curious about the idea now that we're starting to see Capital Markets get going, activity begins to pick up. How should we think about incremental margins in that business for you given how weak the profitability has been? I would assume that they would be pretty good. But could you help us get a sense of what an incremental dollar of revenue would mean from an incremental margin perspective?

Yes. I think maybe the only thing we can really point to is the margins peaking out in the mid-20s. I think it's 25%, 26% and 21%, 22% in that time period. And so there's a lot of upside to the margins from where we are today. And just remember, this quarter was impacted by $20 million of deferred compensation amortization from those record years as well, which will run off over the course of the next 12 to 18 months because those are 3-year deferrals typically. So there's been a lot of upside. We have a very strong franchise now in Investment Banking, the pipelines, and the leading activity levels are good. Closings are difficult to predict just because of this margin environment. But we think there's a lot of upside to both the top and bottom line in our Capital Markets segment.

If we were to make changes, we would be taking different actions than we have so far. We have wisely reduced expenses and ensured we have the right team in place. We believe we have a strong group, and as the market improves, we expect they will perform very well.

Sure. Fair enough. And then thinking about the improving environment. If we continue to see signs of recovering strength in your core businesses, would that increase confidence and improve the likelihood for a better outlook for capital returns and buybacks?

Yes, our capital philosophy remains consistent. We are keen on growing the business and investing first. Our recruitment efforts are a significant investment, which most would agree is a worthwhile one. We are actively seeking mergers and acquisitions but cannot predict when that will happen. We have committed to buying back shares and being opportunistic, but we are mindful of our capital levels, which we consider to be high and in need of management. We plan to meet with the Board, and by the next Analyst and Investor Day, we may have more clarity on our approach. Regarding profitability, we are not looking to hoard capital, as that wouldn't serve us well, but we likely will maintain higher levels than most firms because it's a solid position. For those on this call who think we might execute a buyback at an average of over $120, you might not have expected us to take that step just a quarter or two ago. We are focused on managing our capital levels.

Next question is Dan Fannon, Jefferies.

Just to follow up on that last question. Can you talk about M&A and really what do you think makes the most sense in terms of strategic fit from a product, geography or scale perspective?

Yes, that’s a difficult question to answer briefly. Our main focuses are North America and Europe, where we explore the best opportunities for each business. The opportunities differ across our sectors; for our Private Client Group, North America and the U.K. are key. Our M&A group has a wider reach, primarily in the continental markets, though we haven't ventured much into Asia. We're open to expanding our M&A capabilities beyond what we currently have in Asset Management. Each part of our firm has unique growth prospects that could be enhanced through acquisitions, but addressing this comprehensively would take more time and detail than we can provide in response to your broad question. Each business has specific needs, and in M&A, we see potential areas for growth. In the Private Client Group, while we've performed well in the Northeast, there's room for improvement, particularly in the West, where we aim to grow more significantly. In summary, there are numerous areas for growth if we can identify suitable opportunities that yield a reasonable return for our shareholders.

Understood. And then as you think about NII going forward, and you mentioned the kind of cash trends and some stabilization there. On the loan growth side, any signs of pickup and potential demand there? Or as you think about the rest of this year, what are the kind of most sensitive factors as we think about that line item in terms of up or down?

Yes, loan growth has been slow not just for us, but for the entire banking sector since interest rates began to rise over the past 12 to 16 months. This is largely due to the higher rate environment, with many corporations and investors entering the market with ample cash. We are hopeful about future loan growth. While we can't predict the exact timing of when it will occur, we believe there is growing demand from companies that will eventually re-engage in mergers and acquisitions and other investment activities, as well as from Private Client Group investors. One of the reasons we are maintaining strong capital funding and flexibility is so we can be in a strong position when loan growth resumes. We see it as simply a matter of timing for when that recovery happens. We are well-prepared for it, although we can't say when it will return, we remain optimistic about future growth.

Up next is a question from Mark McLaughlin, Bank of America.

Congratulations to you both. I wanted to get your take with regard to advisor movements. What have you guys been seeing on your end in terms of advisors leaving wire houses and also competition between independent broker-dealers? Is there anything to call out?

The competition remains strong. The movement of advisors, particularly from large teams, has become a significant focus. Private equity investments in the RIA space have led to increased movement away from independent broker-dealers and employee broker-dealers, which presents a new dynamic. This is part of why we began investing in our RIA channels a decade ago to remain competitive. Currently, there is just as much competition as ever, but we are still observing movement in our favor among wire houses. Many are not reporting their advisor counts for this reason. There is considerable activity, but it is competitive, with many players in the field. Ultimately, it's about more than just financial offers. While we may be offering less in terms of transition assistance compared to many firms, we are seeing improvements that reflect the competitive landscape. We believe our platform and culture attract people to us, and that trend continues, though it requires hard work and dedication.

I appreciate that color. And then I'm sure we'll get an update on this at the Investor Day. But with respect to RCS, what are you guys seeing in terms of advisors moving, especially the size of those advisors? I realize, for the most part, it's usually advisors once they reach kind of sort of a critical mass. Are you seeing the size of the advisors wanting to move over to RIA kind of move down in scale?

In the market, there are many smaller teams looking to become registered investment advisors (RIAs), as well as larger teams that already have the necessary infrastructure. This trend encompasses a wide range of teams. One of the advantages and challenges of being an RIA is that you can partner with a firm while utilizing multiple custodians. If you observe large RIAs affiliated with major custodial firms, you'll notice that they still occasionally transfer assets. Therefore, gaining assets doesn't necessarily require a firm to be affiliated with you. This creates a more dynamic industry. On the side of registered representatives, the situation is quite different, as it involves a stronger competition for resources among RIAs.

We will now take a question from Kyle Voigt, KBW.

Just have a couple of follow-ups. Maybe first, just a follow-up on Dan's M&A question. And I guess, just to be clear on the capital point, do you feel like you have enough capital flexibility today with the current leverage ratios to act on M&A opportunities that you're seeing in the market? Or is the near-term guidance on buybacks to offset dilution and imply continued near-term capital build due to maybe wanting a bit more flexibility due to the size of the acquisition opportunities that you're seeing?

I think we have some flexibility. The main issue is how much we can wait. There might be bigger opportunities, but we can’t just hold onto all our capital indefinitely. If I recall correctly, we've seen an increase of around 14% at one point, and that raised questions about our actions. However, we executed three deals in one year that brought that number down. It decreased to 10% and has been gradually increasing since then. If everything were predictable, forecasting would be easy. But with M&A, opportunities can arise unexpectedly, as sellers can decide to sell at any moment. This is why sometimes when we increase, we believe the market will present opportunities we can hint at, but that doesn’t guarantee we’re correct. Entering discussions is one thing, but it’s another for a seller to agree on timing, choose us, and finalize the deal. That’s where the challenge lies.

Great. And congrats again to both of you.

Thanks, Kyle.

Thank you.

Your next question comes from Michael Cyprys, Morgan Stanley.

I wanted to ask about organic asset growth. In the past, you've mentioned that most of the growth you're experiencing is from recruiting. I'm curious about your perspective on the opportunities to provide advisors with additional services that could enhance their efficiency and help unlock growth from the existing advisor base to increase same-store sales.

Our primary focus is on supporting our existing advisors by providing them with the necessary technology and capabilities to maximize their time with clients and attract new ones. This approach not only fosters advisor satisfaction but also ensures client satisfaction, which is the most cost-effective way for us to grow. It also lays the groundwork for attracting other advisors. The tools and technological updates we implement, along with back office improvements, are designed to enhance advisor productivity, which significantly contributes to our growth and retention. Despite the current market conditions, where any advisor could potentially leave for lucrative opportunities elsewhere, they choose to stay due to the value we provide. Hence, our main priority is retention, and I believe our growth rates are positively influenced by our ability to retain advisors and effectively recruit new ones.

Great. And then just on the loan book. Just curious where you think you're underpenetrated as you look at the portfolio today. If you look out over the next couple of years, how would you sort of like the composition and size of the book to evolve? And are there any additional capabilities you feel you may need to build out?

There are two aspects to consider. First, we are indeed underpenetrated compared to wire houses regarding loans to clients. However, we believe our role is to support advisors in doing what’s best for their clients. If they find our mortgage loans beneficial, they can use them; if not, they should choose alternatives that better serve their clients’ needs. Our focus is on offering competitive products while allowing advisors to determine what is best for their clients. We do not impose quotas or incentives, unlike some other firms that motivate their teams to meet specific targets. Our goal is for advisors to prioritize their clients' interests, and we aim to create compelling products and services to assist them in educating and helping their clients. While our industry penetration is lower because we avoid pushing products, we focus on education rather than incentivization. From a capital allocation perspective, we have preferences for specific loans such as those for the Private Client Group, SBLs, and mortgages, which provide excellent risk-adjusted returns and flexibility for clients. Our challenges mainly involve deciding whether to expand in commercial banking or invest further in securities, which are more about long-term financial strategy. Although our penetration is lower, we do not force it; we want our advisors to act when it genuinely benefits their clients.

Next up is Bill Katz, TD Cowen.

Congratulations, everyone. I have a question regarding the net interest margin. Can you discuss what the exit level might look like for the upcoming quarter? Considering the current reinvestment rates and the slow loan environment, how do you foresee this developing if things start to ease a bit?

I would say that the shift in cash balances from our balance sheet to third-party banks has mostly taken place over the last few quarters. Moving forward, the net interest margin will be influenced by the overall level of rates and what happens with short-term rates, as well as the asset mix. Currently, we have a higher amount of cash on our bank balance sheet which could impact the net interest margin if loan demand recovers. This situation could reduce the net interest margin, but it may also provide a slight boost to net interest income and overall earnings. In the meantime, having more cash balances than necessary does slightly lower the net interest margin. As for the baseline level, it appears to be relatively stable compared to this quarter, and we are not actively moving cash balances off our balance sheet to third-party banks as we did previously. I believe this situation is adequately reflected in this quarter's results.

Great. That's helpful. And just trying to triangulate a combination of the senior executive leadership changes. Your comments, Paul Shoukry, about sort of the platform being in a very good spot with scale. Where are you investing right now as you think through maybe the comp or non-comp side? And how might the strategic vision be evolving as you sort of migrate to the next generation of leaders?

We have been consistently investing in all of our businesses. The biggest segment is our Private Client Group, and we don't expect that to change. Most of our investment dollars go there. Additionally, we invest significantly in the growth of Capital Markets, Asset Management, and the Bank businesses, all of which are strong. Over the past three years and in the first half of this fiscal year, we've achieved record revenues and earnings in various market conditions, demonstrating the strength of our diversified business model. We will continue to invest in high service levels and technology to improve those levels and create efficiencies for our advisors, allowing them to spend more time with clients. Our focus hasn't changed since our founding in 1962, and we plan to maintain this strategy moving forward because everything is functioning very well.

Congrats again.

And our final question today will come from Devin Ryan, Citizens JMP.

I want to extend my congratulations to Paul Shoukry and the leadership team on the call, as well as Paul Reilly. I recall the stock trading around $10 when you joined in 2009, and it has certainly been a successful journey leading to a well-deserved transition. Regarding fixed-income brokerage, I noticed a significant increase in the first quarter after the latter half of 2023, followed by a decline in the second quarter. I'm curious if this was merely a change in activity and depositories due to shifting rate expectations, or if there are other factors at play. How should we view this business in relation to the starting point of the second quarter?

Yes. A couple of quarters ago, yields decreased significantly, providing depositories a chance to reposition their investments. We mentioned last quarter that this repositioning is somewhat irregular. During this quarter, rates increased again. The factors Paul highlighted in his remarks indicate that depositories are still having difficulties growing or maintaining their deposit balances. Therefore, they are likely to be cautious and slow to reinvest in securities in this climate. This situation impacts a major part of our Fixed Income business, and we anticipate facing challenges until deposit balances begin to increase and banks feel more secure in investing in their securities portfolios. On a positive note, SumRidge has introduced diversification in our fixed-income revenue through its corporate trading technology capabilities. However, this business relies on market volatility, and in the past quarter, the spread and rate volatility were not as pronounced.

At this time, I would like to hand the conference back to Paul Reilly for any additional or closing remarks.

Great. We appreciate you all coming on and good quarter, already on to the next quarter. And I think we've got some good tailwinds. So we look forward to it. And I'm not sure I look forward to hearing all these generational comments about how old I am, how ready Paul is, but he is ready. So I think you're going to see a lot of good things from Raymond James. So thanks for joining us today.

And once again, ladies and gentlemen, that does conclude today's conference. Thank you all for your participation. You may now disconnect.