RJF

Good evening, and welcome to Raymond James Financial fiscal second 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. I'm Kristie Waugh, Senior Vice President of Investor Relations. Thank you for joining us. With me on the call today are Chief Executive Officer Paul Shoukry and Chief Financial Officer Butch Oorlog. 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 two. Please note that certain statements made during this call may constitute forward-looking statements.

These statements include, but are not limited to, information concerning future strategic objectives, business prospects, financial results, industry or market conditions, anticipated timing and benefits of our acquisitions, and our level of success in integrating acquired businesses, anticipated results of litigation and regulatory developments, and general economic conditions. In addition, words such as believes, expects, anticipates, intends, plans, estimates, projects, forecasts, and future or conditional verbs such as may, will, could, should, and would, as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements. Please note that there can be no assurance that actual results will not differ materially from those expressed in these statements. We urge you to consider the risks described in our most recent Form 10-K and subsequent Form 10-Q and Form 8-K, which are available on our website.

Now, I'm happy to turn the call over to CEO, Paul Shoukry. Paul?

Thank you, Kristie. Good evening. Thank you for joining us. Raymond James delivered strong results this quarter despite a challenging and volatile market environment. Our steady, consistent performance reflects our disciplined execution against our objective of being the absolute best firm for financial professionals and their clients. In an industry built on relationships and trust, we believe in the power of personal, our commitment to building and maintaining deeply personal relationships with advisors, bankers, associates, and clients. Turning to the quarter, continued focus on our long-term strategy drove record quarterly revenues of $3.86 billion, representing growth of 13% over the prior year quarter and 3% above the preceding quarter. Pre-tax income of $735 million increased 10% compared to the year ago quarter and 1% over the preceding quarter.

By supporting our advisors and financial professionals across the firm with a personal approach, we consistently retain and recruit high-quality professionals who deliver excellent service and advice to their clients. In the Private Client Group, we ended the quarter with $1.7 trillion of client assets under administration, down slightly compared to the preceding quarter, but representing year-over-year growth of 15%. Our client-first culture, together with our robust technology and product platforms and strong balance sheet, continues to differentiate Raymond James as a destination of choice for financial advisors across our affiliation options, as reflected again this quarter in our strong retention and continued recruiting momentum. In the fiscal second quarter, quarterly domestic net new assets were $23 billion, representing a 5.8% annualized growth rate.

We recruited financial advisors to our domestic independent contractor employee channels with trailing 12-month production totaling $141 million and nearly $21 billion of client assets at their previous firms. The second highest quarterly result in our history in terms of both recruited production and assets. Our optimism about future growth is fueled by our commitment to our existing advisors, which is reflected in high retention, along with a robust advisor recruiting pipeline and a strong number of financial advisors who have made commitments to join in the coming quarters. Our value proposition is becoming increasingly differentiated. At Raymond James, advisors do not have to choose between culture and capabilities. We offer a unique combination of an advisor and client-focused culture together with leading technologies, products, and solutions advisors need to serve clients at a high level.

Combined with our strong balance sheet, long-term thinking, and commitment to independence, that continues to set Raymond James apart for advisors evaluating alternatives. We won't rest on our laurels. We will continue investing in automation, process improvement, and AI as part of our more than $1.1 billion annual technology spend to create efficiencies, give advisors more time to deepen client relationships, and further enhance the client experience. For example, our proprietary AI operations agent provides curated natural language answers and guidance to operational questions while intelligently evolving based on user activities and preferences. This agent has been rolled out to a few hundred advisors and their team so far, in addition to service focus groups at the home office. We are very encouraged by the strong initial feedback and will continue to expand advisor and associate access over time.

Capital Markets results improved this quarter, primarily driven by stronger investment banking revenues with a particularly strong performance in the month of March. We entered this third quarter with a robust pipeline that continues to reflect the opportunities that come from the strategic investments we have made in this segment over the past few years. We are confident we are well-positioned to continue building upon this quarter's momentum with motivated buyers and sellers engaging us for our deep expertise across the industries we cover. We remain committed to opportunistically enhancing the platform by broadening and deepening our capabilities through strategic hiring or acquisitions such as GreensLedge, which closed toward the end of the quarter.

In the Asset Management segment, net inflows into managed fee-based programs in the Private Client Group were strong in the quarter, reflecting the complementary impact of offering high-quality investment alternatives to financial advisors and their clients, as well as growth resulting from our successful recruiting efforts. Additionally, our Raymond James Investment Management business brought in positive net inflows in the quarter. In the Banking segment, loans ended the quarter at a record $54.8 billion, primarily driven by continued outstanding growth in securities-based lending balances, which have increased more than $5 billion or 31% over the year ago period and 6% sequentially. This growth continues to reflect a synergistic impact from our growing Private Client Group business as we are able to deploy our strong balance sheet in support of clients. Importantly, the credit quality of the loan portfolio continues to be strong.

Our capital deployment strategies remain disciplined and focused on the long term, as demonstrated by our strong organic growth, ongoing technology and platform investments, and our recent acquisitions of GreensLedge and Clark Capital. Clark Capital is expected to close this quarter. We also maintain our share repurchase program to effectively manage capital levels. This quarter, we repurchased $400 million of common stock at an average share price of $155. We ended the quarter with a Tier 1 leverage ratio of 12.4%. Now, I'll turn the call over to Butch Oorlog to review our financial results in detail. Butch?

Thank you, Paul. I'll begin on slide six. The firm reported record net revenues of $3.86 billion for the fiscal second quarter. Net income available to common shareholders was $542 million with earnings per diluted share of $2.72. Adjusted net income available to common shareholders, which excludes acquisition-related expenses, equaled $564 million, resulting in adjusted earnings per diluted share of $2.83. Our pre-tax margin for the quarter was 19%, and the adjusted pre-tax margin was 19.7%. We generated annualized return on common equity of 17.3% and annualized adjusted return on tangible common equity of 20.9%, solid results for the quarter, particularly given our conservative capital base. Turning to slide seven. Private Client Group generated pre-tax income of $416 million on record quarterly net revenues of $2.81 billion.

This performance was driven by higher PCG assets under administration compared to the previous year, resulting from the impacts of market appreciation, retention, and the consistent addition of net new assets. Pre-tax income declined 3% year-over-year, primarily due to the impact on this segment of interest rate reductions over the past year, which reduced our non-compensable revenues. Our Capital Markets segment generated quarterly net revenues of $464 million and a pre-tax income of $51 million. Segment net revenues grew year-over-year and sequentially due to higher debt and equity underwriting revenues, as well as higher M&A and advisory revenues. The Asset Management segment generated pre-tax income of $137 million on record net revenues of $327 million.

Results were largely attributable to higher financial assets under management compared to the prior year quarter due to market appreciation over the 12-month period and strong net inflows into PCG fee-based accounts. The Banking segment generated net revenues of $486 million and pre-tax income of $166 million. Sequentially, the Banking segment's net interest income increased marginally. Despite robust loan growth driven by securities-based lending, incremental interest revenues were nearly offset by the impact of two fewer interest earning days during the quarter and a full quarter impact of interest rate cuts during the prior quarter. Turning to consolidated revenues on slide eight. Asset management and related administrative fees of $2.02 billion grew 17% over the prior year and 1% over the preceding quarter. Record PCG fee-based assets equaled $1.04 trillion at quarter end, up 20% year-over-year and up slightly over the preceding quarter.

As we look ahead, we expect fiscal third quarter 2026 asset management and related administrative fees to be higher by approximately 1% over the second quarter level, driven by the impact of one additional billing day in our third quarter, along with the slightly higher PCG assets and fee-based accounts balance at quarter end. Moving to slide nine. Clients' domestic cash sweep and Enhanced Savings Program balances ended the quarter at $57.8 billion, down 1% compared to the preceding quarter and representing 3.7% of domestic PCG client assets. Based on April activity to date, domestic cash sweep and Enhanced Savings Program balances have declined due to the collection of record quarterly fee billings of approximately $1.9 billion, along with further declines largely driven by the seasonal impact of client tax activity. Turning to slide 10.

Combined net interest income and RJBDP fees from third-party banks declined 3% from the prior quarter to $650 million. Net interest margin in the Banking segment remained stable at 2.81% for the quarter, driven by the factors I previously mentioned. The average yield on RJBDP balances with third-party banks decreased 6 basis points to 2.7%, primarily due to the full quarter impact of the Fed interest rate cuts in the December quarter. Based on static interest rates and assuming unchanged quarter-end balances, net of the fiscal third quarter fee billing collection of $1.9 billion, we would expect the aggregate of NII and RJBDP third-party fees in the third quarter to be up approximately 1% from the second quarter level. The increase is largely due to one additional interest earning day in the fiscal third 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 expenses on slide 11. Compensation expense was $2.54 billion, and the total compensation ratio for the quarter was 65.8%. The adjusted compensation ratio, which excludes acquisition-related compensation expenses, was 65.7%. Compensation expenses were impacted by the seasonally higher expenses relating to resetting payroll taxes as of the beginning of the calendar year. Non-compensation expenses of $583 million increased 10% over the year ago quarter and 5% sequentially. For the fiscal year, we remain on track with our target level of non-compensation expenses of approximately $2.3 billion. This measure excludes the bank loan loss provision for credit losses, unexpected legal and regulatory items, and non-GAAP adjustments presented in our non-GAAP financial measures.

As demonstrated this quarter, we will continue to invest to support growth across our businesses while maintaining discipline over controllable expenses. Slide 12 presents the pre-tax margin trends for the past five quarters. This quarter, we achieved adjusted pre-tax margin of 19.7%, a good result given the headwinds of lower interest-related revenues, which we faced this quarter. Our long-term trend continues to highlight the stability and strength of our diversified businesses to consistently generate strong margins throughout various market cycles. On slide 13, at quarter end, our total assets were $91.9 billion, up 3% from the preceding quarter, primarily due to loan growth and higher cash balances in our Banking segment. Record bank loans of $54.8 billion grew 14% over the year ago quarter and 3% sequentially, with that loan growth largely in support of our clients.

Securities-based loans and residential mortgages represent 62% of our total loans held for investment, reflecting approximately 42% and 20% of the total, respectively. We continue to have strong levels of liquidity and capital. RJF corporate cash at the parent ended the quarter at $3 billion, providing excess liquidity of $1.8 billion 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 12.4% and a total capital ratio of 24%, we remain well above regulatory requirements with approximately $2.1 billion of excess capital capacity to deploy before reaching our conservative Tier 1 leverage ratio target of 10%. The effective tax rate for the quarter was 26%, which includes the unfavorable impact of non-deductible losses on the corporate-owned life insurance portfolio in the quarter.

Looking ahead, we continue to estimate our effective tax rate for fiscal 2026 to be approximately 24%-25%. Slide 14 provides a summary of our capital actions over the past five quarters. Through the combination of common dividends paid and share repurchases, we returned $507 million of capital to shareholders during the quarter. Additionally, in January, the firm opportunistically redeemed all of the outstanding shares of its Series B preferred stock for an aggregate value of $81 million. In the quarter, we repurchased $400 million of common shares at an average price of $155 per share. Over the past 12 months, we have repurchased $1.6 billion of common shares, and including dividends paid, we've returned over $2 billion of capital to common shareholders, reflecting a combined return of 94% of our earnings. We maintain our long-term commitment to operating our businesses at capital levels consistent with established targets.

Over the past year, the Tier 1 leverage ratio has declined 90 basis points as we have focused on strategic balance sheet growth and disciplined capital actions while maintaining a conservative approach to capital management. I'll now turn the call back to Paul for his final remarks. Paul?

Thank you, Butch. I am pleased with our record performance during the first half of the fiscal year. Despite challenging and unpredictable market conditions, our steadfast commitment to prioritizing the client in every aspect of our business has resulted in record revenues and record pre-tax income during the first half of the fiscal year. We remain well-positioned to generate long-term sustainable growth. We start the third quarter with record PCG fee-based assets under administration, record bank loans, and strong competitive positioning across all of our businesses, with ample headroom for continued growth. Importantly, as evidenced this quarter, financial advisor recruiting activity remains robust, and the investment banking pipeline is strong. Before we conclude, I want to thank our financial professionals and associates across the firm for what they do every day for clients.

As we look ahead, our focus remains the same, to be the absolute best firm for financial professionals and their clients. In a world being shaped by AI, technology, and constant change, we believe personal relationships will matter more, not less. Our strategy is to keep investing in the people, platforms, and capabilities that help our financial professionals deliver more holistic, more personalized advice to clients while staying true to the culture and long-term approach that have always differentiated Raymond James. Thank you for your interest in Raymond James. That concludes our prepared remarks. Operator, will you please open the line with questions?

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you'd like to withdraw that question, again, press star one. We kindly ask that you limit yourself to one question and one follow-up. For any additional questions, please re-queue. Your first question comes from Ben Budish with Barclays. Please go ahead.

Hi. Good evening, and thanks for taking the question. Maybe first, just on PCG, can you talk a little bit about the competitive environment there? It sounds like you're quite confident on the recruiting pipeline. I think there's definitely a presumption that there's been some sort of M&A-driven advisors in motion over the last few quarters. I'm not sure if you could comment on whether that's continuing or not, but just any other color around your confidence, what competitive intensity looks like in that business would be helpful.

Thanks for the question, Ben. Yeah. Our confidence is just really driven by the volume of home office visits that we're conducting with prospective advisors, the volume of new commits of prospective advisors across our affiliation options. We're actually seeing an uptick of commits in our employee affiliation option as well. It was consistently strong, but we're seeing an uptick there as well. While there have been catalysts, really there seems to be catalysts every 12-18 months over the 16 years that I've been with the firm. There's different types of catalysts, but what remains consistent is our focus on being the absolute best destination and firm for financial advisors and their clients, and matching that culture with the capabilities that are very hard to find in the marketplace.

Private equity has certainly been competitive over the last five years, as well as some of the strategic firms, and I think this is going to be an interesting year for private equity. I've heard that there's at least one or two firms that have tried to raise capital in the last three to six months that weren't able to do so. I think there'll be close eyes on the valuation in that space to see what the ongoing commitment and prices that they'll be willing to pay will be going forward.

That certainly could be another catalyst potentially down the road if that doesn't work out the way some people expect. Again, our focus is just to remain the absolute best destination for financial advisors and their clients across all of our affiliation options. We call it Advisor Choice, and that's really what's driven the 7% annualized net new assets for the first half of our fiscal year, which is leading the industry. At least a leader in the industry as far as net new assets go. That's both from recruiting, but also retention. Strong retention despite the very competitive environment.

Okay. I appreciate all that. Maybe just a follow-up, sticking with PCG. The pre-tax yield there has been coming down a bit sequentially. I know you talked a little bit about the company-wide comp ratio. There's some seasonal factors, but anything to comment on for that segment in particular? Thank you.

Yeah, year-over-year, short-term rates are down, and that obviously is a headwind to margins in the Private Client Group business because there's a spread dynamic there, which I think everyone sort of anticipates both on the way up with rates and on the way down with rates. We've also ramped up recruiting substantially year-over-year. We've actually broken out the cost of recruiting and retention, because if we were to do an acquisition, which our annual recruiting now is a medium-sized acquisition. A lot of firms break that out. We wanted to make sure that you had that transparency to see exactly how much we're paying to recruit and to grow the firm. Again, very good returns when we recruit financial advisors. Most importantly, those advisors are good cultural fits.

We prefer to recruit one by one versus doing acquisitions because we know, first, 100% of the transition assistance is going to retention of the advisor. Secondly, we can ensure that the advisors we're bringing over are a really good cultural fit for the firm.

Okay, great. Thank you both.

Your next question comes from the line of Devin Ryan with Citizens Bank. Please go ahead.

Great. Good afternoon, Paul and Butch. I want to start with an AI question. I appreciate some of the current initiatives that you already launched and you talked about, Paul. Sounds like you think AI will be a net positive for the business versus an overall risk. Would love to hear a little bit more about why, and then if you can just weigh in on how you're thinking about implications of this potential agentic cash sweep optimization, which I think some people think in theory could pressure transactional cash balances, and whether you would consider kind of evolving the monetization with like a platform fee or something else. Just love to get some thoughts on both. Thank you.

Yeah, maybe on your second question first around this agentic AI cash optimization tool, which I think is conceptual. I haven't seen it yet, but I think when you step back, it's really the dynamic that the industry has been seeing since rates started rising. We were talking about before, as you recall, Devin, before rates started rising, which is as rates rise, advisors will help clients invest in higher yielding alternatives. At Raymond James, we've been offering one of the most open platforms of higher yielding alternatives, whether it's the Enhanced Savings Program, which offers a very competitive rate with up to $50 million of FDIC insurance, as well as the prime money market funds, which we let all clients avail themselves to the institutional share class to get higher rates and a whole host of other higher yielding alternatives for their cash.

Because of that, you've seen in our industry, cash balance transactional or sweep cash balances go down 40%-50%. Now in fee-based accounts, the average cash balance per account's less than $10,000. Without AI, you've seen that trend happen. I don't think it requires AI for that cash to be invested in higher yielding alternatives. I think AI is kind of being sort of used to describe a phenomenon that we already anticipated would happen. I don't see much more of an incremental threat. Maybe to the e-brokers where there's not a financial advisor involved that's been helping clients reinvest those cash balances, perhaps. I'm not sure. We're not an e-broker, so I'm not an expert in that space, but I don't see it really impacting our space much more incrementally.

Again, I haven't seen the AI agentic solution either that everyone's talking about. I'm not sure, to tell you the truth. We feel like the sweep balances have stabilized over the last several quarters. We have the quarterly fee billings. We have the tax dynamic every year that we talked about. Outside of that, there's not a whole lot of cash in movement right now, given where rates are at. It's been pretty stable across the industry overall. As far as AI goes and your question around AI, I think it's already been helpful in our industry. We've had three client events in the last quarter, with advisors and clients, one in Memphis, one in Atlanta, one in Miami.

I would tell you, when you see the advisor relationship with clients, there's no doubt that the deeply personal relationships that advisors have with clients trump any kind of technology or AI bot that may exist in the future. These are deeply personal relationships. I know just with my financial advisor at Raymond James, one of the things that help me sleep better at night and my wife sleep better at night is my financial advisor. God forbid, if something were ever to happen to me short or intermediate term. My financial advisor knows my wife, knows my family, and knows what our financial objectives are, and can help my wife navigate that situation if that were to exist. That's not something I would trust to an AI bot, no matter how good the algorithm is. Those are the type of things.

You hear stories where clients with tears in their eyes talk about, at their loved ones' funerals, who was there: their religious leader, their family, their best friends, and their financial advisor. When we talk about AI, we need to understand the value of those personal relationship's advisors have with these families. It's not about transactions, it's not just about portfolio returns, it's about really deeply understanding the family's financial objectives. That's something that AI should help down the road because it'll help advisors come up with more bespoke, tailored insights and advice, save them time on administrative tasks, and allow them to spend more time developing those deeply personal relationships with their clients.

Your next question comes from the line of Michael Cho with JPMorgan. Please go ahead.

Hi. Good evening. Thanks for taking my question. I'm just going to follow along the same lines of the question, just more operationally. Paul, you talked about, I think, $1.1 billion in tech spend this year. Can you just unpack kind of where the priorities are in terms of for the growth of that spend? If we look at the various AI initiatives that Raymond James has instituted internally, and I think you called that, I think, an operational chatbot as well. How are you gauging success of some of these initiatives and really, how do you think the next step evolves as you roll out these capabilities? Thanks.

The $1.1 billion in technology spend, the vast majority of it is being focused on the Private Client Group business. That's one of the things that make us unique. For the size of our platform, while there's some bigger firms out there that have higher technology spends, they have to focus on credit cards, payments, treasury, banking, a whole host of other priorities. Whereas most of our technology spends really focused on supporting the financial advisor and their client in the Private Client Group business. That's been a key differentiator for us. When advisors come into the home office visits and they look at our technology, they're blown away by our capabilities relative to what they have, even at the largest firms in the industry because of our focus on that wealth management technology.

The way we test whether or not it's working, I mean, first of all the development of the technology is guided and directed by our technology advisory council, which is made up of our financial advisors. They tell us what they're looking for. They give us real-time feedback. They've become representatives for the other financial advisors that they have a network with to tell us what they need, what's working, what's not working, and that's what's given us. I mean, we've won awards in our technology, and we'll continue to deliver for financial advisors and their clients there.

Great. I appreciate all that color. If I could just switch gears just for my follow-up, just on the Capital Markets pipeline. I was hoping you could unpack some of your comments there as well. You called out the strong pipeline. I think you also called out March was fairly strong as well. I was hoping you can provide any incremental color there and how you'd characterize the pipeline as it sits today, maybe relative to the start of calendar 2026. Thanks.

Yeah. We feel really good about the investment banking pipeline. The month of March was a strong month for us, frankly, stronger than we expected. There's been a lot of volatility to contend with geopolitical issues, with oil prices and other things, AI concerns on certain sectors like technology and software, fintech, et cetera. Notwithstanding all those things, we have a very strong platform with great bankers across various verticals. The pipeline, the activity levels, the engagement letters being signed are all very promising. We feel great about the pipeline. There's certainly volatility and other things that need to be navigated through over the course of the year, but we don't know when those pipelines will convert to revenues.

Most of our pipeline is driven by financial sponsors on the buy side and/or on the sell side, and they're motivated buyers and sellers. The buyers have capital and dry powder, and the sellers have investments that are, in many cases, beyond their original holding period. We feel like these will get done. We feel great about the pipeline, and most importantly, we feel very good about the professionals that we have in investment banking and their expertise and relationships.

Great. Thanks, Paul.

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

Hey, Paul. Hey, guys, everybody. Wanted to ask you a question around longer term profitability, and maybe that's something you will talk to on the Investor Day coming up in a few weeks. Was hoping you could help us think through the benefits of AI and other related initiatives that could have on the business longer term. You guys have been sort of hovering around the 20%-ish % margin, which is great considering, I guess, that capital markets obviously hasn't been contributing to its full extent. As you think about a more normal backdrop with the benefits of AI and any other efficiencies, where do you think the margins could go to over time?

No, it's a fantastic question and one that we talk about a lot because really a lot of the focus on AI across corporate America right now and for us included, has been around the large language models and some of the sort of benefits of an efficiency and increased productivity that large language models can provide by synthesizing a lot of data. We rolled it out. We have a solution called Ray that we've rolled out and that advisors and sales assistants can use to sift through a lot of information, self-service, and very quickly find the answers to complicated questions. We're piloting it with a few hundred advisors, and the early feedback has been extremely positive.

What we're all wondering is the next phase of AI really is around agentic AI and what can agentic AI do to improve processes and streamline processes and ultimately bend the cost curve across not only our industry but all industries. We're still as core, I think Raymond James and all of corporate America is still early in that journey, frankly. We think that there will be significant opportunities. The compute power being invested is substantial and significant. We're using AI in a lot of areas already, whether it be in our cybersecurity area, although that's continuing to evolve, as we saw with a new release a couple weeks ago and some of the notifications from Washington around that. We're using AI, and we're seeing a lot of benefits from AI, but it's hard to dimension the actual margin impact at this juncture.

I think anyone who's talking about cost reductions or margin benefits from AI today, at least it would be arbitrary and too preliminary in providing that type of specificity.

No. Fair enough. Too early. A follow-up for you guys related to something, Paul, you mentioned earlier around private equity having perhaps a little bit more of a challenging backdrop in terms of deploying and raising capital. You guys continue obviously to sit in a significant amount of excess capital. You've been putting it to work via more recurring buybacks, which is definitely welcome. As you think about the probability of a larger deal in perhaps absence of sort of the private equity competition, which has been weighing on your ability to pull something off that's a little larger, what are the odds of that today? You sort of think about your pipeline of corporate M&A, particularly in the wealth space. What are the chances that you think you guys might be able to do something more meaningful in the next, I don't know, 12, 18 months?

Yeah, the biggest obstacle and challenge is we have a lot of great competitors with strong cultures and strong franchises. The biggest challenge is they haven't necessarily been for sale. We continue to stay close to those friendly competitors and exchange notes with them and compete with them on a friendly basis. Ultimately it's hard to know or what the catalyst might be to want to join forces and ultimately make one plus one equal something greater than two. We don't really do takeovers. We invite other firms to the Raymond James family, and we keep the best of both worlds. We've done that over and over again, starting with Morgan Keegan back in 2012. If you look at our fixed income leadership team, it's still led by legacy Morgan Keegan leaders.

We've actually grown headcount in our fixed income area in Memphis, for example, over that period of time. We're not a traditional acquirer in the sense that we take over and slash and burn costs, and we want to keep the franchise intact. We want to keep the culture intact and keep the best of both worlds. That makes us unique relative to other potential acquirers out there. We're in it for the long term. We're not looking for a five-year holding period. We're looking for a much longer holding period. We believe that there are great partners out there. We're confident that they'll happen, that the families will join at the altar at some point. In the meantime, we'll be patient and continue to develop those relationships.

Your next question comes from the line of Brennan Hawken with BMO Capital Markets. Please go ahead.

Oh, hey, how are you, Paul, Butch? Thanks for taking the question. I got one on the FA comp ratio and PCG. It's great that you're breaking out the cost of recruiting, and certainly see that it's rising. If we look at the revenues for the segment, even the baseline compensation is growing slower than the revenues. Even though we've got kind of like low double-digit or even teen revenue growth, we're seeing the comp ratio continue to grind up. Can you explain maybe what's going on there and why we're seeing operating leverage negative despite pretty decent revenue growth?

Yeah, I would just say in PCG in particular, with the compensation and payouts to independent advisors versus employee advisors, of course, the independent payouts are higher because they cover their overhead costs, their real estate, their health insurance, et cetera, as you know. Over the last year in particular, much more of our recruiting has come from the independent side of the business versus the employee side of the business. There's just a mix shift there to some extent that you're looking at over the last year or so. As production increases, even on the employee side, we have tiered payout systems. As production increases, you kind of get higher up on the payout grid as well.

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

Paul, Butch, hope you're well. Thanks so much for taking my questions.

Absolutely.

Maybe just to double-click on Brennan's line of questioning with regards to the PCG margin dynamics. Certainly appreciate the mix shift and the impact that that has. Was hoping you could speak to where the recruiting pipelines are across the different affiliation options. Just trying to gauge whether we should expect this mix shift headwind to persist for a little bit, given the wires appear to be doing a little bit of a better job in terms of retention, and just given the expectation that the momentum may be more concentrated within the independent channel, that we could continue to see some modest pressure even as the M&A momentum accelerates.

Yeah, no, we're actually seeing pretty good uptick in the employee affiliation option as well. The mix shift is really what I was referring to more about the comp ratio than the margin because of the payout difference in the independent channel versus the employee channel. We're seeing really good momentum across all affiliation options, and the pipeline's strong. There has been some catalyst on the independent side as you all are aware. I don't want it to totally overshadow the success we're having on the employee side, which has been significant and actually continues to tick up.

Thanks for that color. Just for my follow-up, I did want to dig into some of the comments you made around agentic AI, specifically as it relates to the impact that that could have on cash levels. Paul, you made compelling points about easy access to cash alternatives. You cited lower sweep cash per account. It's also pretty clear that the market is ascribing a lower terminal value to cash-derived profits, just given the risk from whether it's agentic AI, tokenization, pick your poison here. Just trying to gauge in a scenario where competitors, in the event that they pivot to more of a fee-based model or approach to reduce the reliance on cash economics, is that something that you're amenable to? Are there barriers to introducing things like platform fees, given the fact that you service multiple affiliation options with your omni-channel approach?

I mean, ultimately, we want to have a profitable and competitive and fair pricing structure fair, most importantly, for the clients, also the financial professionals and the firm. If that evolves in the industry based on competitive pressures and competitive dynamics and the client preferences most importantly, then of course we would be flexible and open to evolving with where clients and advisors in the industry is evolving to. I mean, we look at that on an ongoing basis for all of our pricing fees and payout.

Understood. Well, thanks for that perspective, Paul. I really appreciate you taking my questions.

Thank you.

Your next question comes from the line of Mike Cyprys with Morgan Stanley. Please go ahead.

Hi, good afternoon. Thanks for taking the question. Was hoping you could maybe talk a little bit about the steps that you're taking at Raymond James to help and expand, deepen relationships with advisors in the coming years. How might your offerings evolve? What additional services or value might you be able to provide advisors as they're navigating a very quickly evolving world?

Yes. It starts with treating advisors like clients, which already makes us very unique in the industry. Really understanding what their needs are, what their demands are, having ultimate accessibility in terms of advisors feeling not only that they're allowed to, but they're welcome to, invited to reach out to me if they have any concerns or questions or any way that we can possibly help them out. That culture should not be underestimated or underrated in terms of how unique that is in our industry, both on the independent side, employee side, across the board. That's what we spend the most time making sure we try to get right and we reinforce because that's what's made us successful since our founding in 1962. You also have to have competitive technology.

That's why we spend $1.1 billion on technology and AI and all the components of technologies from the advisor tools to the client tools. You have to have good competitive products. Not just investment products, from the plain vanilla investment products to alternative products, but also managing both sides of the balance sheet with. We have a bank that helps our clients with their lending needs as well on the SBL and mortgage side. Off-balance sheet protections, insurance, and having competitive insurance offerings. I could go on and on, but it's all of the above. Advisors have been expected and will continue to be expected to provide more holistic and bespoke financial advice to their clients over time. That's going to require the firm to provide technology. Again, that's where AI can actually help.

You know, when we look at these AI releases, some of which have negative impacts on stocks in our industry, I look at it as, these are releases that could be extremely helpful to us and to our advisors to help provide more bespoke advice to a larger number of clients. That's really what we are here to do, is help advisors better help their clients.

Just to follow up, I was curious if you could comment on how you see advisor behavior evolving. When you look at the new advisors that are joining Raymond James, any notable differences in behavior from those versus, say, legacy users? Is there anything notable to speak to on maybe banking adoption or alt adoptions amongst the new versus existing advisors?

No, not really. I mean, it just depends on where we're recruiting from and what affiliation option. It varies. There's nothing noticeably different. I would say the advisors that were newer to the firm, sometimes I think they more actually appreciate our technology capabilities even more because they're coming from a firm where they saw what the alternatives are. Counterintuitively, a lot of the newer advisors, in terms of appreciation of the culture and the technology, are even more blown away than some of the advisors who have been with us for 25-30 years, who still love Raymond James and still appreciate the technology, but they don't realize what the alternatives look like.

Great. Thank you.

We have time for one more question, and that question comes from Jim Mitchell with Seaport Global. Please go ahead.

Hey, good afternoon. Maybe, Paul, you've had pretty significant growth in SBLs and continue to accelerate. When you think about your different distribution channels there, can you discuss how much is being driven by TriState's platform versus your own private client business, and if you see further opportunities to kind of continue this growth trajectory and further penetration rate PCG? Thanks.

No, it's a great question, Jim, and it's remarkable. Over the last year, it's been almost identical between the two at the 30-ish% rate year-over-year growth, which again, 30-ish% growth rate, 31% year-over-year is just truly phenomenal and certainly a reflection of the capabilities that we have there. But it's been pretty consistent, and the opportunity to continue growing on both platforms continues to be significant.

Maybe a follow-up just on TriState. You don't talk about it a lot, but it looks like the deposit growth there has been pretty substantial since you acquired it, maybe over 50%, and has picked up over the last year. How is that helping, what are the spreads on those deposits, and do you see it as a big contributor to profitable growth in the lending channel?

Yeah, absolutely. The reasons that we had TriState Capital join the Raymond James family is because of, one, their SBL capability, their lending capability more broadly, and also it diversifies the funding sources through its various deposit products. So you're absolutely right. It's been a contributor on all fronts, very successful. The leadership team, again, going back to culture and joining a family, is still in place. They're still independent, branded independently, still separately chartered bank. Just been a really great addition to the Raymond James family.

Okay, great. Thanks.

We have no further questions at this time. I'd now like to turn the conference over to Paul Shoukry for closing comments.

Great. Appreciate everyone's time and attention to Raymond James, and we don't take your trust for granted. If there's any other questions, we're at your disposal. Feel free to reach out to us at any time.

Ladies and gentlemen, this does conclude today's conference call. Thank you all for your participation, and you may now disconnect.