Q4 2025 Earnings Call Transcript

Good evening, and welcome to Raymond James Financial's Fiscal Fourth Quarter and Fiscal 2025 Earnings Call. This call is being recorded and will be available for replay on the company's Investor Relations website. I'm Kristie Waugh, Senior Vice President of Investor Relations. 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 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 depends on future events are intended to identify forward-looking statements.

Please note that there can be no assurance that actual results will not differ materially from those expressed in these statements. We urge you to consider the risks described in our most recent Form 10-K and subsequent Forms 10-Q and Forms 8-K, which are available on our website. Now I'm happy to turn the call over to CEO, Paul Shoukry. Paul?

Thank you, Kristie. Good evening. Thank you all for joining us. I'm very pleased to report record results for both the fiscal fourth quarter and fiscal year 2025 this evening.

And while the financial results are critically important, it's more than just numbers to us. It's a deep personal relationships our advisers, bankers and associates have with their clients, which is a foundation to providing tailored financial advice. It's a long-standing values of the firm, always putting clients first, making decisions for the long term, having integrity and valuing independence, which guide all of the decisions that we make. These values, the personal relationships and the differentiated financial advice across our diverse and complementary businesses contributed to our fifth consecutive year of record revenues and record net income in very different market environments.

As we look ahead, many of our key business drivers also ended the year at record levels, including record client assets of $1.73 trillion, a record number of financial advisers of 8,943, record trailing 12 production for recruited financial advisers of $407 million and record net bank loans of $51.6 billion. We also have healthy pipelines for growth, including strong levels of adviser commitments to join over the coming year and strong investment banking pipelines. And importantly, we have the regulatory capital capacity and plenty of liquidity to support this growth. Throughout the fiscal year, we have continued to develop and maintain industry-leading technology for our financial advisers, once again making significant investments of approximately $1 billion in technology.

These investments include strategic AI initiatives designed to improve adviser efficiency and support regulatory oversight with the emphasis on enhancing the adviser and client experience. We filled new technology positions of Chief AI Officer and Head of AI Strategy to lead our development and implementation, which includes bringing experienced talent and fresh perspectives. During the year, we earned the highest ranking for investor satisfaction among those working with a dedicated financial adviser or team of advisers. Importantly, we were also recognized as the most trusted company among advised investors in wealth management in the J.D.

Power 2025 U.S. Investor Satisfaction Study. In response to growing demand for private investment product alternatives for ultra-high net worth clients, we further developed the firm's private capital-raising expertise and broadened bespoke private investment alternatives for such clients. I'm proud of our many accomplishments this year and believe we are well positioned to continue to invest in our business, our people and technology to drive growth across all our businesses.

Turning to our financial results for the quarter. The firm's values-based, client-focused approach continues to generate steady performance. Quarterly net revenues of $3.7 billion grew 8% over the prior year quarter and 10% over the preceding quarter. Pretax income of $731 million declined 4% compared to the year ago quarter and increased 30% from the preceding quarter.

For fiscal 2025, we generated record net revenues of $14.1 billion, representing 10% growth and record pretax income of $2.71 billion, up 3% over fiscal 2024. These strong results were attributable to our diverse and complementary businesses anchored by the Private Client Group and augmented with the Capital Markets, Asset Management and Bank segments. Across our businesses, we continue to achieve success retaining and recruiting financial professionals who provide high-quality advice to their clients. In the Private Client Group, we ended the quarter with a record $1.6 trillion of client assets under administration, representing year-over-year growth of 11%.

We had an outstanding year recruiting high-quality advisers onto our platform, a testament to our unique service-first culture, comprehensive capabilities and strong balance sheet. In fiscal year 2025, we had record recruiting results of financial advisers to our domestic independent contractor and employee channels, with recruiting trailing 12-month production at their previous firms totaling $407 million, reflecting a 21% increase over last year's previous record. These recruited advisers had approximately $58 billion of client assets at the previous firms, also surpassing last year's record.

Including assets recruited into our RIA & Custody Services division, we recruited total client assets over the past 12 months of nearly $63 billion across all of our platforms. Quarterly domestic net new assets were nearly $18 billion this quarter, representing a 5% annualized growth rate. We ended the fiscal year with a record number of financial advisers, 2% higher than the prior year and a reflection of solid adviser retention as well as strong recruiting results. Based on our robust adviser recruiting pipeline and strong level of commitments to join in the coming quarters, we continue to be optimistic about our momentum and growth.

Our best of both world's value proposition, where we offer a unique combination of an adviser and client-focused culture, coupled with leading technology and solutions, continues to resonate with advisers across all of our affiliation options. Additionally, our strong balance sheet and commitment to independence is proving to be a differentiator for advisers evaluating alternatives. To continue retaining and attracting the best advisers, we continue to make investments in our platform and offerings. For example, our private wealth adviser program offers education, training and accreditation along with enhanced capabilities and product solutions.

This enables advisers to meet the needs of their most sophisticated clients and create significant value for our advisers who progress through this rigorous program. We continue to make investments and implement solutions to automate and streamline processes, which in turn frees associates and advisers to do what they do best, which is to engage in human-to-human and deepened personal relationships, add more value and importantly, have more capacity to grow their businesses by attracting new clients. The Capital Markets segment delivered strong results in the fourth quarter, achieving revenues that represented the third highest level on record, surpassed only by those observed during the pandemic period.

This strength demonstrates the potential resulting from the strategic investments we have made in this segment over the past few years. The fourth quarter results were underpinned by solid performance throughout all of our capital markets businesses. Looking ahead, the investment banking pipeline remains strong. We are confident that we are well positioned with motivated buyers and sellers, along with deep expertise across the industries we cover.

We remain committed to continuing to enhance the platform by broadening and deepening our capabilities, whether through strategic hiring or acquisitions. For example, over the past 2 years, we've hired a number of experienced public finance investment bankers, which provided us growth opportunities across a number of domestic markets. We began to realize the returns on some of those investments as evidenced by our fourth quarter results. As it pertains to acquisitions, we recently announced the acquisition of GreensLedge, a boutique investment bank recognized for its expertise in structured credit and securitizations, and the transaction we anticipate should close later this fiscal year.

Notably, GreensLedge differentiates itself with deep relationships and expertise while operating on a balance-sheet-light model. In the Asset Management segment, net inflows into managed fee-based programs in the Private Client Group were strong during the quarter, annualizing at over 7% and reflect the complementary impact of being able to offer high-quality investment alternatives to our financial advisers as well as growth resulting from our successful recruiting efforts. In the Bank segment, loans ended the quarter at a record $51.6 billion, primarily reflecting robust 22% annual growth in securities-based lending balances, yet another synergistic impact from our growing Private Client Group business, as we are able to deploy our strong balance sheet in support of the clients.

Importantly, the credit quality of the loan portfolio remains strong. Turning to capital deployment. Our long-standing priorities have remained unchanged, and that starts with investing in growth first organically and complemented with strategic acquisitions. We continue to pursue acquisition opportunities that meet our criteria of being a strong cultural fit, a good strategic fit and at valuations that would generate attractive returns for our shareholders.

As we continue to pursue both organic and inorganic growth opportunities, we also maintained our share repurchase program to effectively manage capital levels. As outlined in recent quarters, our capital deployment strategy is to repurchase shares on a consistent basis at a level, which, barring new development, should keep our Tier 1 leverage ratio from growing beyond current levels. We continue to operate that guidance this quarter as we repurchased $350 million of common stock at an average share price of $166. We ended the quarter with a Tier 1 leverage ratio of 13.1%. In fiscal 2025, we returned capital of over $1.5 billion through common dividends and share repurchases.

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 6. The firm reported net revenues of $3.7 billion for the fiscal fourth quarter. Net income available to common shareholders was $603 million with earnings per diluted share of $2.95. Excluding expenses related to acquisitions, adjusted net income available to common shareholders equaled $635 million, resulting in adjusted earnings per diluted share of $3.11 and our adjusted pretax margin was 20.7%. We generated annualized return on common equity of 19.6% and annualized adjusted return on tangible common equity of 23.9%, solid results for the quarter, particularly given our conservative capital base.

Turning to Slide 7. Private Client Group generated pretax income of $416 million on record quarterly net revenues of $2.66 billion. Results were driven by higher PCG assets under administration compared to the previous year, the result of market appreciation, retention and the consistent addition of net new assets. Pretax income declined year-over-year, primarily due to interest rate reductions totaling 125 basis points since September of 2024. Our Capital Markets segment generated quarterly net revenues of $513 million and a pretax income of $90 million. Net revenues grew 6% year-over-year, driven primarily by higher debt underwriting, strong growth in affordable housing investments business revenues as well as solid improvements in both equity and fixed income brokerage revenues.

Sequential results grew a robust 35%, largely due to higher M&A revenues, underwriting and affordable housing investments revenues. The Asset Management segment generated record pretax income of $132 million on net revenues of $314 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. We had strong net inflows of approximately $3.6 billion or 7.3% annualized growth rate into managed programs on our platform.

The Asset Management segment generated record revenues and pretax income in the fiscal year. The Bank segment generated net revenues of $459 million and pretax income of $133 million. On a sequential basis, the Bank segment net interest income was up slightly, primarily driven by continued loan growth. The September 2025 rate cut had minimal effect on our fourth quarter.

Turning to consolidated revenues on Slide 8. Fourth quarter net revenues grew 8% over the year ago period and 10% sequentially. Asset management and related administrative fees of $1.88 billion grew 13% over the prior year and 8% over the preceding quarter. Record PCG fee-based assets equaled $1.01 trillion at quarter end, up 15% year-over-year and 7% over the preceding quarter. As we look ahead, we expect fiscal first quarter 2026 asset management and related administrative fees to be higher by approximately 6.5% over the fourth quarter level, driven by higher PCG assets and fee-based accounts at quarter end.

Brokerage revenues of $616 million grew 8% year-over-year, mainly due to higher PCG revenues. Investment banking revenues of $316 million were nearly flat with the year ago quarter and increased 49% sequentially. The sequential increase was driven by significant increases in M&A and advisory revenues, along with robust results in debt underwriting, which were in part from large private placement transactions where frequency and magnitude are unpredictable as well as an increase in public finance activity in the quarter. Affordable housing investment results reported in other revenues grew $25 million sequentially in what is typically a seasonally strong fiscal fourth quarter but also reflected a 19% increase in fiscal year revenues, demonstrating continued growth of the business.

Moving to Slide 9. Clients' domestic cash sweep and enhanced savings program balances ended the quarter at $56.4 billion, up 2% over the preceding quarter and representing 3.7% of domestic PCG client assets. Balances increased $2.2 billion or 4% in the month of September, growing nicely after fee billings had resulted in anticipated decreases earlier in the quarter. Based on October activity to date, domestic cash sweep and enhanced savings program balances have declined as anticipated given October's record quarterly fee billings of approximately $1.8 billion. Turning to Slide 10. Combined net interest income and RJBDP fees from third-party banks was $653 million, down slightly from the prior quarter.

Net interest margin in the Bank segment decreased 3 basis points to 2.71% for the quarter. The average yield on RJBDP balances with third-party banks decreased 5 basis points to 2.91%, in part due to the impact of the September Fed interest rate cut. Based on current interest rates, including the full quarter impact of the September rate cut, in quarter end balances net of the $1.8 billion fiscal first quarter fee billings, we would expect the aggregate of NII and RJBDP third-party fees in the first quarter to be approximately flat with the fourth quarter level. This is largely the result of the positive impact of a higher interest earning asset balance as of the September starting point offsetting the full quarter impact of the September Fed rate action.

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 $2.39 billion, and the total compensation ratio for the quarter was 64.2%. Excluding acquisition-related compensation expenses, the adjusted compensation ratio was 64.0%, better than the 65% target level we shared at our Investor Day. In fiscal year 2025, adjusted compensation expense included the amortization of transition assistance provided to recruited advisers and other retention awards to existing advisers in the aggregate amount of $355 million, representing an increase of approximately 11% compared to fiscal 2024. Non-compensation expenses of $602 million increased 11% over the year ago quarter.

A large portion of these costs support firm-wide growth initiatives, such as adviser recruiting, professional fees associated with investment banking activity and higher investment sub-advisory fee expense. For the fiscal year, consistent with our prior guidance, we achieved full year non-compensation expenses of approximately $2.1 billion, excluding the bank loan provision for credit losses, unexpected legal and regulatory items, and non-GAAP adjustments presented in our non-GAAP financial measures, a strong result, given our continued investments in technology as well as the higher growth-related costs we incurred.

We remain committed to investing to support growth across the business while maintaining discipline over controllable expenses. On Slide 12, we provide key credit metrics for our Bank segment. We grew loans during the quarter by 3%, primarily in support of our clients with this loan growth continuing to be led by our securities-based loans, which grew 22% and residential mortgage loans, which grew 9% over the year. These 2 loan categories represent nearly 60% of our total loan book, reflecting 38% and 20% of the total.

The credit quality of the loan portfolio remains strong. Criticized loans as a percentage of total loans held for investment were 1.28% at quarter end and nonperforming assets remained low at 29 basis points of Bank segment assets. The bank loan allowance for credit losses as a percentage of total loans held for investment ended the quarter at 88 basis points. The bank loan allowance for credit losses on corporate loans as a percent of corporate loans held for investment was 1.88%.

We believe the total allowance represents an appropriate reserve, but we continue to closely monitor economic factors that may affect our loan portfolios. Slide 13 represents the pretax margin trends for the past 5 quarters, highlighting the stability and strength of our diversified businesses in consistently achieving strong margins. During the fiscal fourth quarter, the adjusted pretax margin reached 20.7%. For the full fiscal year, we attained an adjusted pretax margin of 20%, successfully meeting our target margin objective.

On Slide 14, at quarter end, our total assets were $88.2 billion, a 4% sequential increase resulting primarily from loan growth and higher corporate cash balances. We continue to have strong levels of liquidity and capital. During the quarter, to take advantage of a favorable market environment reflecting very tight credit spreads and attractive benchmark yields, the firm issued $1.5 billion of senior notes with the mix of 10-year and 30-year maturities as well as amending and extending the maturity of the revolving credit facility. These actions resulted in additional liquidity on hand for deployment in our growth and to meet client needs as well as providing additional capacity in our committed borrowing facility should the need arise over the next 5 years.

RJF corporate cash at the parent ended the quarter at $3.7 billion, $2.5 billion over our target level of $1.2 billion, an increase over the prior quarter level resulting from the proceeds of the senior notes offering. 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 13.1% and a total capital ratio of 24.1%, we remain well above regulatory requirements with approximately $2.6 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 17.4%, reflecting the favorable impact of nontaxable corporate-owned life insurance gains and the favorable resolution of certain historical tax matters in the quarter. Looking ahead, we estimate our effective tax rate for fiscal 2026 to be approximately 24% to 25%. Slide 15 provides a summary of our capital actions over the past 5 quarters. Through the combination of common dividends paid and share repurchases, we returned over $450 million of capital to shareholders during the quarter and more than $1.5 billion over the fiscal year.

Additionally, in other debt capital actions, in August, we utilized nearly $100 million of liquidity to redeem our outstanding subordinated notes. 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 some final remarks.

Thank you. As we enter fiscal 2026, we are more confident about our competitive positioning and path forward than we have ever been. While in some ways, there's more competition in our space, we are confident that our long-standing approach is becoming increasingly differentiated and unique. We are focused on the long term and providing a stable platform for advisers, bankers and associates, whereas so many of our competitors are increasingly looking for an exit in 3 to 5 years or even less.

We attract and retain financial advisers with our unique culture, leading service and robust platform, whereas many of our competitors compete with the largest check. We value independence to foster an environment where our advisers can provide objective advice to their clients, whereas many of our competitors change their comp plans every year to cross sell more bank products. We are focused on sustainable growth and quality over quantity, whereas many of our competitors are focused on growth at all costs. We strive to maintain a strong balance sheet with strong levels of capital liquidity, whereas many of our competitors have significantly higher levels of leverage.

As I said at the beginning of the call, this is way more than just numbers to us. We deeply value the personal relationships that we are so blessed to create in our business. We are confident our tried and tested 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 end this call by thanking our advisers, bankers and associates for the great service and advice they provide to their clients and delivering on our firm's mission to help clients achieve their financial objectives.

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

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

I just wanted to start on recruiting. Paul, you noted that the net new asset growth was about 5%, and the quarter saw some nice acceleration from last quarter. Can you flesh out which segments, whether it's independent or employee, that's kind of seeing more uplift more recently? And ultimately, what do you think is more -- is resonating more with advisers today than, call it, 9 to 12 months ago?

Or is it really just more advisers in motion across the industry that's ultimately benefiting?

Thanks, Michael. The recruiting success that we've been having has really been broad-based across all of our affiliation options, the employee, independent contractor and the RIA custody channels. And we're entering 2026 -- I mean, as we said, in fiscal '25, we recruited production advisers with prior production of over $400 million, which was up 21% over last year's record, so really phenomenal recruiting results in the pipeline as we look at fiscal 2026 and extremely strong, probably the strongest it's ever been entering the fiscal year. And so what's resonating with advisers is what has always resonated here at Raymond James, which is our best of both world's value proposition, where we have the culture, the adviser and client-focused culture that we have, the values long-term oriented putting, always putting clients first in everything that we do and coupling that with the resources and the platform and the technology and the products and services that we offer -- that they can offer to their clients.

And so that consistent long-term approach in a world where there's so much noise from short-term players, levered back players is really -- and there's M&A consolidation in the industry, which is causing disruption, too. So having a stable platform like Raymond James, where they have confidence that their business, their employees, their team and their -- most importantly, their clients will have a stable platform for the long term is really what resonates the most.

Great. If I could just switch gears on AI. Paul, you called out in your comments and in the release today -- you talked to some milestones throughout the fiscal year around AI and establishing a new Chief AI Officer as well as AI Strategy. Can you flesh out a little bit ultimately what you're trying to achieve with Raymond James' AI initiatives?

And I guess, looking ahead, I mean, how does the prospective resource allocation into these initiatives ultimately impact the $1 billion of tech spend you called out in the future years?

Yes, I think the way we think about AI is really in 3 buckets. The first is to support our infrastructure, the resiliency, the cybersecurity apparatus and help using AI to essentially create a more resilient and secure platform for our advisers, bankers and clients; secondly, increasing efficiency and consistency of service, which from your resourcing question, it's not that we expect to need less resources to support the business but that the resources we have and that we will continue to add, we'll be able to do more with AI. And what they do in terms of the service they deliver will be actually higher quality and more consistent with the help of technology.

And then finally is to help our financial advisers and bankers provide more bespoke and tailored advice to a larger number of clients, so creating, again, efficiency and higher quality advice to their clients through the use of data-driven insights. So we're really excited about the AI investments. We're very focused on it. We've built out the team.

We're budgeting for a significant increase in the AI expense next year. And we think that, over time, this will continue to differentiate us. I mean these are investments that the smaller regional firms and a lot of the independent firms can't afford to make. Some of the PE-backed firms aren't willing to make that long-term investment because, again, these are payback periods of multiple years.

So if your exit period is 2 to 3 years from now, it may or may not make sense to make a long-term technology investment for your advisers and clients. And so we're really excited about the investment. We think the upside is significant. And this will continue -- we're confident this will continue to differentiate us in the marketplace.

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

I want to start with one on loan growth, obviously, been a really nice story for you. A lot of it's been coming from securities-based loans recently, but you did see a little bit of residential mortgage growth and even C&I growth sequentially in the quarter. So as we start to see interest rates moving lower from here, just curious what you're expecting in terms of demand and opportunity there and whether you expect SBLs could actually maybe accelerate as rates come down? And then also kind of expectations for some of these other categories, could they become more interesting or just see more demand?

Just really ultimately just trying to get a sense of the pace expected. Can you keep this up or even accelerate and then what the mix of growth might look like?

Yes. Our expectation continues to be in a lower rate environment and also with the growth of our Private Client Group business that the securities-based loan category will continue to be the highest growth category as it has been for the past several years now. It's over 60% of our loan balances between that and mortgages. So we will continue, I think, to shift more of the balance sheet to support the Private Client Group business, both through securities-based loans and through residential mortgages.

And we think a lower rate environment will drive more demand and potentially accelerate demand there. It's up 22% year-over-year, and we think with lower rates that, that can actually accelerate.

Got it. Okay. That's great. And then just a follow-up here. just want to hit on a couple of items from the model that were kind of standouts.

So PCG brokerage strength, was that mostly trails that supported kind of that big growth? Or were there any gains in there? And then just on the debt underwriting strength, I heard the comment, some private placements in there, which can be kind of lumpy and then also strengthen public finance. I'm just curious if we can kind of parse that out a little bit and get a sense of how much the placements were.

Is that a seasonal thing versus how much was public finance better? Just be helpful just given how much that was up relative to the prior quarter.

Yes. Thanks. So as it relates to the brokerage revenues in the PCG side, you'll notice that there was an acceleration, 7% growth over the prior year quarter and 14% growth over the preceding quarter in insurance and annuity products. We saw a spike in those, driven primarily by clients in anticipation of rate cuts and rate-cutting environment, trying to lock in some annuity pricing.

So I would say that, that was outsized in the PCG area. And then as it relates to -- on the debt underwriting side, yes, we had a significant quarter in debt underwriting, both in public and in private debt underwriting. And we did mention that on the private debt underwriting side. We had a couple of large transactions that drove some of that increase.

But what we're seeing is growth in those -- in our capacity and to capture the market, market opportunities that exist on debt underwriting. So we did have some -- a couple of large transactions, but we do continue to grow our capacity to service our clients in that area. And this quarter kind of reflects the capacity that we brought on to be able to do that.

Over the last year or so, we've added over 12 to 15 very senior, very experienced public finance bankers from a large bank who exited the business. And in addition to the great foundation and bankers that we already had, they've really helped us increase our capacity and momentum in public finance. So we're really going to get excited about -- as we look forward there, especially if again, that's another potential tailwind from lower rates, so making investments across all of our businesses. And one thing I'm most excited about with the results that we generated this fiscal year and this quarter is that every business really contributed to the fantastic, the record results that we generated this year.

So it really was a broad-based contribution across all of our business.

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

Paul, I wanted to follow up on the net new assets. Obviously, the number's stronger this quarter, but your commentary does sound rather similar to what we've heard for the last several quarters. So is some of this just timing of onboardings? Or do you see this kind of level of growth as kind of the new normal as we look ahead into fiscal '26?

Yes, the net new asset numbers have increased over the past few quarters as well. So it is a reflection of the record recruiting results. And to your point, not all the assets come immediately, so there is a lag impact in terms of when we recruit the advisers and when the assets onboard, although it's happening fairly quickly, actually. So I think the other factor there that -- is just the competitive environment, and so there's still very rich deals out there from the roll-ups and aggregators.

And so -- and then from time to time, with bank M&A, next quarter, for example, there will be a platform that we'll lose just through bank M&A. I think it's $2.7 billion of assets. So there's movements out there that is a reflection of the competitive environment and the M&A environment. But when we look at the retention, still very solid, and then the recruiting has never been stronger.

So the recruiting activity both in the fiscal '25 and as we enter into '26 is extremely robust and showing no real signs of slowing down. So we're really excited as we enter fiscal '26.

Great. That's helpful. And then -- but just a follow-up on spending priorities as you think about 2026 and how that compares to 2025 and maybe areas where you're spending a little bit more or less are the priorities and how they may be different?

Yes, appreciate that question. So we haven't -- as we think about our spending, we continue to invest in growth in our spending where we're growing the business. So we have some additional incremental spend occurring in areas such as recruiting and investments, sub-advisory fee expense, the latter being associated just with growth in assets and the recruiting is a cost associated with the successful recruiting efforts. So we're going to have incremental costs.

And then, of course, we're always committed to continue to invest in technology, and that continues to be a very high priority of area. As we mentioned -- we already mentioned our commitment level, including AI, and that will continue -- has been a priority of ours, but we believe it's a differentiator, and it will continue to be a priority for us as we move forward. So we're very focused and disciplined on managing the controllable expenses, and then the growth-oriented investments will just -- will occur as we continue to grow.

We have such a unique opportunity to continue growing in each one of our businesses, and we are a growth firm. So what you heard Butch say is that we're going to continue to invest heavily in growth to take advantage of this unique opportunity to continue gaining market share and providing more resources for financial professionals to provide differentiated, tailored advice to their clients across all of our businesses. So some of the recruiting, for example, we're going to start breaking out next quarter, the upfront money amortization that hits the compensation expense in the Private Client Group business because just this year, for example, we recruited advisers that had $400 million of production at their prior firms.

I mean that's a size of -- that's about a medium-sized acquisition in our industry. And we're doing it one by one, and all of the consideration is going to a retentive benefit versus doing an acquisition where only a relatively small portion goes to retention, and most of it goes to a seller. And so what we want to do, if we did an acquisition, we would non-GAAP that expense. Of course, we're doing it one by one, which is much superior in terms of the retention and the recruiting one by one, making sure they really fit on the platform.

So while we won't non-GAAP that amortization, we will break it out for all of you to see because it is an investment in the future that is worth calling out.

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

Okay. Apologize for hoarse voice [ due to the ] weather. Maybe just starting on the opportunity on the earning asset side. I was wondering if you could talk about how you might fund some of that growth. Would you look to maybe bring some of the third-party sweep deposits back on to balance sheet, run off some of the investment securities portfolio? Or how to think about that interplay?

Yes, all of the above, Bill. We have plenty of capacity with third-party banks, so we'll be able to bring that on-balance sheet to fund growth. We also can continue, to a certain extent, running down some of the securities portfolio. And then we have a very diversified funding apparatus where we can gather deposits both that to -- the Private Client Group, Raymond James Bank and TriState Capital Bank have very substantial treasury management capabilities and depository capabilities to diversify our funding sources.

So we have ample funding capabilities and are staying ready to support continued growth going forward.

Okay. And then just as a follow-up. Just coming back to expenses for a moment. It seems like a big theme going into new year. Can you help us maybe ring-fence this a little bit of any kind of guidepost for nonoperating expense? Or kind of targeted pretax margin as you look ahead, maybe pre-provision pretax margin?

The last guidance we put out in our Analyst Investor Day was that we want to generate pretax margins of over 20%, which we were able to do this fiscal year. We'll update that target as appropriate in the next Analyst Investor Day sometime in the May, June period. But in the meantime, that target stands. And being able to do that with the level of growth that we're experiencing is just truly phenomenal because not only are we growing, but what we're also doing and we're also focused on is ensuring that we're providing extremely good service to our existing advisers, bankers and clients.

And so doing that, we're also investing in technology, which is increasingly differentiating us from our competitors, particularly the smaller regional competitors who just can't afford to make the investments in the technology, in some of the independent competitors as well. We're really excited about being able to deliver over 20% margin with our growth profile.

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

Would like to -- so you guys have clearly delivered the message you focused on discipline, making growth investments. Encouraging to see you hit the $2.1 billion non-comp expense line for last -- for the just finished fiscal year. How should we be thinking about that line? And how much of that balance is going to grow when we move into 2026 on the back of some of those growth investments?

We're still -- we'll provide that on the next earnings call. We're still working on our budgets as we speak. A lot of it will be growth focused as Butch said, so we'll look at the -- some of the line items that are directly correlated to growth like the FDIC insurance expense, the investment advisory expense that support the fee-based assets, et cetera. So what I would point to now is more of just the margin targets that I just shared with Bill in response to his question that, for now, our target is still to generate over 20% margin on an adjusted basis.

Okay. Got it. Understood. Understood.

And the securities-based loans, they've been growing really well. Flagged those in some of your prepared remarks, Paul. And so just kind of curious about whether or not you think this -- based on what you hear from both the advisers that you have within RJF but also the third-party companies that TriState works with, is pace sustainable? Are you actually seeing maybe a little bit more demand as we see rates come down?

And this really sort of attractive high-risk appetite backdrop, can we even see it accelerate?

Yes, they're floating rate loans to your point. And so the lower short-term rates go, the more attractive those loans become all else being equal. So that certainly contributed to the 22% year-over-year growth that we experienced this fiscal year. And as we kind of start fiscal '26, the momentum and the growth there continues to be attractive.

So we do see a lot of tailwinds right now in terms of those balances continuing to grow.

Your next question comes from the line of Craig Siegenthaler with Bank of America.

My question is on the strong recruiting pipeline. And I'm curious, how has the pipeline been impacted, not just from bank M&A where you highlighted an outflow but also from IBD mergers that are going on in the background and they may be driving elevated inflows?

Yes. I mean M&A activity in the industry always creates opportunity. And so I think there's another transaction just announced a couple of days ago, for example, and that's a catalyst for people to look at, for advisers to say, okay, if I'm going to have to move to a new home one way or the other, I want to make sure that the new home fits the characteristics of what's best for me, my team and most importantly, their clients. And so it has created certainly opportunities for us to grow one by one with the advisers that we find mutual fit with.

We're a great home for them, and we determine they're a great fit to affiliate with us.

And I'm not sure if you quantified the impact from the GreensLedge acquisition. But is there any accretion numbers behind that we should think about as the deal closes?

No, it will close later in the fiscal year and really based on its size, it's really not something that we have provided or dimensioned in terms of accretion dilution. It's really more of a long-term strategic play for us, so we're excited about the opportunity for it to contribute over the next several years. It's not something that we would provide 12- or 18-month accretion numbers on. But it is strategic and that creates an opportunity for us to provide our existing institutional clients, a securitization capability and advisory capability that we did not have prior as well as providing GreensLedge, their clients an M&A and capital markets capability that they didn't necessarily have prior.

So it's a very synergistic opportunity that, over the long term, we think, will be very meaningful to our business.

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

This is [ Michael ] on for Alex. We just wanted to get some clarification around the somewhat slower pace of buybacks in the quarter. Specifically, was this related to GreensLedge acquisition in the quarter? Or should we take it as a signal that maybe there's something bigger that's imminent?

So I appreciate that question. There were -- we did purchase pretty consistently throughout the quarter. There were a couple of pauses, a couple of periods during the quarter, but -- that we paused the buybacks. One was related to the senior note offering, and that was really the item that caused us to pause during the quarter.

We would also point out that, in terms of use of liquidity for capital actions, we utilized $98 million during the quarter to redeem subordinated notes as a debt capital action. So the way we were thinking about the use of liquidity is the addition of the share repurchases of $350 million plus the nearly $100 million of debt capital actions that we took, landed us within that guidance of deployment of that liquidity by between $450 million -- between the $400 million and $500 million a quarter.

And that target has not changed, so it doesn't necessarily mean we'll hit it exactly every single quarter. But $350 million of repurchases was still meaningful, and we're not changing our target to buy $400 million to $500 million a quarter going forward.

Got it. That's helpful. And then just based on some of the earlier remarks, it does sound like you guys are gearing to do additional M&A still. Maybe can you expand on some of the financial parameters, the criteria that you guys would look for, for a larger-sized deal and then specifically timing of accretion or anything else you're willing to share?

Yes. The criteria for a larger-sized deal is actually very consistent with the criteria for a small deal or even recruiting one -- a team of financial advisers. And that is -- that has to be, most importantly, a good cultural fit with the organization. We're in the people business, and the people that we have are representatives and ambassadors of the firm in one way, shape or form.

And so having a good cultural fit is so critical to it being accretive over the long term, both qualitatively and quantitatively. And then if it's a good cultural fit and only if it's a good cultural fit, when we look at the strategic fit and where we really want one plus one to give us something greater than 2. In other words, we want to make the firm joining the family better, and -- but we also want the firm joining our family to make us better. And we have a track record of keeping leadership. If you look at our fixed income and public finance leadership today, it's operated by the Morgan Keegan leadership, which we acquired back in 2012, as an example.

And that's consistent and true with all of our acquisitions. If you look at our consumer investment banking operation, it's run by the person who ran the firm that we acquired in that space still all these years later. And TriState, we keep it as an independent firm with their leadership team still fully intact. And so again, keeping the best of both firms to make both of us better, that's what we really mean by 1 plus 1 equaling something more than 2 and being a good strategic fit.

And then finally, the financials have to make sense for us and for the seller. And so the valuation, of course, has to make sense for shareholders on both sides. And so those are the 3 criteria we look for. And we continue to remain disciplined.

We have lots of capital, lots of liquidity. We are buyers. So we are looking for opportunities in all of our business -- across all of our businesses and that meet those criteria.

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

First, just a question on digital assets. Curious what sort of appetite you're seeing from advisers and their clients. Maybe can you remind us on how they're able to access to what extent digital assets on the platform today? And how do you envision that access and product potentially expanding over time, whether it's ETFs, futures, derivatives, spot, et cetera?

Our advisers and clients are really focused on long-term financial planning. So we're different than the day traders using the e-brokers to kind of speculate in assets on a daily basis. Now with that being said, digital assets is increasingly becoming a part of the conversation even as long-term financial planning -- in terms of long-term financial planning because the new administration is certainly creating the guardrails and the infrastructure, still in process but certainly headed in the right direction in terms of creating the guardrails and the infrastructure to support digital assets in a more robust manner.

And so we have opened up on a limited basis, the ETFs, the Bitcoin ETFs for advisers and their clients. And so that's the extent of it. But again, it's not -- the interest level is not maybe as widespread here as you would see at one of the day trading firms.

Got it. And then just a follow-up question, two parts. Maybe you could just elaborate on what limited basis means and to what extent that might evolve over time. And then the follow-up question I had was just around the investments you're making in the business from AI to recruiting.

How would you just sort of characterize that level of investment spend right now? And as you think about into next year, do you think that, that level and pace and speed of that investment spend would accelerate? Does it remain stable or does it decel?

Yes. Well, we're still in early innings in terms of investing in AI, so that investment spend is definitely increasing and accelerating substantially as a part and becomes essentially a bigger part. It's not that our total IT spend accelerates. It's that the AI portion of the IT spend grows as a proportion of the total IT spend.

So -- and then in terms of the digital asset restrictions, certain types of accounts, certain types of -- certain portion of the total investable assets and what -- we could certainly revisit that over time. As advisers and clients demand change, we can change and as the regulatory kind of infrastructure becomes more mature, so we'll continue to evaluate that. We always -- we're a client-first organization. So we are constantly evaluating what the client needs are, what advisers are asking for.

Advisers are the absolute best advocates for clients in the industry, and we will -- we have always and will always continue to meet the demands of advisers and their clients as those preferences and the regulatory environment matures.

That concludes our question-and-answer session. I will now turn the call back over to CEO, Paul Shoukry, for closing remarks.

Well, great. We certainly don't take anyone's time or interest in Raymond James for granted, so thank you for your time this evening. We're just, again, just ecstatic that we were able to deliver our fifth consecutive year of record revenues and record earnings. And I would just want to thank the -- again, the advisers, the bankers and the associates for contributing to those fantastic results by developing deep personal relationships with their clients and continuing to deliver really great financial advice to their clients.

So thanks for your time, and I look forward to seeing you all of you soon.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.