Raymond James Financial, Inc.

Welcome to the earnings call for Raymond James Financial's biblical second quarter of 2019. My name is Tiffany, and I will be your conference facilitator today. This call is being recorded and will be available on the company's website. Now I will turn it over to Paul Shukri, Treasurer and Head of Investor Relations at Raymond James Financial. Please go ahead.

Thank you, Tiffany. Good morning. Good morning. And thank you all for joining us on the call this morning. After I read the following disclosure, I'll turn the call over to Paul Riley, our Chairman and Chief Executive Officer, and Jeff Julian, our Chief Financial Officer. Following their prepared remarks, they will ask the operator to open the line for questions. Certain statements majoring in this call may constitute forward-looking statements. Forward-looking statements include, but are not limited to, information concerning future strategic objectives, business prospects, financial results, anticipated results of litigation or regulatory developments or general economic conditions. In addition to words such as believes, expects, plans, will, could, and would, as well as any other statement that necessarily depends on future events or intended to identify forward-looking statements. Please note there can be no assurance that actual results will not differ materially from those expressed in those statements. We urge you to consider the risks described in our most recent Form 10-K and subsequent Forms 10-Q, which are available on our website. During today's call, we'll also use certain non-GAAP financial measures to provide information pertinent to our management's view of ongoing business performance, so reconciliation of these measures to the most comparable GAAP measures may be found in the schedule accompanying our press release. With that, I'll turn the call over to Paul Riley, Chairman and CEO of Raymond James Financial.

Paul? Thanks, Paul, and good morning, everyone, and welcome. Thanks for joining us. I'm going to start, as usual, with a brief summary of the fiscal second quarter of 2019. I'm going to turn it over to Jeff. who will provide some more details on the financials and some line items, and then I'll discuss outlook before turning it over for questions. So following a challenging market during the December quarter, I am pleased with a solid performance in a number of key areas during the fiscal second quarter. These include quarterly net revenues of $1.86 billion, an increase of 3% over the prior year's second quarter, but a calling of 4%, to the preceding quarter. As we discussed on the last call and at our recent conferences, asset management and related administrative fees were the primary drivers to sequential decline in net revenues, as the vast majority of these fees are billed based on the beginning of the period fee-based asset levels, which were down with the market in December quarter. This quarter also had fewer billable days than the December quarter, which negatively impacts both asset management fees and net interest income. But despite the fewer billable days this quarter and the seasonal expenses related to year-end mailings and reset and FICA taxes, we generated quarterly net earnings per share of $1.81, lifted by record investment banking revenues and higher net of Raymond James Bank, which experienced improvement in its net income margin during the quarter, driving record quarterly net revenues and pre-tax income in the segment. We ended the period, importantly, with records for client assets under administration of $796 billion, total private client group financial advisors of $7,862, and record net loans at RJ Bank of $20.1 billion. Annualized total return on equity for the quarter was 16.7%. We want to remind everyone, a lot of people report on tangible equity, but this is total equity, which is a terrific result, particularly given our strong capital levels, which I'll speak about a little bit later. Stepping back, if you look at the first six months, the first half of this fiscal year, we generated record net revenues of $3.79 billion, which were up 7%, and net income of $510 million, which was up 41%, or adjusted net income of $525 million, which was up 9% over the first half of fiscal 18. And notably, all four of our core segments generated record net revenue during the first six months of the fiscal year. This is really a fantastic result, particularly given the challenging market environment during the December quarter. Now turning to the segments. In the private client group, we generated net revenue of $1.27 billion and pre-tax net income of $132 million during the quarter. The segment's results were negatively impacted by the market downturn in December, which caused fees-based assets, which are billed on balances at the beginning of the period, to start lower this quarter than the starting balance in the immediately preceding quarter. Moreover, once again, there were fewer billable days this quarter than the preceding quarter. Partially offsetting the lower asset management fees, fees from third-party banks increased substantially during the quarter due to higher spreads following the December rate increase, and higher client cash balances at the beginning of the quarter. However, these cash balances have been declining due to clients increasing their allocations to other investments, primarily as a result of improvement in equity markets, as well as tax-related seasonality. The trend has continued into April. Fortunately, PCGC-based assets under administration which now represent nearly 50% of the private client group's total client assets, grew 16% over March of 2018 and 12% over December 2018, and achieved a new record, ending March at $378.4 billion. Again, driven by equity market appreciation, increased utilization of fee-based accounts, and net additional financial advisors. Our financial advisor retention and recruiting remained solid, resulting in a healthy net increase of 47 financial advisors during the quarter to a record of 7,862. Our client-focused culture, mobile affiliation options, and robust service and solution offerings continue to resonate well with existing and prospective advisors. In the capital market segment, we generated net revenue of $277 million in pre-tax income of $41 million for the quarter, both representing significant increases over prior years, fiscal second quarter and the preceding quarter. We achieved record investment banking revenues in this segment of $156 million for the quarter. The strong results were driven primarily by record M&A revenues of $118 million, which also included our largest fee in history. This more than offset the industry-wide weakness in equity underwriting in the first quarter due to government shutdown. Fixed income and brokerage revenues improved largely due to a spike in interest volatility during the month of March. However, institutional equity brokerage revenues continue to be challenged by structural and cyclical headwinds. In the asset management segment, we generated net revenue of $162 million and pre-tax income of $55 million during the quarter. These were negatively impacted by the starting of the quarter with lower billable asset levels, given the decline in the equity markets in December, as well as net outflows for Carillon Tower Advisors. Financial assets under management ended the quarter at $138 million. $2.5 billion, an increase of 5% over March of 2018, and 9% over December 2018. Overall, the growth in financial assets under management continues to be largely driven by equity market appreciation, positive inflows with increased utilization of management accounts in the private client group, which we believe will continue going forward. Raymond James Bank generated record quarterly net revenue of $212 million, during the fiscal second quarter. We ended the quarter with record net loans at 20.1 billion, which were up 11% year-over-year and 1% sequentially. The growth in loans during the quarter was driven by the C&I portfolio and residential mortgages to our private clients. Raymond James Bank net interest margin expanded to 3.35% in the second quarter, up 14 basis points over a year ago, second quarter, and 10 basis points over the preceding quarter. Importantly, the credit quality of the bank's loan portfolio remains strong, resulting in a decrease in our loan loss provision. So overall, strong quarter. I believe an excellent first half of the fiscal year. So with that, I'll turn it over to Jeff before I provide some comment on the outlook. Jeff? Thanks, Paul.