Raymond James Financial, Inc.

Good morning, and welcome to Raymond James Financial Fiscal Third Quarter 2020 Earnings Call. My name is Bridget, and I will be your conference facilitator today. This call is being recorded and will be available for replay on the company's Investor Relations website. Now, I will turn the call over to Christy Waugh, Head of Investor Relations at Raymond James Financial. Please go ahead.

Thank you, Bridget. Good morning, everyone, and thank you for joining us on this call. We appreciate your time and interest in Raymond James Financial. With us on the call today are Paul Riley, Chairman and Chief Executive Officer, and Paul Shugree, Chief Financial Officer. The presentation being reviewed this morning is available on Raymond James' Investor Relations website. Following their prepared remarks, the operator will open the line for questions. Please note, certain statements made during 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 and regulatory development, impacts of the COVID-19 pandemic, or general economic conditions. In addition, words such as believes, expects, could, 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 the forward-looking statement. We urge you to consider the risks described in the most recent Form 10-K and subsequent Forms 10-Q, which are available on our Investor Relations website. During today's call, we will also use certain non-GAAP financial measures to provide information pertinent to our management's view of ongoing business performance. A reconciliation of these non-GAAP measures to the most comparable GAAP measures may be found in the schedules accompanying our press release and presentation. With that, I'm happy to turn it over to Paul Reilly, Chairman and CEO of Raymond James Financial.

Paul? Thanks, Christy, and good morning, everyone, and thanks so much for joining us. This is our second call during the COVID crisis, but the first one we're a little more geographically scattered, so technology and Internet's willing and able, hopefully, to have a good call here. I'm really proud of how the firm has performed during this period with the COVID crisis, the social justice issues. Our associates and advisors have been amazing. The advisors have focused on their clients, growing their business with great net new asset numbers. Our associates have really worked hard to support them. And all of Raymond James has come together to discuss and make commitments on the social justice issue. And August is Raymond James Cares Month to see how we're helping those needy and smaller groups and virtually is really inspiring. And getting into the numbers, despite lower short-term interest rates and economic uncertainty associated with COVID-19, I'm really pleased with the results for the third quarter. Fixed income generated record revenues in pre-tax income. PCG assets and fee-based accounts increased 16% sequentially. And we continue to recruit numerous high-quality financial advisors, reaching a new record of 8,155, up 251 over June of 2019. We recruited 113 financial advisors domestically during this quarter alone, which represents $71 million of trailing 12 production at their prior firms. All of this during the pandemic and with our offices closed for much of that period. we are also entering the fourth quarter of a healthy investment banking pipeline. Even with these market changes and uncertainty, we are continuing to focus on servicing our advisors and clients and growing all of our businesses. We generated quarterly net revenue of $1.83 billion, which was down 5% as compared to prior year's fiscal third quarter and 11% compared to the preceding quarters. The year-over-year decline in quarterly net revenues was largely driven by the impact of short-term interest rates, as we all know, both on net interest income and RJBDP fees to the third-party banks. Sequentially, quarterly net revenues declined due to both short-term interest rates and lower asset management and related administrative fees, which were primarily based on the private client groups entering the quarter with fee-based accounts, so lower assets. we generated quarterly net income of $172 million, or $1.23 per diluted share, which was down 34% compared to net income in the prior year's fiscal third quarter, largely due to the bank loan loss provision of $81 million during the quarter compared to a $5 million benefit in the prior year's fiscal third quarter. Despite a sequential decline in quarterly pre-tax income, Net income increased 2% sequentially as significant non-taxable gains in the corporate home life insurance portfolio reduced the effective tax rate to 13.1% for the quarter from 29.3% in the pursuing quarter. On an annualized basis, our return on equity for the quarter was 10% and return on tangible common equity, ROTCE, was 10.9%. Moving to slide four, As equity markets rebounded from the March lows, client assets under administration grew 13% sequentially to $877 billion, and PCG assets and fee-based accounts grew 16% sequentially to a near-record $443 billion, which will provide significant tailwinds for asset management fees in the fiscal fourth quarter. Following the surge in March, Client cash balances remained relatively stable, ending the quarter at $51.9 billion. And despite the continued disruption caused by travel restrictions and office closures, we reached a record number of PCG financial advisors of 8,155, 251 over June of 2019, and 7 over March of 2020. This is a good result compared to many firms which experienced a net decline. We accomplished this, despite many of these offices being closed during the quarter, and we've had many advisors commit, but pushed their commitment dates back, waiting for the offices to reopen. Net bank loans of $21.2 billion grew 3% over the prior year's fiscal third quarter, but declined 3% compared to the preceding quarter. The sequential decline includes proactive sales of corporate loans, totaling $355 million, which we'll discuss in more detail on the call. The bank continued to experience healthy growth in residential mortgages and security-based lending to our private client group clients. Moving to the segment results starting on slide five, the private client group generated quarterly net revenues of $1.25 billion. Quarterly net revenues declined 8% compared to the prior year's fiscal third quarter and primarily due to lower RJVDP fees from third-party banks, a decline in net interest income, and lower brokerage revenues. The 16% sequential decline in quarterly net revenues was attributable to the aforementioned items as well as lower asset management fees and related administrative fees. which were primarily based on private client group assets and fee-based accounts being lowered to begin in the quarter. Quarterly pre-tax income for the segment was down $91 billion, down 35% on a year-over-year basis and 46% sequentially. PCG assets increased along with the equity markets. And while recruited production increased sequentially, the net addition of financial advisors was negatively impacted by the COVID-19 crisis, which disrupted a lot of the transitions, particularly in the employee channel due to office closures, and slowed the net addition of trainees as testing centers were closed during the quarter but are now open. It's also important to note that in the net number, a number of – Advisors leaving for retirement, leaving the industry, or moving to our RIA channel affect the total of that advisor account, but we retain almost all those assets during those transitions. The net advisor growth in the independent channel remains strong and is tracking closely with our fiscal 2019 results. As home office visits for prospective advisors have transitioned 100% to virtual, advisor recruiting activity has continued to recover, and the pipeline remains solid across all of our affiliation options. Over the past four quarters, financial advisors representing approximately $290 million of Traylane 12 productions and nearly $43 billion of assets at their prior firms have affiliated with Raymond James domestically, which is a very strong result. Moving to slide six, the capital market segment generated record revenues driven by higher fixed income brokerage revenues, debt underwriting revenues, which more than offset lower M&A revenues. The 71% year-over-year increase in fixed income brokerage revenues and the record results for our fixed income really reflect our leading position in the small to mid-sized depository client segment, which has experienced an increase in activity. Meanwhile, M&A revenues declined due to economic uncertainty and decreased activity across certain industries. However, clients remain engaged and the fourth quarter pipeline looks good. On the next slide, the asset management segment generated net revenues of $163 million and pre-tax income of $60 million during the quarter. Financial assets under management grew to $145.4 billion, increases of 2% on a year-over-year basis, and 13% sequentially, primarily attributable to higher equity markets as the S&P index appreciated 20% during the quarter, which was partially offset by net outflows at Carillon Tower Advisors. On slide 8, Raymond James Bank generated net revenues of $178 million, or 15% decline from the preceding quarter, largely attributable to the 73 basis point decline in the bank's net interest margin during the quarter, reflecting the rapid and significant decline of LIBOR. Pre-tax income of $14 million declined 90% to the prior fiscal third quarter and was flat sequentially. The year-over-year decline in the pre-tax income was primarily due to to the $81 million bank loan loss provision during the quarter. On slide nine, we can look at the history of Raymond James Bank's key credit metrics during the financial crisis. You can see that Raymond James Bank, consistent with the entire banking industry, enjoyed several years of positive credit trends since the financial crisis. While nine performing assets declined during the quarter, Net charge-offs were $72 million, including $61 million related to proactive sales of corporate loans during the quarter. The other $11 million of charge-offs were attributed to one corporate loan. The allowance for loan losses as a percentage of total loans increased to 1.56% from 1.47% in the preceding quarter. And for the corporate portfolios, The allowance for loan losses, the percentage of C&I loans, ended the quarter at 2.4%, and for CRE loans, 2.8%. If economic conditions continue to deteriorate, we would expect adding to these reserves, but certainly the outlook is uncertain. Looking at the fiscal year-to-date results on slide 10, we generated record net revenues of $5.91 billion during the first nine months of the fiscal 2020, up 3% over the same period. Private client groups, capital markets, and asset management segments generated record net revenues, and capital markets and asset management segments generated record pre-tax income during the first nine months of the fiscal year. Again, these results highlight the advantage of our diverse complementary businesses. Earnings per diluted share of $4.33 declined 18% compared to the first nine months of fiscal 2019, primarily due to lower interest rates and higher bank loan loss provisions. And now for a more detailed review of the financials, I'm going to turn it over to Paul Shugley. Paul?