Raymond James Financial, Inc.

Good morning and welcome to Raymond James Financial's second quarter fiscal 2021 earnings call. This call is being recorded and will be available for replay on the company's investor relations website. Now, I would like to turn over to Christy Waugh, Vice President of Investor Relations at Raymond James Financial.

Good morning, everyone. Thank you for joining us. 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 the prepared remarks, the operator will open the line for questions. Please note, certain statements made during this call may constitute forward-looking statements. These statements include, but are not limited to, information concerning future strategic objectives, business prospects, financial results, anticipated results of litigation and regulatory developments, impact of the COVID-19 pandemic, or general economic conditions. In addition, words such as believe, expect, could, 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 could be no assurance that actual results will not differ materially from those expressed in the forward-looking 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 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 presentations. With that, I'll turn it over to Chairman and CEO Paul Reilly.

Paul? Thank you, Christy, and good morning, everyone. Thank you for joining us today. It has been a year since the financial markets bottomed, and the Federal Reserve cut short-term interest rates to near zero. That move reduced our pre-tax run rate by 40%. The stock market has seen an incredible run since 2020, with the S&P 500 up 54% year-over-year. While that tailwind has certainly helped fuel our strong results, the records we generated during the quarter and first half of the fiscal year have also been driven by our unwavering commitment to providing excellent service to advisors and their clients during this difficult and unprecedented time. It's a testament to our advisors who have shepherded their clients through the pandemic and the wherewithal of our associates who have worked so hard to service our advisors and their clients, our strong balance sheet, and our ability to grow both in constructive and challenging markets. Certainly a year we will never forget on many levels. Starting on slide three, the fiscal second quarter was another record quarter. The firm reported record net revenues of $2.37 billion dollars, which were up 15% over the prior year's fiscal second quarter and 7% over the preceding quarter. Record net income of $355 million, or $2.51 per diluted share, increased 110% over net income in the year-ago quarter and 14% over the preceding quarter. Annualized return on equity for the quarter was 19%. and return on tangible common equity was 21.2%, an extremely impressive result, especially in this near-zero rate environment and given our strong capital position. Record quarterly revenues were primarily driven by higher asset management and related administrative fees, investment banking revenues, and record brokerage revenues, which more than offset the negative impact of lower short-term interest rates on both the net interest income and RJBDP fees from third-party banks. Record quarterly net income was attributable to the record revenues, discipline management of controllable expenses, the bank loan loss benefit of $32 million reflecting improving economic conditions, and subdued business development expenses given the lack of business travel and conferences. Moving to slide four. We ended the quarter with record total client assets under administration of $1.09 trillion, which were up 40% on a year-over-year basis and 6% sequentially. We also achieved records for PCG assets and fee-based accounts of $568 billion, a 7% sequential improvement, which will benefit the third quarter. and financial assets under management of $178 billion. We ended the quarter with a record 8,327 financial advisors, a net increase of 179 over the prior year's period and 94 over the preceding quarter. This represents a solid improvement over the prior quarter and reflects our strong retention and the continued strength of our recruiting pipelines across all of our affiliation options. Our recruiting momentum in the independent side of the business continues to be strong. On the employee side, as we mentioned last quarter, in response to the increased recruiting packages by competitors, we enhanced our recruiting packages to be more competitive while also ensuring attractive returns to our shareholders. And while recruiting momentum in this business has increased greatly, employee advisory count is down slightly from the prior quarter as improved recruiting was offset by a higher number of retirements where assets are typically retained at the firm, as well as the smaller training class. However, the number of advisors scheduled to join is up significantly, not only in our employee channel, but across all of our affiliation options. Looking at our recruiting results, over the prior four quarters, financial advisors with approximately $285 million of trailing 12 months production and nearly $44 billion of assets at their prior firms affiliated with Raymond James domestically. As for our net organic growth results in the private client group, we generated domestic PCG net new assets of nearly $54 billion over the four quarters ending in March 31, 2021. representing more than a 7.5% of domestic PCG assets at the beginning of the period. And remember, this is net of client fees. And this trend has accelerated during the first half of the fiscal year, closer to a 9% annualized rate. We are very pleased with our consistent organic growth, especially given the disruption associated with the COVID-19 pandemic during the year. Now let's move to the segment results on slide five. The private client group generated record quarterly net revenues of $1.65 billion and pre-tax income of $192 million, an 11.7 pre-tax margin reflecting significant operating leverage despite being in a near zero rate environment. Quarterly net revenues grew 12% over the preceding quarter, predominantly driven by higher asset management and related administrative fees, reflecting higher assets and fee-based accounts, which will continue to be a tailwind in the third quarter. Higher brokerage revenues also contribute to the quarterly revenue growth. The capital markets segment generated quarterly net revenues of $433 million and pre-tax income of $105 million, driven by record brokerage revenue, record equity underwriting, and strong M&A revenues. Despite not topping the extraordinarily strong and record-breaking first quarter results, the results this quarter were very strong, driven by broad-based strength across global equities and investment banking and fixed income businesses. The strong results reflect the significant investments we have made to strengthen our platform over the last 10 years, and we are continuing to make investments, including the recent acquisition of a consumer-focused M&A advisory firm, Financo, which closed at the end of the quarter, and we welcome Financo to the Raymond James family. The asset management segment generated record net revenues of $209 million and record pre-tax income of $87 million. Record results were primarily due to growth of financial assets under management, driven by equity market appreciation and net inflows into fee-based accounts in the private client group. Carillon Tower Advisors also generated significant net inflows during the quarter. Lastly, Raymond James Bank generated quarterly net revenues of $160 million and pre-tax income of $111 million. Quarterly net revenues declined 24% compared to a year-ago quarter, primarily due to the impact of lower short-term interest rates. Sequentially, quarterly net revenues declined 4% as higher asset balances were offset by the expected eight basis points decline in the bank's net interest margin during the quarter, which was also largely attributable to the agency-backed securities portfolio. Pre-tax income growth was primarily due to the loan loss reserve release in the quarter, compared to the provision for credit losses in both of the comparative periods. The credit quality of the bank's portfolio remains healthy, as Paul Shukri will cover in more detail in his remarks. Looking at the fiscal year-to-date results on slide six, we generated record net revenues of $4.59 billion during the first six months of the fiscal 2021, up 13% over the same period. Record earnings per diluted share of $4.74 increased 53% compared to the first six months of fiscal 2020, primarily due to the revenue growth along with the loan loss reserve release compared to the provision for credit losses in the comparative period. Moving to the fiscal year-to-date results on slide seven. the private client group, capital markets, and asset management segments generated record net revenues and record pre-tax income during the first six months of the fiscal year. In fact, capital market segments pre-tax income for the first half of the fiscal year of $234 million actually exceeded the annual record of $225 million set in fiscal 2020. Again, These results reinforce the value of our diverse and complementary businesses. And now, for a more detailed review of the financial results, I'll turn the call over to Paul Shukri.