Raymond James Financial, Inc.

Good morning, everyone, and thank you for joining us. We appreciate your time and interest in Raymond James Financial. With us on the call today are Paul Reilly, Chairman and Chief Executive Officer, and Paul Shukri, 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 today's call may constitute forward-looking statements. These statements include, but are not limited to, information concerning future strategic objectives, business prospects, financial results, anticipated timing and benefits of our acquisitions and our level of success in integrating acquired businesses, anticipated results of litigation and regulatory developments, 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 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 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 the call over to Chairman and CEO, Paul Reilly. Paul?

Good morning. Thank you, Christy. I'm actually joining you today from Chicago where we've had a number of day meetings with some of our top independent advisors. So it's great to see both their success during the pandemic and their excitement as we move forward. It's kind of hard to believe now. It's been over 16 months since the pandemic, and we're just starting to see the light at the end of the tunnel with the distribution of vaccines. And now the spread of Delta variant reminds us that we could be dealing with this one way or another for quite some time. Fortunately, our economy has really proven to be resilient and creative. quickly adapting to these changes, which has facilitated the recovery of our economy and stock market over the past year. Similarly, our advisors and associates have been just simply amazing. I'm really proud of what they've been able to do, enabling Raven James to achieve these record results for the first nine months of fiscal 2021. So why don't we move on to slide three with our quarterly results. The fiscal third quarter was another strong quarter with several, I guess, many records. The firm reported record net revenue of $2.7 billion, net income of $307 million, and earnings per diluted share of $2.18. Excluding the losses on extinguishment of debt of $98 million and $7 million of acquisition-related expenses, adjusted quarterly net income was $386 million and adjusted earnings per diluted share were $2.74, both records. The increase in quarterly net revenue was largely driven by record asset management and related administrative fees and record investment banking revenues during the quarter. Adjusted net income growth was due to the aforementioned higher net revenues, along with the loan loss reserve release in the quarter compared to a provision for credit losses a year ago. Annualized return on equity for the quarter was 15.9%, and the adjusted return on tangible common equity was 22.2%. Really an impressive result, especially in this near zero rate environment, and given our strong capital position. Moving to slide four, and we'll see that the quarter ended with record total client assets under administration of $1.17 trillion. which are up 33% on a year-over-year basis and 7% sequentially. We also achieved record PCG assets and fee-based accounts of $617 billion, a 9% sequential improvement, which will benefit the fourth quarter, and record financial assets under management of $191 billion. We ended the quarter with record 8,413 financial advisors, and that's net increases of 258 over the prior year period and 86 over the preceding quarter. Advisor recruiting has been robust even in this very competitive market. Over the prior four quarters, financial advisors with approximately $325 million of trailing 12 production and nearly $53 billion of assets at their prior firms affiliated with Raymond James domestically. As far as net organic growth results in the private client group, we generated domestic PCG net new assets of nearly $69 billion over the four quarters ending in June 30, 2021, representing more than 8.5% of domestic PCG assets at the beginning of the period. And remember, this is net client fees. And this trend has accelerated throughout the 12-month period, with the past two quarters reaching an annualized rate over 9%. So far, this fiscal year is shaping up to be very strong in terms of advisor retention, as well as attracting new advisors to the Raymond James platform through our multiple affiliation options. In fact, we are on track for a record year of advisor recruiting in fiscal 2021. We remain focused, though, on providing a superior platform to support advisors and their clients and also helping advisors grow their practice. And it's resonating well in the market. Advisors are attracted to our leading technology solutions as well as our advisor and client-centric cultures. Let's move on to slide five. The private client group generated record quarterly net revenues of $1.7 billion and pre-tax income of $195 million, an 11.5% pre-tax margin, reflecting significant operating leverage over the past year. Correlated net revenues grew 3% over the preceding quarter, predominantly driven by higher asset management and related administrative fees, reflecting higher assets and fee-based accounts, which will also provide a tailwind for the fourth quarter. The capital market segments generated quarterly net revenues of $446 million and pre-tax income of $115 million, driven by record investment banking revenues and a continued very solid fixed income brokerage revenue performance. The strong result reflects the significant investments we've made to strengthen our platform over the last 10 years, and we are continuing to make investments, including the recently completed acquisitions of the consumer-focused M&A advisory firm, Financo, and the announcement of the acquisition of Seville, a leading private funds placement agent secondary market to private equities. We are excited to welcome Sunita and her team to the Raymond James family when we close Seville, currently expected to be in the fiscal fourth quarter. The asset management segment generated record net revenues of $225 million and record pre-tax income of $105 million. These results are primarily due to the growth of financial assets under management, driven by equity market appreciation and net inflows into fee-based accounts in the private client group, partially offset by the modest quarterly net outflows of Carillon Towers Associates, following a solid quarter of net inflows in the fiscal second quarter. Turning to the bank. Record net loans of $23.9 billion grew 13% over the prior year and 4% sequentially. This growth was primarily driven by the strong growth of securities-based loans to PCG clients of more than 50% and 14% respectively. This is a loan category we continue to see good opportunities for growth and attractive risk-adjusted returns. Raymond James Bank generated quarterly net revenues of $169 million and pre-tax income of $104 million. Quarterly net revenues declined 5% compared to a year ago quarter, primarily due to the impact of lower short-term interest rates. Sequentially, quarterly net revenue grew 6% as higher asset balances offset the modest compression in the bank's net interest margin during the quarter. Pre-tax income growth year over year was primarily due to the loan loss reserve release in the quarter compared to a provision for credit losses a year ago period. The credit quality of the bank's loan portfolio remains healthy, as Paul Shukri will cover in more detail in his remarks. Looking at the fiscal year today results on slide six, we generated record net revenues $7.07 billion during the first nine months of fiscal 2021, up 20% over the same period a year ago. And despite the losses on extinguishment of the debt this quarter, we still generated record net earnings per diluted share of $6.92 for the first nine months of 2021. Adjusted net income was $1.06 billion, 73% from the net income in fiscal 2020. And given all the unique circumstances, I think it's also worth comparing our results so far in fiscal 2021 to fiscal 2019, a very strong year for Raymond James. When comparing the first nine months of fiscal 2021 to the first nine months of fiscal 2019, net revenues have grown 24%. Net income has grown 27 percent, and adjusted net income has grown 35 percent. Truly spectacular results, particularly given the zero interest rate environment this fiscal year. Moving to the fiscal year to date segment results on slide seven, the private client group, capital markets, and asset management segments all generated record net revenues and record pre-tax income during the first nine months of the fiscal year. Again, these results reinforce the value of our diverse and complimentary businesses. Before I turn the call over to Paul, I wanted to highlight a separate announcement we made this morning. We announced our firm's intention to make an offer for the entire issued and to be issued share capital of a UK-based Charles Stanley Group at a price of $5.15 pounds per share or approximately 279 million pounds the U.S. equivalent of approximately $387 million. Charles Stanley is a firm we've admired for a long time. It has a tremendous reputation, a 200-year heritage, and a talented pool of wealth managers and professionals. The two firms share a common and increasingly rare client-centric approach where the primary client relationship is held by the individual wealth managers. Raymond James subsidiary of the UK, RJIS, has operated in the UK for over 20 years under strong leadership and has experienced exceptional growth. This combination with Charles Stanley would provide the opportunity for further accelerated growth in the UK, the second largest English speaking wealth management market. Charles Stanley has nearly 200 wealth managers and 27.1 billion pounds in client assets. bringing our total UK assets to over 40 billion pounds. Additionally, Charles Stanley multiple affiliation options would give Raymond James the ability to offer affiliation choices consistent with our models in Canada and the US and greatly accelerate the growth of the RJS newly launched employee affiliation model while building on its market leading independent contracting and investment management services businesses. As I mentioned, the announcement today is our intention to make this offer. We expect the offer to be made in approximately a month. Regulations issued by the UK takeover panel limit what we can further say at this point, but we will provide updates as more information is made available. Now, for a more detailed review of our third quarter results, I'm going to turn it over to Paul. Paul?

Thanks, Paul. I'll begin with consolidated revenues on slide nine. Record quarterly net revenues of $2.47 billion grew 35% year-over-year and 4% sequentially. Record asset management fees grew 8% sequentially, commensurate with the sequential increase of fee-based assets in the preceding quarter. Private client group assets and fee-based accounts were up 9% during the fiscal third quarter, providing a tailwind for this line item for the fourth quarter. Consolidated brokerage revenues of $552 million grew 14% over the prior year, but declined 7% from the record set in the preceding quarter. Institutional fixed income brokerage revenues remained solid, albeit down from the record set in the preceding quarter. Brokerage revenues in PCG were up 22% on a year-over-year basis, but down 6% sequentially due to lower trading volumes, as well as a large placement fee in the preceding quarter. Accountant service fees of $161 million increased 20% year-over-year and 1% sequentially, largely due to higher average mutual fund balances. Record consolidated investment banking revenues of $276 million grew 99% year-over-year and 14% sequentially, driven by record M&A revenues and strong debt and equity underwriting results. Our investment banking pipelines remain strong So we would be pleased if fourth quarter revenues came in around the average of the quarterly revenues generated over the first three quarters of the fiscal year. That would have been about $260 million on average. But of course, this line item is inherently difficult to predict. Other revenues of $55 million were up 25% sequentially, primarily due to $24 million of private equity valuation gains during the quarter. of which approximately $10 million were attributable to non-controlling interests, which are reflected in the other expenses. Moving to slide 10, clients' domestic cash sweep balances ended the quarter at $62.9 billion, essentially flat compared to the preceding quarter and representing 6.1% of domestic PCG client assets. As we continue to experience growing cash balances and less demand from third-party banks during fiscal 2021, $8.6 billion of the client cash is being held in the client interest program at the broker dealer. Over time, that cash could be redeployed to our bank or third-party banks as capacity becomes available, which would hopefully earn a higher spread than we currently earn on short-term treasuries. On slide 11, the top chart displays our firm-wide net interest income and RJBDP fees from third-party banks on a combined basis, as these two items are directly impacted by changes in short-term interest rates. The combined net interest income and BDPs from third-party banks of $183 million were up slightly compared to the preceding quarter as modest NIM compression was offset by growth-inclined cash balances and higher asset balances in Raymond James Bank. However, it's still down significantly from the peak of $329 million in the second quarter of fiscal 2019, really highlighting the remarkable results we have been able to generate despite near-zero short-term interest rates. In the lower left portion of the slide, we show net interest margin, or NIM, for both RJ Bank and the firm overall. We continue to expect the bank's NIM to decline to just around or just below 1.9% over the next quarter or two. The average yield on RJBDP balances with third-party banks declined one basis point to 29 basis points in the quarter, We believe this average yield will remain around this level for the rest of the fiscal year, but there will likely be downward pressure in this yield in fiscal 2022, especially in the back half of the fiscal year if banks' demand for deposits don't improve from current levels. Moving to consolidated expenses on slide 12. First, our largest expense, compensation. The compensation ratio decreased sequentially from 69.5% to 67.2%, largely due to record revenues in the capital market segment, which had a 57% ratio during the quarter, and the benefit from the private equity valuation gains, which do not have direct compensation associated with them. Given our current revenue mix and discipline manage of expenses, we remain confident we can maintain a compensation ratio lower than 70% in this near-zero short-term interest rate environment. And as I've said over the past few quarters, we could outperform that just as we did in the fiscal third quarter with capital markets revenues at or near these levels. Non-compensation expenses of $425 million increased 18% compared to last year's third quarter and 53% sequentially. primarily driven by the $98 million loss on extinguishment of debt, acquisition-related expenses, the non-controlling interest of $10 million and other expenses related to our private equity valuation gains, and higher business development expenses. As we discussed last quarter, we successfully executed a debt offering in the fiscal third quarter to take advantage of the low rate environment and significantly extend the maturities of our existing balances. We raised $750 million of 30-year senior notes at 3.75% and utilized the proceeds and cash on hand to early redeem our next two senior notes that were maturing in 2024 and 2026, effectively resulting in the same amount of senior notes outstanding. This resulted in $98 million in losses associated with the early extinguishment of those notes, but in doing so locked in very low rates for 30 years, while significantly extending the duration and stability of our funding profile. Overall, our results show we have remained focused on managing controllable expenses while still investing in growth across all of our businesses and ensuring high service levels for advisors and their clients. Excluding the debt extinguishment expense, we do expect non-compensation expense to continue picking up over the next few quarters, as hopefully travel, recognition trips, and conferences continue to resume, and we continue to increase our investments in technology and high-quality service levels for our growing business. We would eventually expect loan loss provisions associated with net loan growth as well. Slide 13 shows the pre-tax margin trend over the past five quarters. Pre-tax margin was 15.6% in fiscal third quarter of 2021, and adjusted pre-tax margin was 19.8%. which was boosted by record revenues, the loan loss reserve relief, and still relatively subdued business development expenses. At our Analyst and Investor Day in June, we outlined a pre-tax margin target of 15% to 16% in this near-zero interest rate environment. But as we experienced during the first nine months of the fiscal year, there's meaningful upside to our margins when capital markets results are strong and improving macroeconomic trends lead to releases of our allowances for credit losses. On slide 14, at the end of the quarter, total assets were approximately $57.2 billion, a 2% sequential increase reflecting solid growth of securities-based loans at Raymond James Bank. Liquidity and capital levels are very strong, with cash at the parent of approximately $1.56 billion, a total capital ratio of 25.5%, and a Tier 1 leverage ratio of 12.6%. we have substantial amount of flexibility to be both defensive and opportunistic. The third quarter effective tax rate of 20.3% benefited from non-taxable gains in the corporate life insurance portfolio. We would expect that tax rate to be around 21% in the fiscal fourth quarter, assuming a flat equity market. Slide 15 provides a summary of our capital actions over the past five quarters. In the third quarter, we repurchased 375,000 shares for $48 million. As of July 28th, $632 million remains available under the current share repurchase authorization. But as Paul Reilly will discuss, our priority continues to be deploying capital to grow our businesses. Lastly, on slide 16, we provide key credit metrics for Raymond James Bank. The credit quality of the bank's loan portfolio remains healthy. with most trends continuing to improve. Non-performing assets remain low at just 12 basis points of total assets, and criticized loans decline sequentially. The bank loan loss benefit of $19 million reflects an improved outlook for economic conditions and higher credit ratings on average within the corporate loan portfolio. Due to reserve leases and loan growth during the quarter, the bank loan allowance for credit losses as a percent of total loans declined from 1.5% to 1.34% at the quarter end. For the corporate portfolio, these allowances are higher at around 2.4%. We believe we're adequately reserved, but that could change if economic conditions deteriorate. Now I'll turn the call back over to Paul Reilly to discuss our outlook. Paul?