Raymond James Financial, Inc.

Good afternoon, 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 Riley, Chair and Chief Executive Officer, and Paul Shukri, Chief Financial Officer. The presentation being reviewed today is available on Raymond James Investor Relations website. Following the prepared remarks, the operator will open the line for questions. Calling your attention to slide two. 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 timing and benefits of our acquisitions and our level of success integrating acquired businesses, divestitures, anticipated results of litigation and regulatory developments, or economic conditions. In addition, words such as may, will, could, anticipates, expects, believes, or continue, or negative of such terms, 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 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 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. Now, I'll turn the call over to Chair and CEO, Paul Reilly. Paul?

Good afternoon, and thank you for joining us today. Paul and I are joining you from Orlando, Florida. We have over 4,000 people attending our independent advisors conference. It's great to see such an upbeat mood and people really having a good time getting back together, as well as all the other educational sessions we have here. Since our founding over 60 years ago, Raymond James has maintained an unwavering commitment to placing clients first. through conservative decision-making that keeps us well-positioned over the long term. While remaining focused on the long term has not always been easy or fully appreciated in good times, it has served us very well over time. And it's in times such as these, when even the financial system itself is challenged, that our philosophy not only carries us through, but enables us to thrive. Just a few examples of our differentiated positioning that we have benefited recently from includes Tier 1 leverage capital ratio of 11.5%, over two times the regulatory requirement to be well capitalized. 88% of our bank deposits are FDIC insured, including nearly 95% of Raymond James Bank, amongst the highest in the entire industry. And A-level ratings with all three credit agencies, which Fitch reaffirmed in March at the height of the turmoil. A few weeks later, we were able to renew and upsize our five-year committed revolver with enhanced terms, thanks to the fantastic relationship we have with all of our bank partners. Further, we were able to buy back 350 million of shares at what we believe were attractive prices. and we still have $1.1 billion of capacity remaining under our board authorization. In times like these, we are reminded of the importance of keeping a long-term, client-focused approach, and our stakeholders benefit and appreciate the firm's dedication to placing them first. Now, turning to our results, despite the challenging market and high market volatility during the first six months of the fiscal year, we generated record net revenues and record earnings. Reviewing second quarter results starting on slide four, the firm reported record quarterly net revenues of $2.9 billion and net income available to common shareholders of $425 million, or $1.93 per diluted share. Excluding expenses related to acquisitions, adjusted net income available to common shareholders was $446 million, or $2.03 per diluted share. The increase in interest-related revenues driven by short-term interest rates drove significant earnings growth over the prior year. Net revenues increased 7%, and net income available to common shareholders grew 32%. And despite the challenging market conditions and our robust capital position, we generated strong returns with annualized return on common equity of 70.3% and annualized adjusted returns on tangible common equity of 22.3%. Moving to slide five, we ended the quarter with total client assets under administration of $1.2 trillion. PCG assets and fee-based accounts of $666 billion and financial assets under management of $194 billion. With our continued focus on retaining, supporting, and attracting high-quality financial advisors, PCG consistently generates strong organic growth, which is evident again this quarter with domestic net new assets of $21.5 billion representing an 8.4% annualized growth rate on the beginning of the period domestic PCG assets. During the prior 12 months, we recruited to our domestic independent contractor and employee channels financial advisors with approximately $275 million of trailing 12 production and nearly $38 billion of client assets at their previous firm. Total clients' domestic sweep and enhanced savings program balances ended the quarter at $52.2 billion, down 14% from December of 2022. The sequential decline reflects the expected cash sorting activity, which was partially offset by the launch of our enhanced savings program. We are pleased with the early success of our enhanced savings program. This product offered to PCG clients through Raymond James Bank is a fantastic option for clients seeking competitive rates while maintaining a high level of FDIC insurance. We believe this product is really unique in the industry and certainly appealing in the current environment. As of this week, enhanced savings program balances have surpassed $4.5 billion. Total bank loans decreased to 1% from the preceding quarter to $44 billion, primarily reflecting a modest decline in securities-based loans due to higher interest rate environment. We will touch on this more later on the call, but we plan to remain very prudent with growing our corporate loans over the next several months, given volatile market conditions. Moving to slide six. Private client group generated record results with quarterly net revenues of $2.14 billion and pre-tax income of $441 million. Year over year, asset-based revenues declined due to market declines. However, TCG's results were listed by the benefit of higher interest rates on interest-related revenues and fees. As Paul Schupe will explain in more detail, This quarter was negatively impacted by some seasonal expenses as well as elevated legal costs. The capital market segment generated quarterly net revenues of $302 million and a pre-tax loss of $34 million. Revenues declined 27% compared to the prior year quarter, mostly driven by lower investment banking revenues as well as lower fixed income brokerage revenues. The extremely challenging market environment, particularly for investment banking, has strained the near-term profitability of the segment. However, we are focused on managing controllable expenses as near-term revenues are depressed. The asset management segment generated pre-tax income of $82 million on net revenues of $216 million. The year-over-year decreases in net revenue and pre-taxed income were largely attributable to lower assets and fee-based accounts, as net inflows into fee-based accounts and to the private client group were offset by market declines. Solid net inflows for Raymond James Investment Management helped boost financial assets under management, which should provide a tailwind in the fiscal third quarter. The bank segment generated record net revenues of $540 million and pre-tax income of $91 million. Revenue growth was largely due to the continued expansion of the bank's net interest margin to 3.63% for the quarter, up 162 basis points over the year-ago quarter and 27 basis points from the preceding quarter. The NIM expansion reflected the flexible and floating nature of our balance sheet, although as Paul Schuchre will explain, we do expect some headwinds to NIM, which reached very high levels across the industry over the past couple of months. Looking at the fiscal year-to-date results on slide 7, we generated record net revenues of $5.66 billion and record net income available to common shareholders of $932 million of 4% and 21% respectively over the prior year's record. Additionally, we generated strong annualized return on common equity of 19.3% and annualized adjusted return on tangible common equity of 24.2% for the six-month period. On slide 8, the strength of the PCG and bank segment for the first half of the year primarily reflects the strong organic growth in PCG and the benefit of higher interest-related revenues, whereas the weaker capital markets results reflected the challenging environment for investment banking and brokerage revenues, especially when compared to the record activity levels in the year-ago period. And now I'm going to turn the call over to Paul Shukri for a more detailed review of the second quarter financials. Paul?

Thank you, Paul. Starting on slide 10, consolidated net revenues were a record $2.87 billion in the second quarter, up 7% over the prior year and 3% sequentially. Being able to generate record quarterly revenues during a period when capital market revenues were so challenged across the industry reinforces the value of having diversified and complementary businesses. Asset management and related administrative fees declined 11% compared to the prior year quarter and increased 5% sequentially due to the higher assets and fee-based accounts at the end of the preceding quarter, partially offset by fewer billable days in the fiscal second quarter. This quarter, fee-based assets grew 5%, providing a tailwind for asset management and related administrative fees in the fiscal third quarter. Brokers' revenues of $496 million declined 12% year-over-year and grew 2% sequentially. This year-over-year decline was largely due to lower asset-based trail revenues and PCGs. as well as lower fixed income brokerage revenues in the capital market segment. I'll discuss account and service fees and net interest income shortly. Investment banking revenues of $154 million declined 34% year over year and grew 9% sequentially. As experienced across the industry, M&A revenues were particularly challenged this quarter, declining 37% year over year and 15% sequentially. Despite a healthy banking pipeline and solid new business activity, there remains a lot of uncertainty in the pace and timings of deals launching and closing, giving the heightened market volatility. It remains too difficult to say when conditions will become conducive to increase investment banking revenues. Moving to slide 11, Clients' Domestic Cash Week and Enhanced Savings Program balances ended the quarter at $52.2 billion, down 14% compared to the preceding quarter and representing 4.9% of domestic PCG client assets. The Enhanced Savings Program added approximately $2.7 billion in new deposits in March, as the offering was only open to net new balances until April. and a good portion of these new balances were derived from brand new clients to the firm following the Silicon Valley bank collapse, highlighting the attractiveness of this product and Raymond James being viewed as a source of strength and stability. As Paul said, the enhanced savings program balances exceeded $4.5 billion this week, continuing to grow nicely and partially offsetting the anticipated decline in sweep balances largely due to the quarterly fee billings in April. While it's difficult to parse through the disclosures to make sure we're comparing apples to apples, of the handful of peers who have reported thus far, we estimate year-over-year cash sweep declines for those peers were approximately 35% to 45%. This compares to a 35% year-over-year decline in our domestic sweep balances through March. So this dynamic of declining sweep balances has really been experienced at roughly the same order of magnitude for most of the firms in our industry. And as most of you know, we have been expecting, communicating, and preparing for this sorting activity for quite some time. Looking forward, we expect additional cash sorting activity, although we believe we are much closer to the end of that dynamic than we are to the beginning. if rates settle out near current levels, as the average sweet balance per account over the approximately 3.4 million accounts domestically is now less than $15,000. And we hope to continue to offset any further cash sorting activity through our diversified funding sources, including the Enhanced Savings Program, Tri-States Deposit Franchise, and other initiatives. And when the sorting dynamic does stabilize, we would then expect to grow sweet balances, given our strong organic growth in PCG. Meanwhile, to be prudent, we would strive to maintain a strong funding cushion of domestic cash swept to third-party banks, not too much lower than where it ended the March quarter. We would also plan to keep elevated cash balances in the bank segment, which grew from $1.8 billion in December to $5 billion at the end of the fiscal second quarter. While these actions don't optimize net interest margin over the short term, we believe they give us the most flexibility over the long term. Starting with slide 12, combined net interest income and RJBDP fees from third party banks was $731 million. up 226% over the prior year quarter and 1% over the preceding quarter, as a sequential decrease in RJBDP fees from third-party banks was more than offset by higher firm-wide net interest income. The bank segment's net interest margin increased 27 basis points sequentially to 3.63% for the quarter, and the average yield on RJBDP balances with third-party banks increased 53 basis points to 3.25%. Our longstanding approach of maintaining a high concentration of floating rate assets not only helped drive more immediate upside to higher short-term interest rates, but also preserved a relatively flexible balance sheet compared to the banks that had much higher concentration of duration risk. Looking forward, We expect combined net interest income and RJBDP fees from third-party banks to decline sequentially in fiscal third quarter due to a decrease in third-party RJBDP fees given the lower average balances with third-party banks. We would also expect the bank segments NIM to contract from the second quarter given the higher level of cash balances we plan to maintain during this volatile period as well as the impact from higher cost diversified funding sources. But as we have always said, instead of focusing on maximizing NIM, we are focused on preserving flexibility and growing net interest income over the long term, which we still believe we are well positioned to do after the cash sorting dynamic is behind us. We expect headwinds for the net interest income and RJBDP fees for the reasons I just explained. Moving to consolidated expenses on slide 13. Compensation expense was $1.8 billion and the total compensation ratio for the quarter was 63.3%. The adjusted compensation ratio was 62.8% during the quarter. The compensation ratio continues to benefit from higher net interest income and RJBDP fees from third-party banks. The sequential increase in compensation reflects higher revenues, as well as the impact of salary increases effective on January 1st, along with the reset of payroll taxes at the beginning of the calendar year. we are very pleased to generate a 62.8% adjusted compensation ratio given these factors and the extremely challenging market environment for capital markets. Non-compensation expenses of $496 million increased 25% sequentially. Adjusting for acquisition-related non-compensation expenses and the favorable settlement received in the fiscal first quarter, which are all included in our non-GAAP earning adjustments, non-compensation expenses grew 16% during the quarter. This increase was largely driven by higher legal and regulatory costs, including an unfavorable arbitration award totaling $20 million, along with higher communication and information processing expenses which reflect continued technology investments and the seasonal impact of year-end mailings. The bank loan provision for credit losses for the quarter of $28 million largely reflects the charge off of a CNI loan that's been challenged for several quarters, as well as higher allowances in the CRE portfolio. I'll discuss more related to the credit quality in the bank segment shortly. In summary, We remain focused on managing expenses while continuing to invest in growth and ensuring high service levels for advisors and their clients. While there has been some noise with elevated legal and regulatory expenses this quarter, and there are always some seasonal expenses that hit in the first calendar quarter of the year, none of the non-compensation expenses are coming in too much differently than we expected when we last provided guidance for the fiscal year. But legal and regulatory expenses are inherently difficult to predict. Slide 14 shows the pre-tax margin trend over the past five quarters. In the current quarter, we generated a pre-tax margin of 19.4%, an adjusted pre-tax margin of 20.4%, a strong result given the industry-wide challenges impacting capital markets. On slide 15, at quarter end, total assets were $79 billion, a 3% sequential increase largely reflecting the $3.2 billion increase of cash balances in the bank segment during the quarter. Liquidity and capital remain very strong. RGF corporate cash at the parent ended the quarter at $1.8 billion, well above our $1.2 billion targets. The Tier 1 leverage ratio of 11.5% and total capital ratio of 21.4% are both more than double the regulatory requirements to be well capitalized. The 11.5% Tier 1 leverage ratio reflects over $1 billion of excess capital above our conservative 10% target, which would still be two times the regulatory requirement to be well capitalized. Our capital levels continue to provide significant flexibility to continue being opportunistic and invest in growth. We were pleased to have our A-minus credit rating reaffirmed by Fitch in mid-March. In the announcement, Fitch cited the firm's strong capital cushion, significant deposit funding, and access to unsecured debt markets among other drivers as a reason for the rating. Also in April, we renewed our revolving credit facility and expanded it from $500 million to $750 million. Our strong balance sheet and longstanding relationships with our banking partners enabled us to upsize the five-year committed corporate revolver with enhanced terms to further strengthen our contingent liquidity sources. The ability to execute this facility in a challenging market environment is a testament to our long-term conservative approach. I know many of our bankers are listening on this call, so I'd like to thank all of you for your continued support and partnership. We also have other significant sources of contingent funding. For example, just to be proactive, given the market uncertainty in March, we increased our FHLB borrowings in the bank segment by only $500 million from December 31st to March 31st. And given our strong cash position, we've already paid $200 million of that down in April. That leaves us more than $9 billion of FHLB capacity in the bank segment. Slide 16 provides a summary of our capital actions over the past five quarters. During the fiscal second quarter, the firm repurchased 3.75 million shares of common stock for $350 million at an average price of $93 per share. As of April 26, approximately $1.1 billion remained available under the board's approved common stock repurchase authorization. And we currently intend on continuing our planned repurchases as we discussed previously. Particularly as this market volatility has provided attractive opportunities for us. And we don't plan on using as much capital to support balance sheet growth over the next three to six months. Lastly, on slide 17, we provide key credit metrics for the bank segment, which includes Raymond James Bank and Tri-State Capital Bank. The credit quality of the loan portfolio remains healthy. criticized loans as a percentage of total loans held for investment end of the quarter at just 0.92%. The bank loan allowance for credit losses as a percentage of total loans held for investment end of the quarter at 0.94%. The bank loan allowance for credit losses on corporate loans as a percentage of corporate loans held for investment was 1.67% at quarter end. We believe this represents an appropriate reserve, but we are continuing to closely monitor any impacts of inflation, supply chain constraints, higher interest rates, and a potential recession on our corporate loan portfolio. I know there's been a lot of attention on commercial real estate across the industry, given the challenges with property value and interest rates. So let me briefly cover our portfolio. Across the bank segment, we have CRE and REIT loans of approximately $8.8 billion, which represents 20% of our total loans. Our office portfolio is only 17% of these real estate loans. So our office portfolio only represents approximately 3.5% of the bank segment's total loans. And based on the underwriting at origination, along with the most recent appraisals, the average loan to value of this office portfolio is somewhere around 60%, which is probably a little bit higher now given pressure on valuations in the industry, but still providing us a lot of cushion on this portfolio on average. Overall, we have deliberately limited the exposure to office real estate, and we underwrote office loans with what we believe are conservative criteria. But we continue to monitor each loan closely given the industry-wide challenges. Now I'll turn the call back over to Paul Reilly to discuss our outlook. Paul?