Raymond James Financial, Inc.

Good afternoon, and welcome to Raymond James Financial's... ...from third-party banks with $698 million, down 2% from the preceding quarter due to lower firm-wide net interest income resulting from NIM compression, but outperforming our expectations on the last earnings call as client cash balance were more stable than we expected at that time. The bank segment's net interest margin decreased 13 basis points sequentially to 2.74% for the quarter. And the average yield on RJBDP balances with third-party banks increased six basis points to 3.66%. While there are many variables that will impact actual results, Absent any changes to short-term interest rates, we currently expect combined net interest income and RJBDP fees from third-party banks to be about 5% lower in the fiscal second quarter compared to the fiscal first quarter, just based on spot balances after the fee billings this quarter and our expectation of some continued client cash sorting activity. Hopefully, we can outperform this expectation again this quarter but we believe it's prudent to err on the side of conservatism given the continued uncertainty around client cash balance trends. We remain focused on preserving flexibility and growing net interest income and RJBDP fees over the long term, which we believe we are well positioned to do. Moving to consolidated expenses on slide 11, Compensation expense was $1.92 billion, and the total compensation ratio for the quarter was 63.8%. Excluding acquisition-related compensation expenses, the adjusted compensation ratio was 63.4%. Looking ahead, the impact of salary increases effective on January 1st and the reset of payroll taxes at the beginning of the calendar year will be reflected in the fiscal second quarter. Non-compensation expenses of $462 million decreased 20% sequentially, largely due to elevated provisions for legal and regulatory matters in the preceding quarter, whereas this quarter was a relatively quiet quarter for legal and regulatory reserves. The bank loan provision for credit losses for the quarter declined to $12 million. I'll discuss more related to the credit quality in the bank segment shortly. We remain focused on managing expenses while continuing to invest in growth and ensuring high service levels for advisors and their clients. For the fiscal year, we expect non-compensation expenses excluding provision for credit losses unexpected legal and regulatory items, or non-GAAP adjustments to be around $1.9 billion. This implies incremental non-compensation growth throughout the year as we continue to invest in growth and ensure high service levels for advisors and their clients throughout our businesses. And remember, many of the non-compensation expenses, such as investment sub-advisory fees, represent healthy growth that follows the corresponding revenue growth. Slide 12 shows the pre-tax margin trend over the past five quarters. This quarter, we generated a pre-tax margin of 20.9% and an adjusted pre-tax margin of 21.7%, a strong result given the industry-wide challenges impacting capital markets. As a reminder, Our current targets provided at our Analyst and Investor Day last May are for a pre-tax margin of 20-plus percent and a compensation ratio of less than 65 percent. We still think these targets are appropriate, and we will provide an update, as needed, at the next Analyst and Investor Day scheduled for May 22nd. On slide 13, at quarter end, Total balance sheet assets were $80.1 billion, a 2% sequential increase. Liquidity and capital remain very strong. RGF corporate cash at the parent ended the quarter at $2.1 billion, well above our $1.2 billion target. And we remain well capitalized, with a Tier 1 leverage ratio of 12.1%, and a total capital ratio of 23%. Our capital levels continue to provide significant flexibility to continue being opportunistic and invest in growth. The effective tax rate for the quarter was 21%, reflecting a tax benefit recognized for share-based compensation that vested during the period. Going forward, we still believe that 24 to 25% is an appropriate estimate to use in your models. Slide 14 provides a summary of our capital actions over the past five quarters. During the quarter, the firm repurchased 1.4 million shares of common stock for $150 million at an average price of $107 per share. As of January 24th, 2024, approximately $1.39 billion remained available under the Board's approved common stock repurchase authorization. Our current plan, which is subject to change, is to repurchase at least $200 million of shares in the fiscal second quarter to complete the remaining repurchases associated with a dilution from the tri-state capital acquisition. Following the second quarter, we expect to continue to offset share-based compensation dilution and to be opportunistic with incremental repurchases. Lastly, on slide 15, we provide key credit metrics for our bank segment, which includes Raymond James Bank and Tri-State Capital Bank. The credit quality of the loan portfolio is solid. Criticized loans as a percentage of total loans held for investment ended the quarter at 1.09%. The bank loan allowance for credit losses as a percentage of total loans held for investment ended the quarter at 1.08%. The bank loan loss allowance for credit losses on corporate loans as a percentage of corporate loans held for investment was 2.06% at quarter end. We believe this represents an appropriate reserve but we continue to closely monitor economic factors that may impact our corporate loan portfolio, including the commercial real estate portfolio. Within the CRE portfolio, we have prudently limited the exposure to office loans, which represent just 3% of the bank segment's total loans. Now, I'll turn the call back over to Paul Reilly to discuss our outlook. Paul?

Thank you, Paul. As I said at the start of the call, I am pleased with our results for the first fiscal quarter, generating record earnings per share and ending the quarter with record client assets. And while there is still economic uncertainty, I believe we are in a position of strength and are well positioned to drive growth over the long term across all of our businesses. In the private client group, next quarter results will be positively impacted by the 9% sequential increase of assets in fee-based accounts. Near term, we expect some headwinds to the interest-sensitive earnings at both PCG and the bank segment, given ongoing cash sorting activity and uncertain rate environment. However, we are already seeing some of the higher yield competitor rates coming in. Despite this, I believe our effort and focus on being a destination of choice for our current and prospective advisors will continue to drive industry-leading growth. Our advisor recruiting activity remains robust, including a record number of large teams in the pipeline. In the capital market segment, we continue to have a healthy M&A pipeline and good engagement levels, but our expectations for a gradual recovery are heavily influenced by market conditions and we would expect activity to likely pick up over the next six to nine months. And the fixed income business, we saw improvements in this quarter with higher activity, but the dynamics of the past year persist. Depository clients are experiencing flat to declining deposit balances and have less cash available for investing in securities, putting pressure on our brokerage activity. We hope that once rates and cash balances stabilize, we will start to see an improvement. Despite some of the near-term challenges, we believe capital markets business is well positioned for growth once the market and rate environment become conducive. In the asset management segment, financial assets under management are starting the fiscal second quarter up 9% over the preceding quarter, which should provide a tailwind to revenues. We remain confident that strong growth of assets and fee-based accounts in the private client group segment will drive long-term growth of financial assets under management. In addition, we expect Raymond James Investment Management to help drive further growth over time. In the bank segment, we remain focused on fortifying the balance sheet with diversified funding sources and prudently growing assets to support client demand. We have seen security-based loans payoffs decelerate and are starting to experience growth. We expect demand for these loans to recover as clients get comfortable with the current level of rates. With little activity in the market, corporate loan growth has been muted. However, spreads have improved, and with ample client cash balances and capital, we are well positioned to lend once activity increases and our conservative risk parameters. In addition to our focus on organic growth across our businesses, we have also ramped up corporate development efforts. In closing, we are well positioned entering the second fiscal quarter with strong competitive positioning in all of our businesses and solid capital and liquidity base to invest in future growth. As always, I would be remiss if I did not thank our advisors and associates for their continued dedication to providing excellent service to their clients. Thank you for all you do. That concludes our prepared remarks. Operator, will you please open the line for questions?

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. And your first question comes from the line of Michael Cho from J.P. Morgan. Your line is open.