Raymond James Financial, Inc.

Good evening and welcome to Raymond James Financial's fiscal 2024 third quarter earnings call. This call is being recorded and will be available for replay on the company's investor relations website. I'm Christy Waugh, Senior Vice President of Investor Relations. Thank you for joining us. With me on the call today are Paul Riley, Chair and Chief Executive Officer, and Paul Shukri, President and 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. Call your attention to slide two. Please note that 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, industry or market conditions, anticipated timing and benefits of our acquisitions, and our level of success in integrating acquired businesses, anticipated results of litigation and regulatory developments, and general economic conditions. In addition, words such as believes, expects, anticipates, intends, plans, estimates, projects, forecasts, and future or conditional verbs such as may, will, could, should, 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 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 website. Now, I'm happy to turn the call over to Chair and CEO Paul Reilly. Paul?

Thank you, Christy, and good evening. Thank you for joining us today. Last week, Paul and I attended our summer development conference for our employee advisors. It's exciting to spend time with so many advisors who embody our client-first culture. We hear firsthand what makes Raymond James a great place for advisors who value the breadth of our technology and product platform so they can effectively serve their clients, and importantly, a firm that provides advisors the tools they need to grow their businesses. Paul and I appreciate the passion and dedication of the thousands of advisors who continue to serve their clients day in and day out. Turning to our quarterly results, we once again delivered strong results in the quarter. Our diverse and complementary business combined to generate record results for the first nine months of the fiscal year. We continue to invest in our businesses, our people, and our technology to help drive growth across all of our businesses. Beginning on slide four, the firm reported record fiscal third quarter net revenues of $3.23 billion, an increase of 11% over the prior year quarter, primarily due to higher asset management and related administrative fees. Quarterly net income available to common shareholders was $491 million, or $2.31 per diluted share. Excluding expenses related to acquisitions, adjusted net income available to common shareholders was $508 million, or $2.39 per diluted share. We generated strong returns for the quarter with annualized return on common equity of 17.8% and annualized adjusted return on tangible common equity up 21.9 percent, a great result, particularly given our strong capital base. During the quarter, we repurchased 2 million shares of common stock for $243 million, bringing our fiscal year-to-date total to 5.1 million shares for $600 million. Moving to slide five, client assets grew to record levels during this quarter, driven by rising equity markets, and solid advisor retention and recruiting in PCG. Total client assets under administration increased 2 percent sequentially to $1.48 trillion. Private client assets and fee-based accounts grew to $821 billion, and financial assets under management to $229 billion. Domestic net new assets during the quarter were $16.5 billion, representing a 5.2 annualized growth rate on the beginning of the period domestic PCG assets. Our robust technology capabilities, client-first values, and long-established multi-affiliation options continue to retain and attract high-quality advisors to the platform. This quarter, we recruited to our domestic independent contractor and employee channels financial advisors with approximately $92 million of trailing month production and $13.4 billion of client assets at their previous firms. Including RCS, we recruited client assets of $14.9 billion, making this our best quarter since 2021 in terms of recruited assets. Fiscal year to date, trailing 12-month production of recruited advisors is up 33 percent. Related client assets are up 52 percent over the prior nine-month period. These results do not include our RIA and custody services business, RCS, which also continues to have recruiting success and finished the quarter with $167 billion of client assets under administration. We continue to experience growth in RCS from external joins as well as from internal transfers. This quarter, we reported record financial advisors of 8,782, and that does not include internal transfers to RCS of nearly 50 advisors, primarily all from one firm. While transfers to RCS lower the firm's advisor count, The client assets typically remain with the firm. Looking at fiscal year-to-date results, domestic net new assets were $47.7 billion, representing a 5.8% annualized growth rate on the beginning of the period domestic private client group assets, a strong result compared to peer group. Total clients' domestic sweep and enhanced savings program balances ended the quarter at $56.4 billion, down 3% from March of 2024. We are pleased to see cash balances remain relatively flat in the quarter following fee billings paid in April. Bank loans grew 2% over the preceding quarter to a record $45.1 billion, primarily due to higher securities-based loans, as demand for C&I loans remains muted. Moving on to slide six, private client group generated record quarterly net revenues of $2.42 billion and pre-tax income of $441 million. Year over year, results were bolstered by higher PCG assets under administration due to strong equity markets and net new assets brought into the firm. The capital market segment generated quarterly net revenues of $330 million and a pretax loss of $14 million. Net revenues grew 20 percent compared to a year-ago quarter, primarily due to higher debt and equity underwriting revenues. Sequentially, revenues increased 3 percent, primarily driven by the higher affordable housing investment revenues. Pre-tax loss in capital markets segment of $14 million reflects weak M&A results and the impact of amortization of deferred compensation granted in preceding quarters, which totaled approximately $20 million this quarter. While the timing of closings remain difficult to predict, we are still optimistic about our healthy pipeline and new business activity in M&A. We continue to expect investment banking revenues to improve along with industry-wide gradual recovery. The asset management segment generated pre-tax income of $112 million on record net revenues of $265 million. Results were largely attributable to higher financial assets under management compared to the prior year quarter due to market appreciation and net inflows into PCG fee-based accounts. The bank segment generated net revenues of $418 million and pre-tax income of $115 million. The bank segment net interest margin of 2.64 percent declined just two basis points compared to the preceding quarter. Looking at the fiscal year-to-date results on slide seven, We generated record net revenues of $9.36 billion and record net income available to common shareholders of $1.46 billion, up 9 percent and 12 percent respectively over the previous record set in the prior year. Additionally, we generated strong annualized return on common equity of 18.2 percent and annualized adjusted return on tangible common equity of 22.5 percent for the nine-month period. On slide eight, the strength of the PCG and asset management segment for the first nine months of the year primarily reflects the strong organic growth in PCG along with robust equity markets. And now I'll turn the call over to Paul Shoukry for his remarks.

Paul? Paul Shoukry Thank you, Paul. First, I just want to echo Paul's comments earlier on how great it was to attend our summer development conference last week, as well as our Elevate conference earlier in the quarter and visiting several branches over the past few months. We truly have a fantastic group of financial advisors and associates who put their clients first each and every day. Now turning on to slide 10, consolidated net revenues were a record $3.23 billion in the third quarter, up 11% over the prior year and up 4% sequentially. Asset management and related administrative fees grew to $1.61 billion, representing 17% growth over the prior year and 6% over the preceding quarter. This quarter, PCG domestic fee-based assets increased 3%, which will be a tailwind for asset management and related administrative fees in the fiscal fourth quarter. Brokerage revenues of $532 million grew 15% year-over-year, mostly due to higher brokerage revenues in PCG. I'll discuss account and service fees and net interest income shortly. Investment banking revenues of $183 million increased 21% year-over-year and 2% sequentially. Compared to the prior year quarter, third quarter results benefited primarily from stronger debt and equity underwriting revenues. However, M&A and advisory revenues remain subdued. Moving to slide 11, clients' domestic cash sweep and enhanced saving program balances ended the quarter at $56.4 billion, down 3% compared to the preceding quarter and representing 4.3% of domestic PCG client assets. So far in the fiscal fourth quarter, domestic cash sweep balances have declined about $1.25 billion, as cash inflows have partially offset quarterly fee billings of approximately $1.5 billion. Turning to slide 12, combined net interest income and RJBDP fees from third-party banks was $672 million, down 2% from the preceding quarter. The bank segment net interest margin was relatively flat at 2.64% for the quarter, while the average yield on RJBDP balances with third-party banks decreased 18 basis points to 3.41 percent. The decline in third-party yield was primarily due to a mixed shift towards higher yielding sweep offerings. Based on spot rates at the end of the third quarter and current balances, we would expect NII and RJBDP third-party fees to be flat or perhaps down nominally in the fiscal fourth quarter. But, of course, we are always monitoring the competitive environment, which has been notably dynamic in this space over the past few weeks. This guidance does not factor any incremental changes we may make to sweep rates based on these competitive dynamics or other factors. Moving to consolidated expenses on slide 13, Compensation expense was $2.09 billion, and the total compensation ratio for the quarter was 64.7%. Excluding acquisition-related compensation expenses, the adjusted compensation ratio was 64.4%. Non-compensation expenses of $494 million increased 6% sequentially. largely due to a favorable legal and regulatory net reserve release of $32 million in the preceding quarter that did not recur in the current quarter. Generally, non-compensation expenses grew this quarter as expected to support growth across the businesses. For the fiscal year, we still expect non-compensation expenses, excluding provisions for credit losses, unexpected legal and regulatory items, or non-GAAP adjustments to be around $1.9 billion, consistent with our previous guidance. Slide 14 shows a pre-tax margin trend over the past five quarters. This quarter, we generated a pre-tax margin of 20% and adjusted pre-tax margin of 20.7%, a strong result, especially given the challenging market conditions impacting capital markets. These results are in line with the targets provided at our recent Analyst and Investor Day meeting in May. On slide 15, at quarter end, our total assets were $80.6 billion, a 1 percent sequential decrease as loan growth was offset by declines in cash balances and the continued runoff of the securities portfolio in the bank segment. Liquidity and capital remain very strong. RJF corporate cash at the parent ended the quarter at $2.1 billion, well above our $1.2 billion target. With Tier 1 leverage ratio of 12.7% and total capital ratio of 23.6%, we remain well capitalized. Our capital levels continue to provide significant flexibility to continue being opportunistic in investment growth. Slide 16 provides a summary of our capital actions over the past five quarters. During the quarter, the firm repurchased 2 million shares of common stock for $243 million at an average price of $122 per share. As of July 19th, 2024, approximately $945 million remained under the Board's approved common stock repurchase authorization. Going forward, we expect to continue to offset share-based compensation dilution and to be opportunistic with incremental repurchases. Given our present capital and liquidity levels, we currently expect to increase the pace of buyback activity, as we are committed to maintaining capital levels in line with our stated targets. Lastly, on slide 17, 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 into the quarter at 1.15%, down from 1.21% in the preceding quarter. The bank loan allowance for credit losses as a percentage of total loans held for investment ended the quarter at 1%. The allowance percentage has trended lower, largely due to a loan mix shift towards more securities-based loans and residential mortgages, which account for 34% and 20% of the total loan portfolio, respectively. The bank loan allowance for credit losses on corporate loans as a percentage of corporate loans held for investment was 2% at the quarter end. We believe this represents an appropriate reserve, but we continue to closely monitor economic factors that may impact our loan portfolios. Now, I'll turn the call back over to Paul Riley to discuss our outlook. Paul?