Raymond James Financial, Inc.

fiscal 2025 second quarter earnings call. This call is being reported 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 Chief Executive Officer Paul Shookery and Chief Financial Officer Butch Orlov. The presentation being reviewed today is available on our investor relations website. Following the prepared remarks, the operator will open the line for questions. Calling 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 futures, strategic objectives, business prospects, financial results, industry or market conditions, anticipated timing and benefits of our acquisitions, or our level of success in integrating acquired businesses. anticipated results of litigation and regulatory development, and general economic conditions. In addition, words such as believes, expects, anticipates, intends, plans, estimates, projects, forecasts, 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 CEO, Paul Shugry. Paul?

Thank you, Christy. Good evening, and thank you all for joining us on the call today. Last week, we had our global top financial advisor conference in Montreal. It was wonderful to spend time with our top advisors across our affiliation options from the US, Canada, and the UK. They are extremely pleased with Raymond James, expressing a deep appreciation for our unique advisor and client-focused culture, along with our robust platform. Just a week prior, we hosted all of our investment banking managing directors in Tampa, and they also conveyed enthusiasm for a unique combination of values and capabilities that enabled them to best serve clients. Since the CEO succession announcement last year, I have been spending a large portion of my time traveling to meet with as many advisors, bankers, associates, and clients as possible. I know I have shared this before, but what I continue to hear with passion from advisors, bankers, and associates is the best professional decision that they ever made was joining Raymond James. And the biggest regret they have is they didn't join several years earlier. That statement is really a testament to our special culture and all the fantastic associates who provide excellent service each day. Every now and then we get external validation of this. For example, This quarter, our advisors earned the number one ranking in the 2025 J.D. Power Survey for advised investor satisfaction and industry trust. To all of our advisors and the associates who support those advisors, congratulations and thank you for earning this well-deserved recognition. My number one goal as CEO will be to reinforce and strengthen our unique culture that was established by Bob and Tom James and fortified by Paul Riley. And I am so fortunate to have a top-notch leadership team who share this same commitment. Our values-based client-first approach has consistently led to strong results, and that was the case again in the fiscal second quarter. We generated quarterly net revenues of $3.4 billion and pre-tax income of $671 million, up 9% and 10% over the year-ago quarter, respectively. For the first six months of fiscal 2025, we generated record net revenues of $6.9 billion and record pre-tax income of $1.4 billion. up 13% and 15% over the first half of fiscal 2024. These solid results were attributable to our diverse and complementary businesses, anchored by the private client group and augmented with the capital markets, asset management, and bank segments. Across all of our businesses, we have achieved consistent success retaining and recruiting financial professionals who provide high-quality financial advice to their clients. In the private client group, we ended the quarter with $1.54 trillion of client assets under administration, representing year-over-year growth of 6%. Over the past 12 months, we recruited into our domestic independent contractor and employee channels financial advisors with approximately $316 million trailing 12-month production, and $50 billion of client assets at their previous firms. Including assets recruited into our RIA and custody services division, we recruited total client assets over the past 12 months of nearly $59 billion across all of our platforms. Quarterly domestic net new assets equals $8.8 billion, representing a 2.6% annualized growth rate on the beginning of the period domestic PCG assets. While NNA was lower this quarter, which was similar to what we experienced in the same quarter in fiscal 2024, we saw net new assets improve throughout the quarter and also had extremely strong months of new commits in March and April, which should help our net new assets in the second half of the fiscal year. So we are very optimistic about our momentum and growing pipelines across all of our affiliation options. Our best of both worlds value proposition, where we offer a unique combination of an advisor and client-focused culture, coupled with leading technology and solutions, continues to resonate with advisors across all of our affiliation options. In the capital market segment, the investment banking pipeline is very strong. But the timing of closings has been negatively impacted with market uncertainty and heightened volatility associated with tariff negotiations. And while investment banking closings are expected to remain challenged across the industry until we get more certainty, we are confident that we are well positioned with motivated buyers and sellers, along with deep expertise across the industries we cover when the market becomes more conducive. In the asset management segment, net inflows into managed fee-based programs in the private client group were very strong during the quarter, annualizing at 8%. In the bank segment, loans ended the quarter at a record $48.3 billion, primarily reflecting strong growth in securities-based lending balances. Most importantly, the credit quality of the loan portfolio remained solid. Turning to capital deployment, I want to reiterate that our long-standing priorities have remained unchanged. And that starts with investing in growth, first organically and complemented with strategic acquisitions. On last quarter's call, we explained that we're evaluating a few M&A opportunities. We also explained that those opportunities are often part of competitive processes and that we would not stretch on valuation, especially if we do not have conviction that we could generate strong risk-adjusted returns for our shareholders at those prices. At this point, we are no longer pursuing those aforementioned opportunities. While we will continue to pursue acquisition opportunities that meet our criteria of being a strong cultural fit, a good strategic fit, and had valuations that would generate attractive returns for our shareholders. Given our strong capital and liquidity positions and what we believe are attractive long-term returns from buying back our own stock at the current level, we have resumed share repurchases. During the quarter, we repurchased $250 million of common stock at an average share price of $146. Additionally, so far in April, we repurchased another $190 million of shares at an average price of $125 per share. Our current plan is to continue repurchasing shares on a more consistent basis, likely at an amount greater than the $250 million we repurchased the fiscal second quarter. We believe this balanced and more consistent approach will still leave us with ample capital liquidity to support our strong organic growth initiatives, as well as to continue pursuing attractive acquisition opportunities. Now I'll provide a few comments on our outlook before turning it over to Butch to go over our quarterly financial results in more detail. It goes without saying, but I'll say it anyway, the heightened market volatility and potential economic impacts associated with tariffs have created a highly uncertain market environment. While client sentiment on the markets and economy has declined significantly over the past quarter, the silver lining is clients are still confident with their financial plan. And satisfaction with their advisors has actually increased to 97% at Raymond James. These trends highlight the fact that clients really value having a financial advisor to help them navigate these uncertain times. a similar dynamic that we experienced during the COVID pandemic. During these times, our vision will remain unchanged to be the absolute best firm for financial professionals and their clients. In addition to our unique culture and robust platform, our strong balance sheet becomes increasingly important to prospective advisors who are seeking strength and stability for their businesses and their clients during these periods of stress. As I explained earlier, our advisor recruiting pipelines are strong and building rapidly across our affiliation options. We are also making significant investments to further strengthen our capabilities. For example, during the quarter, we established and filled a new role for the chief AI officer. Our leadership team has conviction that AI will be a game changer for our industry. But we also know that it's still too early to know exactly how that will play out over the coming years. So we established this dedicated function to monitor developments and use cases for AI with the goal of deploying it to help our financial professionals serve their clients more effectively and efficiently. We already use AI in many areas, primarily in the back office. And just last week, we rolled out an in-house proprietary AI search tool, which has been very well received. As an industry, we're still in the early stages of utilizing AI, but we are excited and well prepared to expand AI utilization for financial professionals and their clients in the future. During the quarter, we also announced a new leadership structure for our private capital business to help high net worth focus advisors better serve their clients with a wide variety of bespoke private investment alternatives. These are just a couple of examples of initiatives we are pursuing to continue investing in our platform for advisors and their clients. I look forward to our Analyst Investor Day in June, where we will discuss these initiatives and others in more detail. In summary, while there is significant macro uncertainty, our values, strategy, and approach will remain largely unchanged. and our strong balance sheet should position us relatively well in any market environment. Now, I'll turn the call over to Butch Orlog to review our financial results in more detail. Butch? Thank you, Paul.

I'll begin on slide six. The firm reported net revenues of $3.4 billion for the fiscal second quarter, pre-tax income of $671 million, resulting in a pre-tax margin of 19.7%. Net income available to common shareholders was $493 million, and earnings per diluted share of $2.36. Excluding expenses related to acquisitions, adjusted net income available to common shareholders equaled $507 million, an adjusted pre-tax margin of 20.3%, and adjusted earnings per diluted share of $2.42. We generated annualized return on common equity of 16.4% and annualized adjusted return on tangible common equity of 19.7%. Strong results for the quarter, particularly given our conservative capital base. Turning to slide seven, private client group generated pre-tax income of $431 million on quarterly net revenues of $2.49 billion. Results were driven by 6% higher PCG assets under administration compared to the previous year, the result of market appreciation and the consistent addition of net new assets. Fiscal year to date, PCG generated record revenues and pre-tax income. Our capital market segment generated quarterly net revenues of $396 million and pre-tax income of $36 million. Net revenues grew 23% year over year, driven primarily by higher investment banking and fixed income brokerage revenues. However, sequential results declined 18%, largely due to the lower investment banking revenues. The asset management segment generated pre-tax income of $121 million on net revenues of $289 million. Results were largely attributable to higher financial assets under management compared to the prior year quarter due to market appreciation over the 12-month period and strong net inflows into PCG fee-based accounts. Sequentially, although market values declined, we had strong net inflows of approximately $3.7 billion into managed programs on our platform. The asset management segment generated record revenues and pre-tax income fiscal year to date. The bank segment generated net revenues of $434 million and pre-tax income of $117 million. On a sequential basis, bank segment net interest income grew 1%, driven by continued loan growth and a seven basis point expansion of net interest margin to 2.67%, resulting from a favorable shift in asset mix, along with a higher portion of lower cost deposits. Turning to consolidated revenues on slide eight. Second quarter net revenues grew 9% over the prior year and declined 4% sequentially. Asset management and related administrative fees of $1.73 billion grew 14% over the prior year and decreased 1% compared to the preceding quarter. The sequential decline was primarily due to fewer billing days in the quarter. PCG fee-based assets equaled $873 billion at quarter end, up 9% year over year, and slightly lower compared to the preceding quarter. As we look ahead, we expect third quarter asset management and related administrative fees to be relatively flat with the second quarter. Although PCG assets and fee-based accounts are slightly lower sequentially at quarter end, the third quarter will benefit from one additional billing day in the quarter. Brokerage revenues of $580 million grew 10% year over year, primarily due to higher fixed income brokerage revenues. Despite these strong results in our second quarter, the fixed income market at the start of the third quarter is challenging as market and interest rate uncertainty cause a significant headwind for the business near term. Our revenues in this business could be unfavorably impacted while this uncertainty persists. Investment banking revenues of $216 million increased 21% year over year, but declined 34% sequentially. The sequential decline reflected lower investment banking activity broadly. As you may remember, the prior quarter reflected near record M&A results. Moving to slide nine. Clients' domestic cash sweep and enhanced savings program balances ended the quarter at $57.8 billion, down 3% compared to the preceding quarter and representing 4.2% of domestic PCG client assets. Domestic cash sweep and enhanced savings program balances have decreased so far this fiscal quarter, not surprising given the timing of tax payments with the current program balance aligning roughly with April's quarterly fee billings of approximately $1.5 billion. Turning to slide 10, combined net interest income and RJVDP fees from third-party banks was $651 million at 3% sequential decline, primarily the result of two fewer billing days in the quarter. Net interest margin in the bank segment grew seven basis points to 2.67% for the quarter, the result of the factors I described earlier. The average yield on RJBDP balances with third-party banks decreased 12 basis points to 3%, primarily due to the full quarter impact of rate cuts that occurred late in the preceding quarter. Based on current interest rates and quarter-end balances, net of third quarter fee billings, we would expect the aggregate of NII and RJBDP third party fees to be relatively unchanged in the fiscal third quarter, as we expect the effect of slightly lower balances in the bank deposit program to be offset by one additional billing day. Keep in mind, there are many variables that will impact actual results, including any interest rate actions during the upcoming quarter and factors impacting our balance sheet, including changes in our loan and deposit balances. Turning to consolidated expenses on slide 11, compensation expense was $2.2 billion, and the total compensation ratio for the quarter was 64.8%. Excluding acquisition-related compensation expenses, the adjusted compensation ratio was 64.5%. Non-compensation expenses of $528 million increased 2% sequentially, mostly due to our relatively modest bank loan provision for credit losses compared to the prior quarter where the provision was near zero. And higher communications and information processing expenses. Through the first half of the fiscal year, we are on track for full-year non-compensation expenses of approximately $2.1 billion excluding the bank loan provision for credit losses, unexpected legal and regulatory items, and non-GAAP adjustments related presented in our non-GAAP financial measures. Importantly, we remain committed to investing to support growth across the business while maintaining discipline over controllable expenses. On slide 12, we provide key credit metrics for our bank segment. We grew loans during the quarter by 2%, primarily in support of our clients, with this loan growth continuing to be led by our securities-based loans and, to a lesser extent, residential mortgage loans. The credit quality of the loan portfolio remains strong. Criticized loans as a percentage of total loans held for investment decreased to 1.14% at quarter end, and non-performing assets remain low at 34 basis points of bank segment assets. The bank loan allowance for credit losses as a percentage of total loans for investment ended the quarter at 93 basis points, down two basis points from the prior quarter. The allowance percentage has trended lower largely due to the loan mix shift towards more securities-based loans and residential mortgages, which carry lower allowance levels. These two loan categories represent well over half of our total loan book, reflecting 36% and 20% respectively. With regard to the relatively smaller corporate loan book, the bank loan allowance for credit losses on corporate loans as a percent of corporate loans held for investment was 1.94%. We believe the total allowance represents an appropriate reserve, but we continue to closely monitor economic factors that may impact our loan portfolios, including any potential impact of tariff negotiations on certain corporate borrowers, any effect of which will affect our third quarter provisions. Slide 13 shows the pre-tax margin trend over the past five quarters, demonstrating the resilience of our diverse business mix to consistently deliver strong margins. On slide 14, at quarter end, our total assets were $83.1 billion, a 1% sequential increase resulting primarily from loan growth. Liquidity and capital each remain very strong. RJF corporate cash at the parent ended the quarter at approximately $2.5 billion, well above our $1.2 billion target. With a Tier 1 leverage ratio of 13.3% and total capital ratio of 24.8%, we remain well above regulatory requirements. As Paul mentioned, our capital levels provide significant flexibility to continue being opportunistic and invest in growth. The effective tax rate for the quarter was 26.2%, an increase over the preceding quarter as the benefit from the excess share-based compensation that vested in the preceding quarter did not recur this quarter. For the fiscal year 2025, we estimate our effective tax rate for the year to be approximately 25%. Slide 15 provides a summary of our capital actions over the past five quarters. As Paul mentioned, we have been actively repurchasing shares. Over the past five quarters, we have returned to shareholders over $1.5 billion through common dividends and share repurchases, and we have been actively repurchasing shares in April. We remain committed over the long term to operate our businesses at capital levels in line with our stated targets. With our strong capital levels, we are well positioned to continue investing in organic growth, prudently pursue acquisitions that meet our criteria of being a good cultural and strategic fit, and we are well positioned to meet the needs of our clients and advisors and uncertain and challenging market conditions. That concludes our prepared remarks. Operator, will you please open the line for questions?