Raymond James Financial, Inc.

Good evening and welcome to Raymond James Financial's fiscal first quarter 2026 earnings call. This call is being recorded and will be available for replay for 30 days 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 Shukri and Chief Financial Officer Butch Orlog. 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 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 CEO Paul Shugary. Paul?

Thank you, Chrissy. Good evening, and thank you for joining us. Before we begin, we recognize that difficult weather conditions are impacting many of you in communities across the U.S. Our thoughts are with everyone affected, and we appreciate the dedication of our teams as they continue to support clients during this time. Our focus on being the absolute best firm for financial professionals and their clients has contributed to strong results this quarter. The strength and consistency of our client-first culture, alongside a robust technology and products platform, coupled with our strong balance sheet, continues to appeal to financial advisors. This is reflected in our solid recruiting momentum and net new asset annualized growth of 8% this quarter. We continue to deploy capital with a focus on the long term. As demonstrated by our robust organic growth, continued investments in our technology and platform, our consistent deployment through dividends, our recently announced acquisitions, as well as share repurchases. Our sustained growth over time is a testament to the deep personal relationships our advisors, bankers, and associates have with their clients, which is a foundation to providing tailored and trusted financial advice. In our recently released annual report, we are referring to this value proposition as the power of personal. Turning to our financial results for the quarter, our ongoing commitment to generating long-term sustainable growth was achieved this quarter as we once again realized record quarterly revenues. Quarterly net revenues of $3.7 billion grew 6% over the prior year quarter and were up just above the strong preceding quarter. Pre-tax income of $728 million declined 3% compared to the year-ago quarter, but nearly equaled the preceding quarter level. Across our businesses, underpinned by our uniquely personal approach, with and in support of our advisors and financial professionals, we continue to achieve substantial success retaining and recruiting financial professionals who provide high-quality advice to their clients. In the private client group, we ended the quarter with a record $1.71 trillion of client assets under administration, representing year-over-year growth of 15%. We continue to experience strong success in recruiting, due in no small part to our unique service-first culture, comprehensive capabilities, and strong balance sheet. Quarterly domestic net new assets worth nearly $31 billion, representing an 8% annualized growth rate. In the fiscal first quarter, we recruited financial advisors to our domestic independent contractor and employee channels with trailing 12-month production totaling $96 million and approximately $13 billion of client assets at their previous firms, a strong result for a quarter that typically experiences a seasonal slowdown. Over the past 12 months, we recruited financial advisors for 12-month production totaling nearly $460 million and over $63 billion of client assets. Including assets recruited into our RIA and custody service division, we recruited total client assets over the past 12 months of more than $69 billion across all of our platforms. Our optimism about future growth is fueled by our robust advisor recruiting pipeline and strong levels of commitments to join in the coming quarters. We offer a unique combination of an advisor and client-focused culture coupled with leading technology and solutions. This value proposition, coupled with our strong balance sheet and commitment to independence, is proving to be a differentiator for advisors evaluating alternatives. In order to continue retaining and attracting the best advisors, we continue making investments in our platform and offerings. For example, our Private Wealth Advisor Program, an expanded alternative investments platform, supports advisors who focus on high net worth clients. We continue to make investments and implement solutions to automate and streamline processes that provide advisors with incremental time to invest in their client relationships. Highlighting this is our newly launched proprietary digital AI operations agent named Ray, which builds on our service-focused long-term AI strategy. The firm's suite of AI-based tools and technologies is focused on empowering financial advisors and professionals across the firm by applying artificial intelligence to enhance service models and secure, scalable applications. Capital markets results declined this quarter, primarily driven by lower M&A and advisory revenues, and also lower debt underwriting and affordable housing investment revenues on a sequential basis. Given the very strong M&A results in the both year-ago and sequential periods, this quarter faced tough comparables. Even so, we enter the second quarter with a robust pipeline that continues to reflect the potential resulting from the strategic investments we have made in this segment over the past few years. We are confident we are well-positioned with motivated buyers and sellers, along with deep expertise across the industries we cover. We remain committed to opportunistically enhancing the platform by broadening and deepening its capabilities, whether through strategic hiring or acquisitions, as evidenced by the announced acquisition of the boutique investment bank Greensledge during the quarter, which we anticipate closing later in the year. In the asset management segment, net inflows into managed fee-based programs in the private client group are strong during the quarter, annualizing at nearly 10%, and reflect the complementary impact of being able to offer high-quality investment alternatives to our financial advisors, as well as growth resulting from our successful recruiting efforts. In the bank segment, loans ended the quarter at a record $53.4 billion, primarily reflecting outstanding 28% annual growth in securities-based lending balances and 10% growth in this quarter alone. Yet another synergistic impact from our growing private client business as we are able to deploy our strong balance sheet in support of clients. Importantly, the credit quality of the loan portfolio remains strong. Turning to capital deployment, we continue to deploy capital with a focus on the long term, as evidenced by our robust organic growth, continued investments in our technology and platform, and recently announced acquisitions. In January, we announced the acquisition of Clark Capital Management, a leading asset management firm specializing in wealth-focused solutions to financial advisors and their clients, with expertise across the growing segment of model portfolios and SMA and UMA wrappers. With over $46 billion in combined discretionary assets under management and non-discretionary assets, Clark Capital is recognized as a high-growth firm in the industry and has a track record of strong inflows. We are excited to welcome Clark Capital into the Raymond James family, where it will maintain its independence in brand going forward. We believe their services and capabilities further strengthen Raymond James Investment Management's existing investment and wealth planning offerings. This announced acquisitions, along with that of Greensledge, demonstrates our steadfast pursuit of acquisitions that are a strong cultural fit, a good strategic fit, and valuations that generate attractive returns for our shareholders. As we continue to pursue both organic and inorganic growth opportunities, we also maintain our share repurchase program to effectively manage capital levels. This quarter, we repurchased $400 million of common stock at an average share price of $162. We ended the quarter with a Tier 1 leverage ratio of 12.7%. Now, I'll turn the call over to Butch Orlog to review our financial results in detail. Butch?

Thank you, Paul. I'll begin on slide six. The firm reported record net revenues of $3.7 billion for the fiscal first quarter. Net income available to common shareholders was $562 million, with earnings per diluted share of $2.79. Excluding expenses related to acquisitions, adjusted net income available to common shareholders equaled $577 million, resulting in adjusted earnings per diluted share of $2.86. Our pre-tax margin for the quarter was 19.5%, and adjusted pre-tax margin was 20%. We generated annualized return on common equity of 18%, and annualized adjusted return on tangible common equity of 21.4%. Solid results for the quarter, particularly given our conservative capital base. Turning to slide 7. Private Client Group generated pre-tax income of $439 million on record quarterly net revenues of $2.77 billion. Results were driven by higher PCG assets under administration compared to the previous year, resulting from the impacts of market appreciation, retention, and the consistent addition of net new assets. Pre-tax income declined 5% year-over-year, primarily due to the impact on this segment of interest rate reductions, which reduced our non-compensable revenues. Interest rates have declined 125 basis points since early November 2024. Our capital markets segment generated quarterly net revenues of $380 million and a pre-tax income of $9 million. Segment net revenues declined year-over-year and sequentially due to the factors Paul already mentioned. The asset management segment generated record pre-tax income of $143 million on record net revenues of $326 million. Results were largely attributable to higher financial assets under management compared to the prior year quarter due to the market appreciation over the 12-month period and strong net inflows into PCG fee-based accounts. The bank segment generated net revenues of $487 million and record pre-tax income of $173 million. On a sequential basis, the bank segment net interest income grew 6%, primarily driven by strong loan growth fueled by securities-based loans and lower funding costs driven by the decline in short-term rates and a favorable mixed shift in deposits. Turning to consolidated revenues on slide 8. Asset management and related administrative fees of nearly $2 billion grew 15% over the prior year and 6% over the preceding quarter. Record PCG fee-based assets equaled $1.04 trillion at quarter end, up 19% year-over-year and 3% over the preceding quarter. As we look ahead, we expect fiscal second quarter 2026 asset management and related administrative fees to be higher by approximately 1% over the first quarter level, driven by the impact of two fewer billing days in our second quarter, which partially offsets the impact of the 3% increase in PCG assets in fee-based accounts at quarter end. Moving to slide 9, clients' domestic cash sweep and enhanced savings program balances ended the quarter at $58.1 billion, up 3% over the preceding quarter and representing 3.7% of domestic PCG client assets. Based on January activity to date, domestic cash sweep and enhanced savings program balances have declined as a result of the collection of record quarterly fee billings of $1.8 billion, and with further declines due to client reinvestment activity. Turning to slide 10, combined net interest income and RJBDP fees from third-party banks grew 2% over the prior quarter to $667 million. Net interest margin in the bank segment increased 10 basis points to 2.81% for the quarter, driven by the factors I previously mentioned. The average yield on RJBDP balances with third-party banks decreased 15 basis points to 2.76%, primarily due to the impact of the Fed interest rate cuts since mid-September 2025. Based on current interest rates, including the full impact of the October and December rate cuts, and assuming unchanged quarter-end balances net of the $1.8 billion fiscal second quarter fee billing collection, we would expect the aggregate of NII and RJBDP third-party fees in the second quarter to be down approximately 3% from the first quarter level. The decline is largely due to two fewer interest earning days in the second fiscal quarter, as lower yields resulting from the full quarter impact of the recent Fed rate cuts are partially offset by the higher interest earning asset balances as of the beginning of the quarter. Keep in mind, there are many variables which could influence actual results, including any interest rate actions during the upcoming quarter and factors affecting our balance sheet, including changes in our loan and deposit balances. Turning to consolidated expenses on slide 11. Compensation expense was $2.45 billion, and the total compensation ratio for the quarter was 65.6%. Excluding acquisition-related compensation expenses, the adjusted compensation ratio was 65.4%. Commencing this quarter, we presented recruiting and retention-related compensation expense in the PCG segment for each reporting period to aid the understanding of the impact of such costs on our business. These costs have increased as a direct result of our strong recruiting successes and reflect a component of the execution of our highest capital deployment priority of investing in organic growth. Non-compensation expenses of $557 million increased 8% over the year-ago quarter, but decreased 7% sequentially. For the fiscal year, we expect non-compensation expenses, excluding the bank loan loss provision for credit losses, unexpected legal and regulatory items, and non-GAAP adjustments presented in our non-GAAP financial measures, to be approximately $2.3 billion, representing about 8% growth over the same adjusted non-compensation metric for the prior year. Importantly, we will continue to invest to support growth across our businesses while maintaining discipline over controllable expenses. The majority of the projected increase reflects our continued investment in leading technology supporting our financial advisors, as well as our expectations for overall growth in our businesses. This projection, therefore, includes, for example, incremental recruiting-related and transition support costs, which are driven by continued successful recruiting, higher subadvisory fees, which grow as fee-based client assets increase, and FDIC insurance premiums, which grow as the bank's segment balance sheet increases. Slide 12 presents the pre-tax margin trends for the past five quarters. The achievement of our 20% adjusted pre-tax margin target this quarter, despite the headwinds we experience of lower interest-related and investment banking revenues, highlights the stability and strength of our diversified businesses to consistently generate strong margins. On slide 13, at quarter end, our total assets were $88.8 billion, a 1% sequential increase resulting primarily from loan growth partially offset by lower corporate cash balances, which declined primarily due to corporate share actions as well as seasonal funding obligations. Record bank loans of $53.4 billion grew 13% over the year-ago quarter and 4% sequentially, with that loan growth largely in support of our clients. Securities-based loans and residential mortgages represent 60% of our total loan book, reflecting approximately 40% and 20% of the total, respectively. We continue to have strong levels of liquidity and capital. Our JF corporate cash at the parent ended the quarter at approximately $3.3 billion, providing excess liquidity of $2.1 billion, well above our $1.2 billion target. Our capital levels provide significant flexibility to continue being opportunistic in our pursuit of strategic acquisitions and to invest in organic growth. With a Tier 1 leverage ratio of 12.7% and a total capital ratio of 24.3%, we remain well above regulatory requirements with approximately $2.4 billion of excess capital capacity to deploy before reaching our targeted Tier 1 capital ratio of 10%. The effective tax rate for the quarter was 22.7%, reflecting a seasonal tax benefit arising from share-based compensation that settled during the quarter. Looking ahead, we continue to estimate our effective tax rate for fiscal 2026 to be approximately 24 to 25%. Slide 14 provides a summary of our capital actions over the past five quarters. Through the combination of common dividends paid and share repurchases, we returned $511 million of capital to shareholders during the quarter. In January, the firm opportunistically redeemed all of its outstanding shares of its Series B preferred stock for an aggregate redemption value of $81 million, which reduces Tier 1 capital in the fiscal second quarter. Taking this capital action into consideration, we expect to target approximately $400 million of common share repurchases again in the fiscal second quarter. Over the past 12 months, we have repurchased $1.45 billion of common shares, and including dividends paid, we have returned nearly $1.87 billion of capital to common shareholders, reflecting a combined return of 89% of our earnings. We maintain our long-term commitment to operating our businesses at capital levels consistent with established targets. I'll now turn the call back to Paul for his final remarks.