Raymond James Financial, Inc.

Good evening, and welcome to Raymond James Financial's Fiscal Second 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 Shugary and Chief Financial Officer Butch Orlog. 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 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 Forms 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 Shukri. Paul?

Thank you, Christy. Good evening. Thank you for joining us. Raymond James delivered strong results this quarter despite a challenging and volatile market environment. Our steady, consistent performance reflects our disciplined execution against our objective of being the absolute best firm for financial professionals and their clients. In an industry built on relationships and trust, we believe in the power of personal. Our commitment to building and maintaining deeply personal relationships with advisors, bankers, associates, and clients. Turning to the quarter, continued focus on our long-term strategy drove record quarterly revenues of $3.86 billion, representing growth of 13% over the prior year quarter and 3% above the preceding quarter. Pre-tax income of $735 million increased 10% compared to the year-ago quarter, and 1% over the preceding quarter. By supporting our advisors and financial professionals across the firm with a personal approach, we consistently retain and recruit high-quality professionals who deliver excellent service and advice to their clients. In the private client group, we ended the quarter with $1.7 trillion of client assets under administration. down slightly compared to the preceding quarter, but representing year-over-year growth of 15%. Our client-first culture, together with our robust technology and product platforms and strong balance sheet, continues to differentiate Raymond James as a destination of choice for financial advisors across our affiliation options. As reflected again this quarter in our strong retention and continued recruiting momentum, In the fiscal second quarter, quarterly domestic net new assets were $23 billion, representing a 5.8% annualized growth rate. We recruited financial advisors to our domestic independent contractor employee channels with trailing 12-month production totaling $141 million and nearly $21 billion of client assets at their previous firms, the second highest quarterly result in our history. in terms of both recruited production and assets. Our optimism about future growth is fueled by our commitment to our existing advisors, which is reflected in high retention, along with a robust advisor recruiting pipeline and a strong number of financial advisors who have made commitments to join in the coming quarters. Our value proposition is becoming increasingly differentiated. At Raymond James, advisors do not have to choose between culture and capabilities. We offer a unique combination of an advisor and client-focused culture together with leading technologies, products, and solutions advisors need to serve clients at a high level. Combined with our strong balance sheet, long-term thinking, and commitment to independence, that continues to set Raymond James apart for advisors evaluating alternatives. But we won't rest on our laurels. We will continue investing in automation, process improvement, and AI as part of our more than $1.1 billion annual technology spend to create efficiencies, give advisors more time to deepen client relationships, and further enhance the client experience. For example, our proprietary AI operations agent, provides curated natural language answers and guidance to operational questions while intelligently evolving based on user activities and preferences. This agent has been rolled out to a few hundred advisors and their team so far, in addition to service focus groups at the home office. We are very encouraged by the strong initial feedback and will continue to expand advisor and associate access over time. Capital markets results improved this quarter, primarily driven by stronger investment banking revenues with a particularly strong performance in the month of March. We entered this third quarter with a robust pipeline that continues to reflect the opportunities that come from the strategic investments we have made in this segment over the past few years. We are confident we are well-positioned to continue building upon this quarter's momentum with motivated buyers and sellers engaging us for our deep expertise across the industries we cover. We remain committed to opportunistically enhancing the platform by broadening and deepening our capabilities through strategic hiring or acquisitions such as Greensledge, which close towards the end of the quarter. In the asset management segment, Net inflows into managed fee-based programs in the private client group were strong in the quarter, reflecting the complementary impact of offering high-quality investment alternatives to financial advisors and their clients, as well as growth resulting from our successful recruiting efforts. Additionally, our Raymond James Investment Management business brought in positive net inflows in the quarter. In the bank segment, loans ended the quarter at a record $54.8 billion. primarily driven by continued outstanding growth in security space lending balances, which have increased more than $5 billion, or 31% over the year-ago period, and 6% sequentially. This growth continues to reflect the synergistic impact from our growing private client group business, as we are able to deploy our strong balance sheet in support of clients. Importantly, the credit quality of the loan portfolio continues to be strong. Our capital deployment strategies remain disciplined and focused on the long term, as demonstrated by our strong organic growth, ongoing technology and platform investments, and our recent acquisitions of Greensledge and Clark Capital. Clark Capital is expected to close this quarter. 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 $155. We ended the quarter with a Tier 1 leverage ratio of 12.4%. 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 $3.86 billion for the fiscal second quarter. Net income available to common shareholders was $542 million, with earnings per diluted share of $2.72. Adjusted net income available to common shareholders, which excludes acquisition-related expenses, equaled $564 million, resulting in adjusted earnings per diluted share of $2.83. Our pre-tax margin for the quarter was 19%, and the adjusted pre-tax margin was 19.7%. We generated annualized return on common equity of 17.3%, and annualized adjusted return on tangible common equity of 20.9%. Solid results for the quarter. particularly given our conservative capital base. Turning to slide seven, private client group generated pre-tax income of $416 million on record quarterly net revenues of $2.81 billion. This performance was driven by higher PCG assets under administration compared to the previous year, resulting from the impacts of market appreciation, retention, and a consistent addition of net new assets. Pre-tax income declined 3% year over year, primarily due to the impact on the segment of interest rate reductions over the past year, which reduced our non-compensable revenues. Our capital market segment generated quarterly net revenues of $464 million and a pre-tax income of $51 million. Segment net revenues grew year over year and sequentially due to higher debt and equity underwriting revenues, as well as higher M&A and advisory revenues. The asset management segment generated pre-tax income of $137 million on record net revenues of $327 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. The bank segment generated net revenues of $486 million and pre-tax income of $166 million. Sequentially, the bank segment's net interest income increased marginally. Despite robust loan growth driven by securities-based lending, incremental interest revenues were nearly offset by the impact of two fewer interest-earning days during the quarter and a full quarter impact of interest rate cuts during the prior quarter. Turning to consolidated revenues on slide eight. Asset management and related administrative fees of $2.02 billion grew 17% over the prior year, and 1% over the preceding quarter. Record PCG fee-based assets equaled $1.04 trillion at quarter end, up 20% year over year, and up slightly over the preceding quarter. As we look ahead, we expect fiscal third quarter 2026 asset management and related administrative fees to be higher by approximately 1% over the second quarter level, driven by the impact of one additional billing day in our third quarter, along with the slightly higher PCG assets and fee-based accounts balance at quarter end. Moving to slide nine, clients' domestic cash sweep and enhanced savings program balances ended the quarter at $57.8 billion. down 1% compared to the preceding quarter and representing 3.7% of domestic PCG client assets. Based on April activity to date, domestic cash sweep and enhanced savings program balances have declined due to the collection of record quarterly fee billings of approximately $1.9 billion, along with further declines largely driven by the seasonal impact of client tax activity. Turning to slide 10, combined net interest income and RJBDP fees from third-party banks declined 3% from the prior quarter to $650 million. Net interest margin in the bank segment remained stable at 2.81% for the quarter, driven by the factors I previously mentioned. The average yield on RJVDP balances with third-party banks decreased six basis points to 2.7%, primarily due to the full quarter impact of the Fed interest rate cuts in the December quarter. Based on static interest rates and assuming unchanged quarter-end balances, net of the fiscal third-quarter fee-billing collection of $1.9 billion is we would expect the aggregate of NII and RJBDP third-party fees in the third quarter to be up approximately 1% from the second quarter level. The increase is largely due to one additional interest earning day in the fiscal third 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 $2.54 billion, and the total compensation ratio for the quarter was 65.8%. The adjusted compensation ratio, which excludes acquisition-related compensation expenses, was 65.7%. Compensation expenses were impacted by the seasonally higher expenses relating to resetting payroll taxes as of the beginning of the calendar year. Non-compensation expenses of $583 million increased 10% over the year-ago quarter and 5% sequentially. For the fiscal year, we remain on track with our target level of non-compensation expenses of approximately $2.3 billion. This measure excludes the bank loan loss provision for credit losses, unexpected legal and regulatory items, and non-GAAP adjustments presented in our non-GAAP financial measures. As demonstrated this quarter, we will continue to invest to support growth across our businesses while maintaining discipline over controllable expenses. Slide 12 presents the pre-tax margin trends for the past five quarters. This quarter, we achieved adjusted pre-tax margin of 19.7%, a good result given the headwinds of lower interest-related revenues which we faced this quarter. Our long-term trend continues to highlight the stability and strength of our diversified businesses to consistently generate strong margins throughout various market cycles. On slide 13, at quarter end, our total assets were $91.9 billion, up 3% from the preceding quarter, primarily due to loan growth and higher cash balances in our bank segment. Record bank loans of $54.8 billion grew 14% over the year-ago quarter and 3% sequentially, with that loan growth largely in support of our clients. Securities-based loans and residential mortgages represent 62% of our total loans held for investment, reflecting approximately 42% and 20% of the total, respectively. We continue to have strong levels of liquidity and capital. RJF corporate cash at the parent ended the quarter at $3 billion today. providing excess liquidity of $1.8 billion 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 12.4% and a total capital ratio of 24%, we remain well above regulatory requirements with approximately $2.1 billion of excess capital capacity to deploy before reaching our conservative Tier 1 leverage ratio target of 10%. The effective tax rate for the quarter was 26%, which includes the unfavorable impact of non-deductible losses on the corporate-owned life insurance portfolio in the quarters. 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 $507 million of capital to shareholders during the quarter. Additionally, in January, the firm opportunistically redeemed all of the outstanding shares of its Series B preferred stock for an aggregate value of $81 million. In the quarter, we repurchased $400 million of common shares at an average price of $155 per share. Over the past 12 months, we have repurchased $1.6 billion of common shares and including dividends paid we've returned over $2 billion of capital to common shareholders, reflecting a combined return of 94% of our earnings. We maintain our long-term commitment to operating our businesses at capital levels consistent with established targets. Over the past year, the Tier 1 leverage ratio has declined 90 basis points, as we have focused on strategic balance sheet growth and disciplined capital actions while maintaining a conservative approach to capital management. I'll now turn the call back to Paul for his final remarks. Paul?