Raymond James Financial, Inc. (RJF) Earnings Call Transcript & Summary

Welcome to the 2021 Annual Meeting for Raymond James Financial. Our host for today's call is Paul Reilly, Chairman and CEO. [Operator Instructions] I will now turn the call over to your host, Mr. Reilly. You may begin, sir.

Great, and thank you, and good afternoon, everyone. On behalf of all of our directors, officers and associates here at Raymond James, it's my pleasure to welcome you to our meeting. Mixed emotions holding our first-ever virtual meeting. It's great that we could get out to so many people, but we also miss seeing everybody live. The proxy materials, presentation slides and rules of conduct are available to you in the virtual shareholder meeting room. As is our custom, we will conduct the business portion of our meeting first and answer questions at the end of the meeting. Though we may not be able to answer every question, we will do our best to provide a response to as many as we can. Only validated shareholders may ask questions in the designated field on the web portal of the virtual shareholder meeting. [Operator Instructions] Please note that this meeting is being recorded. However, no one attending via the webcast is permitted to use any audio recording device. Notice of this meeting was contained in our proxy materials made available electronically or mailed on January 8, 2021, to shareholders of record on December 1 -- I'm sorry, December 21, 2020. In accordance with our bylaws, I hereby appoint Mr. Jonathan Santelli, our General Counsel and Company's Secretary, as the meeting's Inspector General. Jonathan, will you please announce the number of shares known to be present either virtually or by proxy?

Thank you, Paul. Over 127,519,165 shares of common stock of the company are represented at this meeting, either in person or by proxy, representing more than 92.66% of the 137,612,419 shares of common stock outstanding on the record date of December 21, 2020. Accordingly, a quorum is present and voting.

Because holders of majority of the outstanding capital stock entitled to vote at the meeting are present in person or by proxy, I declare a quorum to be present and that this meeting has been duly convened for purposes of transacting such business as may properly come before it. I now call the annual meeting of shareholders of Raymond James Financial, Inc. to order. The following directors are attending the virtual meeting: Charles von Arentschildt; Marlene Debel; Robert M. Dutkowsky; Jeffrey N. Edwards; Benjamin C. Esty; Anne Gates; Francis Godbold; Tom James; Gordon Johnson; Roderick McGeary; Raj Seshadri; Susan Story; and myself, Paul Reilly. And welcome as well to the following representatives of KPMG, our independent auditors, who are also attending the virtual meeting. John Crish, lead engagement partner; and Julie Barba, engagement partner. The KPMG representatives are available to answer questions that might be appropriately directed to them today. Moving to our items of business for the meeting. I will present the proposals included in our proxy statement for your consideration. While shareholders are given an opportunity to cast their votes, I will deliver my Chairman's report before we close the polls. We will begin to answer relevant questions submitted by verified shareholders after the Chairman's report. There are 3 agenda items set forth in the proxy statement. First, election of directors named in the proxy statement. The Board has nominated the following 13 directors to serve on the company's Board of Directors until the annual meeting of shareholders in 2022 and until their successors shall be elected and qualified. The proxy statement contains information on their backgrounds and experience: Charles von Arentschildt, Marlene Debel, Robert Dutkowsky, Jeffrey Edwards, Benjamin Esty, Anne Gates, Francis Godbold, Tom James, Gordon Johnson, Roderick McGeary, Paul Reilly, Raj Seshadri and Susan Story. Second, approve an advisory nonbinding resolution on the company's executive compensation. Shareholders are given the opportunity to cast a nonbinding advisory vote on the company's executive compensation for fiscal year 2020. Third, ratify the appointment of KPMG LLP as the company's independent registered public accounting firm for fiscal 2021. KPMG has served as the company's independent registered public accounting firm since 2001. [Operator Instructions] The polls are open. And if you are logged into the web portal as a shareholder and not as a guest, you may vote your shares. Any shareholder who has not yet voted or wishes to change their vote may do so by clicking on the voting button on this web portal and following the instructions there. Shareholders who have sent in proxies or voted via telephone or Internet and do not want to change their votes do not need to take any further action. Before we get into our fiscal year 2020 results, I'd like to reflect for a moment on the foundation and values we uphold at Raymond James. Raymond James has built on a strong foundation, founded by Bob James, nurtured by Tom James and maintained by our leadership team and all of our associates. Throughout our history, we've weathered down markets in times of uncertainty, forging the enduring management principles grounded in our values, which have resulted in 132 consecutive quarters of profitability in good and in bad markets. Fiscal 2020 was no different. Although we were prepared for a downturn, no one could have anticipated how much change we'd experience. After a record start to the fiscal year, we had to deal with a pandemic, the Fed cutting interest rates near 0, moving all of our associates to home almost overnight, social unrest issues in our communities, a contentious election period, but despite that, Raymond James remained profitable, a testament to our firm's strength and resiliency and most importantly, to the hard work and perseverance of our advisers and associates. I continue to be humbled by their dedication and commitment to overcome obstacles and help each other and the people we serve exemplifying the core values of Raymond James' mission statement: Our business is people. A significant contributor to our long-term success has been our commitment to the values that have defined Raymond James for almost 60 years: client first, we put our clients and advisers first; integrity, we tell the truth; independence to make the right decision as we respect the independence of our advisers; and our long-term conservative approach. These values guided us and helped us make quick and clear decisions in a difficult and complex time this year. As we look at our fiscal year 2020 results, it goes without saying that we faced unprecedented challenges. Compared to fiscal year 2019, fiscal year 2020 net revenues of $7.99 billion increased 3%. Net income of $818 million decreased 21%, and adjusted net income of $858 million was down 20%. As you can see, while our revenues grew, our profits were down, mainly related to interest rate cuts. In fact, the March interest rate cuts reduced our profit run rate almost 40%. For the year, our diluted earnings per common share were $5.83 at the end of fiscal year '20, down 19% from September 2019. Adjusted diluted earnings per common share were $6.11 at the end of fiscal year '20, down 17% from September 2019. We continue to have a strong balance sheet with over $7 billion in equity and maintaining our investment-grade ratings by our rating agencies. Now let's turn to the segments. The Private Client Group had record annual net revenues of $5.55 billion, up 4%; and annual pretax income of $539 million, down 7% compared to fiscal of 2019. The pretax, again, was primarily affected by the cut of interest rates. Private Client Group assets under administration were $883.3 billion, up 11% over September of 2019, even in these difficult times. And while there were disruptions during the onset of COVID in recruiting and onboarding of advisers, we finished the fiscal year with a record 8,239 financial advisers, representing a solid net increase of 228 during the year. The retention of our existing adviser remains our top priority and is the key to our stability in helping us maintain our culture. As an integral part of our diverse business strategy, our robust platforms in fixed income and global equities and investment banking, the Capital Markets segment generated record results in fiscal 2020, which was attributed to record brokerage revenue and record investment banking revenues. Asset Management also had record annual net revenues of $715 million and a record annual pretax income of $284 million, up 3% and 12%, respectively, over fiscal 2019. Raymond James Bank had annual net revenues of $765 million and annual pretax income of $196 million, down 10% and 62%, respectively, compared to fiscal 2019. Consistent with our conservative management practices, the bank proactively sold nearly $700 million of corporate loans in sectors most directly impacted by the COVID-19 pandemic. Nonperforming assets remained low, and the $98 million in net charge-offs in the fiscal year, $87 million or nearly 90% were related to these loan sales. The annual loan loss provision of $233 million resulted in the allowance for loan losses as a percentage of total loans increasing to 1.65%. The Bank's NIM declined 121 basis points to 2.09% due to the year-over-year decline in short-term interest rates, again, from the Fed cut. Our growth in assets in our businesses showed the strength of the Raymond James model during the first quarter of the fiscal year 2021. We generated record quarterly net revenues, which grew 11% over the year-ago period and 7% over the preceding quarter, primarily driven by higher Asset Management and related administrative fees, Investment Banking revenues and brokerage revenues. Quarterly net income grew by 16% compared to the prior year's fiscal quarter, primarily driven by higher revenues and a lower effective tax rate. Our balance sheet continued to strengthen with $7.4 billion of equity. We are proud of our long-standing continued profitability, reaching 132 consecutive quarters, a real testament to our long-term strategy. This past quarter, we reached $1 trillion in client assets for the first time, which is a testament to the consistent growth we've achieved by focusing on retaining our existing advisers while also recruiting high-quality advisers. In December of 2010, we had approximately $260 billion of client assets and experienced around a 15% compounded annual growth and essentially quadrupled client assets over a 10-year period. And the vast majority of that was organic. Looking at the stock price comparison, our 5-year change percentage is still lower than the S&P 500 due to the run-up in technology stocks and others during this period, but we continued to outperform compared to the Dow Jones U.S. Financials Index. And I know this is Tom James' favorite slide, illustrating that if you bought 200 shares when the company went public in 1983, you would have $670,000 today. Our annualized return on equity for the quarter of 17.2% and the annualized return on tangible common equity for the quarter of 19% is really an impressive result, especially in this near 0 rate interest environment and given our very strong capital position. Fiscal year 2020 was, once again, a reminder of why we manage our business with a conservative long-term approach. We'll plan for the future, as we always have, managing costs and seeking to evolve our businesses to meet the needs of our clients today and looking ahead. With our capital and liquidity, we are in a great position to continue to invest in our future. As well as organic growth and recruiting, part of Raymond James' commitment to growth includes identifying new partnerships and expanding our practice areas. We remain focused on long-term growth and are committed to deploying excess capital to generate attractive returns to our shareholders. Good examples of that commitment are the 2 acquisitions we announced during the first quarter. The first, which closed in late December, is NWPS. NWPS is a provider of retirement plan, administration, consulting, actuarial and administrative services based in Seattle, Washington. The second pending acquisition Financo is a high-quality consumer-focused M&A advisory firm, which allows us to strategically grow our capabilities in an attractive vertical with industry-leading teams. We anticipate this transaction to close in the March or April time frame. Both of these firms represent great cultural and strategic fits, and we are excited to have these teams as part of our Raymond James family. As we look forward to the future, there is still a fair amount of market uncertainty ahead. And we must remain vigilant managing costs in all areas of our business while still investing in growth. Our leadership team is currently engaging in a 5-year planning exercise, identifying opportunities for growth representative of our conservative management principles and capabilities that will carry us into the future. Even though 2020 was a challenging year, we maintained the commitment to giving back to our communities in which we work and live. Throughout April and May, as the number of infections from COVID-19 continue to grow, we contributed additional funds in the U.S., Canada and U.K. for a combined total of more than $2.3 million to organizations that provide services, food security and health care to those in most of need. Throughout August, during our Raymond James Cares month, we served over 47,000 people and 300 charitable partners. Our teams coordinated food and supply drives, raised funds, donated clothes, wrote cards to those in need, collected school supplies and more. The work extended to Canada and the U.K. with record-breaking funds raised to support those affected by COVID-19. Furthering diversity and inclusion is not only the right thing to do, it's also good for business. Our nation's continued struggles with racial injustice is disheartening and many of us wonder what we can do to better help our communities. Raymond James made a formal commitment to our black associates and advisers along with a $1.5 million commitment to support advancement in our black communities. We have identified community partners to receive the funding and are developing sustainable plans that will be tracked throughout the course of these relationships. Our award-winning commitment was signed, not just me as the CEO, but by our entire Executive Committee, Operating Committee, Board of Directors as well as over 2,000 of our associates. Although the recognition is flattering, we would rather be measured by our actions and success achieved over time. As part of our commitment to transparency and sustainability, we have added our approach to corporate responsibility to our annual proxy statement. This reporting includes our focus on sustainability, making sustainable business and operational decisions for the benefits of our clients, our industry and our society. We believe it is our duty to be good stewards of our resources and to help build client wealth responsibly for the future. In the coming months, we will issue the firm's first corporate responsibility report, and reviewing additional opportunities to communicate our goals and progress with our stakeholders. And as everyone knows here at Raymond James, I once again turn back to my favorite slide, our core values. We remain rooted in the core values that have been forged throughout the years as we've weathered downturns, faced challenges and enjoyed successes for our shareholders, our associates and our communities. Thank you so much for your trust and investment in Raymond James. I will now entertain questions from shareholders. I remind you that the rules of conduct for our meeting are available in the virtual shareholder meeting room.