Raymond James Financial, Inc. — Form 10-Q Summary
Business context and reporting period. This unaudited filing covers the fiscal first quarter ended December 31, 2023, compared with the quarter ended December 31, 2022 unless otherwise noted. Raymond James provides wealth management, capital markets, asset management, banking and trust services.
Financial results and position
| Metric | Q1 FY2024 | Prior-year quarter / comparison |
|---|---|---|
| Total revenues | $3.52 billion | $3.03 billion; up 16% |
| Net revenues | $3.01 billion | $2.79 billion; up 8% |
| Pre-tax income | $630 million | $652 million; down 3% |
| Net income available to common shareholders | $497 million | $507 million; down 2% |
| Diluted EPS | $2.32 | $2.30; up 1% |
| Net interest income | $546 million | $586 million; down 7% |
| Operating cash flow | $543 million provided | $3.14 billion used |
- Compensation and benefits were $1.92 billion, or 63.8% of net revenues, versus 62.3% a year earlier. Annualized return on common equity was 19.1%, versus 21.3%; annualized return on tangible common equity was 23.0%, versus 26.2%.
- At December 31, total assets were $80.13 billion, bank loans net were $44.18 billion, bank deposits were $55.39 billion, total liabilities were $69.35 billion and shareholders’ equity was $10.78 billion.
- Borrowings included $2.04 billion of senior notes and $1.00 billion of FHLB advances. The company had no borrowings under its $750 million committed credit facility.
- Cash and cash equivalents were $10.21 billion, including approximately $2.08 billion of corporate cash. RJF’s Tier 1 leverage ratio was 12.1% and total capital ratio was 23.0%; RJF and its bank subsidiaries were categorized as well-capitalized.
- The available-for-sale securities portfolio had a $9.20 billion fair value and $897 million of gross unrealized losses. AOCI improved to a $693 million loss from $971 million at September 30, 2023, primarily reflecting securities-related gains.
Material changes versus the prior comparable period
- Revenue growth was led by asset management fees, up 13%, and investment banking revenue, up 28%. PCG pre-tax income increased 1%; Capital Markets moved to $3 million of pre-tax income from a $16 million loss; Asset Management pre-tax income rose 16% to $93 million.
- Bank segment net interest income fell 13% to $426 million and pre-tax income fell 32% to $92 million. Higher interest income was outweighed by higher deposit costs and a more expensive funding mix.
- Consolidated interest expense rose to $507 million from $241 million, while net interest income declined. Management attributed pressure largely to higher-cost ESP balances replacing lower-cost sweep deposits.
- Bank loans, net increased $407 million from September 30. Nonperforming loans increased to $164 million from $128 million; the allowance for credit losses was $479 million, or 1.08% of loans held for investment.
- Operating cash flow improved from the prior-year period, in part because prior-year cash flows included a much larger decrease in brokerage client and other payables. Quarterly cash flow can fluctuate with client balances and is not necessarily indicative of full-year results.
Outlook, commentary and risks
- For fiscal Q2 2024, management expected higher asset management fees, supported by a 9% sequential increase in PCG fee-based assets and financial assets under management at December 31.
- Assuming interest rates remain at December 31 levels, management expected combined net interest income and RJBDP fees from third-party banks to decline about 5% in Q2 from Q1, due to Bank segment funding costs.
- Management expected investment banking activity to remain affected by market uncertainty in Q2, with potential improvement later in fiscal 2024. It cited a healthy pipeline but emphasized transaction timing and activity remain market-dependent.
- Management noted potential brokerage revenue headwinds from flat or declining cash balances at some depository institution clients, and warned that economic deterioration or a worse macroeconomic outlook could increase future loan-loss provisions. No full-year earnings guidance was provided in the supplied filing text.
- Credit sensitivity is material: management estimated that a downside recession scenario would increase the modeled quantitative allowance on bank loans by approximately $230 million before qualitative adjustments; an upside scenario would reduce it by approximately $45 million.
- The company maintained an accrual related to an SEC investigation concerning preservation of business communications on unapproved electronic messaging channels. For matters where a loss range could be estimated, the upper end of reasonably possible aggregate losses was approximately $35 million above accruals; other matters’ potential losses could not be estimated. Management stated it believed outcomes would not materially adversely affect consolidated financial condition, while results or cash flows in a particular period could be affected.
- Other notable risks include CRE and office-loan performance, deposit pricing and funding mix, interest-rate and securities valuation exposure, litigation and regulatory matters, and proposed banking capital rules that could affect future capital ratios if adopted.
Most important facts for investors to verify
- Whether net interest income and third-party sweep fees followed management’s projected Q2 decline, and how the ESP funding mix affected deposit costs.
- Trends in nonperforming loans, criticized CRE and C&I exposures, loan-loss allowances and charge-offs.
- Investment banking activity and the timing of any improvement anticipated later in fiscal 2024.
- Whether AUA, fee-based assets and financial assets under management continued to grow, and how market movements and recruiting contributed.
- Developments in the SEC records-preservation investigation, other legal contingencies and potential changes to bank capital requirements.