Raymond James Financial, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended September 30, 2022, compared primarily with the year ended September 30, 2021. This is an annual report, not a report for calendar 2022 Q4.
Business context
Raymond James is a diversified financial services firm operating through Private Client Group (PCG), Capital Markets, Asset Management, Bank, and Other segments. Its businesses include wealth management and brokerage, investment banking, asset management, and lending and deposit services. Fiscal 2022 included the acquisitions of Charles Stanley, TriState Capital, and SumRidge Partners.
Financial highlights
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net revenues | $11.00 billion | $9.76 billion | +13% |
| Pre-tax income | $2.02 billion | $1.79 billion | +13% |
| Net income available to common shareholders | $1.51 billion | $1.40 billion | +7% |
| Diluted EPS | $6.98 | $6.63 | +5% |
| Return on common equity | 17.0% | 18.4% | Down |
| Compensation ratio | 66.6% | 67.5% | Improved |
| Firmwide net interest income | $1.20 billion | $673 million | +$530 million |
| Firmwide net interest margin | 1.77% | 1.35% | Up |
Adjusted net income available to common shareholders, a non-GAAP measure, was $1.62 billion, up 5%; adjusted diluted EPS was $7.49, up 3%. These measures exclude specified acquisition-related costs and, for the prior year, debt-extinguishment losses.
Segment results
| Segment | FY2022 net revenues | FY2022 pre-tax income | Year-over-year change in pre-tax income |
|---|---|---|---|
| Private Client Group | $7.71 billion | $1.03 billion | +38% |
| Capital Markets | $1.81 billion | $415 million | -22% |
| Asset Management | $914 million | $386 million | -1% |
| Bank | $1.08 billion | $382 million | +4% |
| Other | -$50 million | -$191 million | Loss narrowed |
Balance sheet, liquidity, and capital
- Total assets were $80.95 billion, up 31%; bank loans, net, were $43.24 billion, up from $24.99 billion. Growth reflected acquisitions and lending expansion.
- Cash and cash equivalents were $6.18 billion, down from $7.20 billion. Parent-company cash was approximately $1.91 billion, including cash loaned to RJ&A.
- Bank deposits were $51.36 billion, up from $32.50 billion, including deposits acquired with TriState Capital and growth in client sweep deposits.
- Senior notes payable were $2.04 billion; other borrowings were $1.29 billion, including $1.19 billion of FHLB advances and $100 million of subordinated notes. The filing does not present these figures as a single net-debt measure.
- Operating cash flow was $72 million, compared with $6.65 billion in FY2021; investing activities used $7.15 billion and financing activities provided $5.88 billion. Cash flow was affected by substantial movements in brokerage balances and lending and investment activity.
- RJF’s Tier 1 leverage ratio was 10.3% and total capital ratio was 20.4%; the company and both banks were categorized as well-capitalized. The Bank segment held $56.74 billion of assets.
- Domestic client cash sweep balances were $67.11 billion, approximately flat year over year. PCG client assets under administration were $1.04 trillion, down 7%; fee-based assets were $586.0 billion, also down 7%.
Material changes and management commentary
- Higher short-term interest rates, stronger fee-based assets for much of the year, and acquired businesses supported revenue growth. Firmwide net interest income rose to $1.20 billion as rates and average interest-earning assets increased.
- PCG net revenues rose 17%, led by asset-management fees and cash-sweep fees; PCG pre-tax income rose 38%. The Bank segment’s net interest income rose 64%, partly due to TriState Capital and higher rates.
- Capital Markets net revenues fell 4% and pre-tax income fell 22%. Lower equity and debt underwriting and fixed-income brokerage activity reflected market uncertainty, partly offset by higher M&A advisory and affordable-housing revenues.
- Bank loan provision expense was $100 million, versus a $32 million benefit in FY2021. The allowance for credit losses on bank loans was $396 million, or 0.91% of loans held for investment, compared with $320 million, or 1.27%, a year earlier.
- Management expected higher rates and a full-year contribution from TriState Capital to support FY2023 net interest income and sweep fees. It estimated third-party RJBDP average yield at about 2.5% for FY2023 Q1 and Bank segment net interest margin at about 3.15% for that quarter. These are operating expectations, not formal earnings guidance.
- Management also anticipated continued client movement from cash deposits to higher-yielding investments, pressure from uncertain equity and fixed-income markets, potentially volatile investment-banking and asset-management revenues, and higher expenses from inflation, travel, and investments in people and technology. It expected loan growth and possible economic deterioration to increase credit provisions.
Risks, contingencies, and unusual items
- Rising rates contributed to $1.22 billion of gross unrealized losses on available-for-sale securities at year-end and a $941 million net-of-tax other comprehensive loss for the year. Accumulated other comprehensive loss was $982 million, versus $41 million a year earlier.
- The firm was cooperating with an SEC investigation concerning preservation of business communications sent over unapproved electronic messaging channels. The filing says loss estimates for many legal and regulatory matters are not determinable; for matters with estimable ranges, the upper end of reasonably possible aggregate losses was about $90 million above recorded accruals.
- After year-end, the company agreed to a $32 million insurance settlement related to previously settled litigation; it expected to record the gain in FY2023 Q1.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Management and the auditor excluded TriState Capital and SumRidge Partners from the year-end internal-control assessment; TriState represented 19% of consolidated assets.
- Key risks include market and interest-rate sensitivity, client cash-sweep outflows, credit and real-estate exposures, liquidity and regulatory constraints, cybersecurity and third-party technology risks, competition for financial advisors and other talent, acquisition integration, and litigation and regulation.
Important facts for investors to verify
- Whether client cash-sweep balances and allocations continue to decline, and how that affects funding, sweep fees, and regulatory ratios.
- Whether the expected rate-related benefits to net interest income and Bank margins materialize alongside higher deposit costs.
- Loan growth, criticized and nonperforming loans, allowance adequacy, and exposure to commercial real estate and other economically sensitive borrowers.
- Acquisition integration, realized contribution from TriState Capital, Charles Stanley, and SumRidge Partners, and completion of their internal-control integration.
- Developments in the SEC communications-records investigation, other legal contingencies, and recognition of the $32 million insurance settlement.
- The impact of securities valuation losses, capital and liquidity needs, dividends, and planned share repurchases on future returns and financial flexibility.