Raymond James Financial, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended September 30, 2021, compared primarily with the year ended September 30, 2020. This is an annual filing, not a standalone fiscal fourth-quarter report.
Business context
Raymond James is a diversified financial services company operating through Private Client Group (PCG), Capital Markets, Asset Management, Raymond James Bank and Other. Its businesses span financial advice and brokerage, investment banking, asset management, lending and deposit-taking. The firm reported $1.12 trillion of PCG client assets under administration and 8,482 financial advisors at year-end.
Financial performance
Amounts are in U.S. dollars; dollar figures are in billions unless otherwise indicated.
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net revenues | $9.76 | $7.99 | +22% |
| Pre-tax income | $1.79 | $1.05 | +70% |
| Net income | $1.40 | $0.82 | +72% |
| Diluted EPS | $6.63 | $3.88 | +71% |
| Adjusted net income (non-GAAP) | $1.49 | $0.86 | +74% |
| Adjusted diluted EPS (non-GAAP) | $7.05 | $4.08 | +73% |
| ROE | 18.4% | 11.9% | Up 6.5 percentage points |
| ROTCE (non-GAAP) | 20.4% | 13.0% | Up 7.4 percentage points |
Adjusted results exclude specified items, principally a $98 million debt-extinguishment loss and $19 million of acquisition-related expenses in FY2021. The company’s compensation ratio fell to 67.4% from 68.4%. Pre-tax margin, calculated from reported figures, rose to approximately 18.4% from 13.2%.
Segment results and material changes
| Segment | FY2021 net revenue | FY2021 pre-tax income | Year-over-year change in pre-tax income |
|---|---|---|---|
| Private Client Group | $6.61 billion | $749 million | +39% |
| Capital Markets | $1.89 billion | $532 million | +136% |
| Asset Management | $867 million | $389 million | +37% |
| Raymond James Bank | $672 million | $367 million | +87% |
| Other | $(8) million | $(246) million | Loss increased |
- PCG revenue growth was led by asset-management and administrative fees, up 28%, supported by higher fee-based assets; AUA rose to $1.12 trillion from $883 billion.
- Capital Markets benefited from investment banking revenue growth of 80%, including higher M&A/advisory and underwriting activity.
- Asset Management revenue rose 21%; managed financial assets were $202.2 billion before affiliated-entity assets, and net inflows at AMS were partly offset by Carillon Tower Advisers’ outflows.
- Bank net interest income declined 13% as near-zero rates reduced asset yields, but pre-tax income increased because the bank recorded a $32 million credit-loss benefit versus a $233 million provision in FY2020.
- Other included $74 million of private-equity valuation gains versus $28 million of losses in FY2020, as well as the $98 million debt-extinguishment loss.
Cash flow, balance sheet and capital
- Net cash provided by operating activities was $6.63 billion, versus $4.05 billion in FY2020; cash and cash equivalents were $7.20 billion at September 30, 2021, up from $5.39 billion. Operating cash flow included substantial growth in client-related payables and should not be viewed as equivalent to earnings.
- Investing activities used $5.14 billion, including a $4.03 billion increase in bank loans and $266 million for acquisitions. Financing activities provided $5.25 billion, including a $5.69 billion increase in bank deposits.
- Total assets were $61.89 billion, up 30%; bank loans, net, were $24.99 billion. Total liabilities were $53.59 billion, including $32.50 billion of bank deposits and $13.99 billion of brokerage client payables.
- Senior notes payable were $2.04 billion and other borrowings were $858 million. The company issued $750 million of 3.75% notes due 2051 and used proceeds and cash to redeem $750 million of higher-coupon notes, recognizing the $98 million loss.
- Parent-company cash was approximately $1.16 billion, including cash loaned to RJ&A; a separate $400 million was restricted for the planned Charles Stanley acquisition. Subsidiary distributions to the parent are subject to regulatory limits.
- RJF’s total capital ratio was 26.2% and Tier 1 leverage ratio 12.6%; both RJF and Raymond James Bank were classified as well-capitalized. The $500 million revolving credit facility had no borrowings outstanding and was extended to April 2026.
Outlook, commentary and risks
- Management cited nearly $1.2 trillion of client assets, robust advisor recruiting and a strong investment-banking pipeline entering FY2022. It also expected continued near-zero-rate headwinds, economic uncertainty, and possible volatility in brokerage and investment-banking revenues.
- Management expected expenses to rise in FY2022 as travel and events resumed and the firm invested in people and technology. It expected bank loan growth to potentially increase future credit-loss provisions absent further improvement in economic forecasts. Raymond James Bank projected a net interest margin of approximately 1.90% for the first half of FY2022 under then-current rates and asset mix.
- From October 1, 2021, changes to certain managed-product fee sharing were expected to reduce Asset Management fees by about $35 million annually and firmwide pre-tax income by about $25 million, based on September 30 balances.
- The company completed acquisitions of NWPS, Financo and Cebile. It expected the Charles Stanley acquisition to close in the first half of FY2022, subject to regulatory approval; the approximately $387 million consideration was funded with restricted cash. A roughly $1.1 billion TriState Capital acquisition was announced after year-end and was expected to close in FY2022, subject to approvals.
- Key risks include market and interest-rate changes, client cash allocation and sweep-program economics, credit deterioration, cybersecurity and operational disruption, talent competition, regulatory change, and litigation. The filing estimated the upper end of reasonably possible aggregate loss for matters where a range could be estimated at approximately $90 million above recorded accruals; some matters could not be estimated.
- CECL was adopted October 1, 2020, increasing the opening allowance for credit losses by $42 million and reducing opening retained earnings by $35 million net of tax. Prior periods were not restated, limiting direct allowance comparisons.
Investor verification checklist
- Check whether FY2021’s strong investment-banking and market-sensitive revenue levels persist, and monitor client AUA, fee-based assets and net flows.
- Track short-term rates, third-party sweep-bank demand, client cash allocation, and the resulting net interest income and RJBDP fees.
- Review loan growth, criticized and nonperforming loans, CECL assumptions and provisions; FY2021’s credit benefit is not necessarily recurring.
- Confirm closing, financing, integration and expected returns for Charles Stanley and TriState Capital, and monitor the pause in share repurchases pending the TriState transaction.
- Assess the $90 million estimated excess legal-loss range, recognizing that potential exposure for certain matters was not estimable.
- Reconcile non-GAAP adjusted results to GAAP figures and account for the September 2021 three-for-two stock split when comparing per-share data.
KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting as of September 30, 2021. Investment summary: FY2021 earnings grew sharply across most operating segments, while unusually favorable markets, private-equity marks and a credit-loss benefit contributed to results; lower rates, future credit costs and acquisition execution remain important variables.