Raymond James Financial, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended September 30, 2023; comparisons are with the fiscal year ended September 30, 2022. This is an annual filing, not a standalone Q4 report. Raymond James is a diversified financial-services and bank holding company, operating through Private Client Group (PCG), Capital Markets, Asset Management, Bank and Other segments.
Financial performance and position
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Net revenues | $11.619 billion | $11.003 billion | +6% |
| Pre-tax income | $2.280 billion | $2.022 billion | +13% |
| Net income available to common shareholders | $1.733 billion | $1.505 billion | +15% |
| Diluted EPS | $7.97 | $6.98 | +14% |
| Return on common equity | 17.7% | 17.0% | +0.7 percentage points |
| Return on tangible common equity (non-GAAP) | 21.7% | 19.8% | +1.9 percentage points |
| Compensation ratio | 62.8% | 66.6% | Down 3.8 percentage points |
Calculated from reported figures, pre-tax margin was approximately 19.6% and net income available to common shareholders was approximately 14.9% of net revenues. Adjusted net income available to common shareholders, a non-GAAP measure, was $1.806 billion, and adjusted diluted EPS was $8.30; these figures exclude specified acquisition-related expenses and the insurance settlement.
- Revenue drivers: Growth reflected higher short-term rates, greater net interest income and RJBDP fees, and contributions from acquisitions completed in prior years. Lower investment banking, brokerage and asset-management fees partly offset the gains.
- Cash flow: Net cash used in operating activities was $3.514 billion, versus $72 million provided in FY2022. The filing’s cash-flow statement shows substantial working-capital movements, including a $6.088 billion decrease in brokerage client payables and other payables. Cash and cash equivalents excluding segregated cash increased $3.135 billion to $9.313 billion.
- Liquidity: Management reported $2.08 billion of RJF corporate cash. The company also reported a $750 million committed, undrawn revolving credit facility and $9.25 billion of immediate FHLB credit available against pledged collateral. These sources have differing restrictions and availability.
- Debt: Senior notes payable were $2.039 billion; other borrowings were $1.100 billion, including $1.000 billion of FHLB advances. Total liabilities were $68.173 billion and shareholders’ equity was $10.187 billion.
- Capital: RJF’s Tier 1 leverage ratio was 11.9% and total capital ratio was 22.8%; the company and both bank subsidiaries were categorized as well-capitalized. The reported AFS securities portfolio had a $9.181 billion fair value and $1.252 billion of gross unrealized losses, principally reflecting market-rate changes.
- Client assets and lending: PCG AUA was $1.201 trillion, including $683.2 billion in fee-based accounts. Bank loans, net were $43.775 billion; the allowance for credit losses was $474 million, or 1.07% of loans held for investment.
Material changes versus FY2022
- Bank net revenues rose 86% to $2.013 billion, while pre-tax income fell 3% to $371 million. Higher rates and acquired balances lifted net interest income, but increased deposit costs, including ESP funding, and higher expenses weighed on results.
- PCG net revenues rose 12% to $8.654 billion and pre-tax income rose 71% to $1.763 billion. RJBDP fees increased substantially as rates rose; asset-management fees and brokerage revenues declined.
- Capital Markets net revenues fell 33% to $1.214 billion and the segment recorded a $91 million pre-tax loss, compared with $415 million of pre-tax income. Investment banking revenue fell 42%, reflecting higher rates and subdued transaction activity.
- Asset Management net revenues declined 3% to $885 million and pre-tax income declined 9% to $351 million, mainly reflecting lower billed asset values.
- Cash sweep balances plus ESP balances fell 16% to $56.425 billion. The new ESP held $13.592 billion at year-end, while traditional RJBDP and CIP balances declined amid client cash sorting.
- The bank loan allowance increased from $396 million to $474 million. Nonperforming loans rose to $128 million from $74 million, though they remained 0.29% of loans held for sale and investment.
Outlook, commentary and risks
- Management gave no specific full-year FY2024 earnings or revenue guidance in the provided filing text. It expects near-term economic uncertainty but stated that capital strength, client assets and recruiting activity support long-term growth.
- For FY2024’s first quarter, management expected asset-management and related administrative fees to be affected by a 2% decline in fee-based account balances from June 30 to September 30, 2023, and forecast a roughly 5% decline in combined net interest income and third-party-bank RJBDP fees, citing higher-cost funding sources.
- Management cited a healthy investment-banking pipeline and improved activity in FY2023 Q4, but expected market uncertainty to delay or reduce early-FY2024 closings. It also anticipated fixed-income brokerage headwinds from lower cash balances at depository-institution clients.
- Credit provisions could rise if economic conditions deteriorate or the outlook worsens, particularly for commercial real estate. The company sold approximately $670 million par value of corporate loans during FY2023 and said further sales may be considered.
- FY2023 included approximately $175 million of elevated legal and regulatory provisions across multiple matters, partly related to the SEC industry sweep concerning off-platform communications. The firm is cooperating with the SEC investigation; outcomes and potential losses in many proceedings are uncertain. For matters where a range could be estimated, the upper end of reasonably possible aggregate loss was approximately $35 million above accruals.
- Other notable items include a $32 million favorable insurance settlement related to a previously settled legal matter and $98 million of net acquisition-related expenses. The filing says the banks’ expected share of the FDIC special assessment was approximately $9 million.
- Risks include interest-rate and deposit-cost changes, client cash outflows, credit deterioration, market-sensitive fee revenue, litigation and regulatory actions, cybersecurity and data privacy incidents, competition for advisors and employees, and evolving regulation. Proposed U.S. bank-capital changes could affect future capital ratios; the company was evaluating the proposals.
Important facts for investors to verify
- Review the drivers and sustainability of FY2023 earnings growth, particularly interest income and RJBDP fees versus rising deposit costs and client cash sorting.
- Track FY2024 fee-based asset balances, market levels, net new assets, advisor recruiting and retention, and investment-banking closings.
- Assess commercial real estate and corporate loan credit quality, criticized and nonperforming loans, allowance adequacy, and any further loan sales or provisions.
- Monitor the SEC off-platform communications investigation, other legal contingencies, and potential regulatory costs or restrictions.
- Evaluate liquidity and funding composition, including uninsured deposits, ESP balances, FHLB capacity, subsidiary dividend restrictions and the sensitivity of capital to proposed rules.
- Consider the non-GAAP adjustments when comparing adjusted and GAAP earnings. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.