- Net Revenues: $3.23 billion, up 11% year-over-year.
- Net Income Available to Common Shareholders: $491 million or $2.31 per diluted share.
- Adjusted Net Income Available to Common Shareholders: $508 million or $2.39 per diluted share.
- Annualized Return on Common Equity: 17.8%.
- Annualized Adjusted Return on Tangible Common Equity: 21.9%.
- Shares Repurchased: 2 million shares for $243 million.
- Total Client Assets Under Administration: $1.48 trillion, up 2% sequentially.
- Private Client Assets in Fee-Based Accounts: $821 billion.
- Financial Assets Under Management: $229 billion.
- Domestic Net New Assets: $16.5 billion, representing a 5.2% annualized growth rate.
- Recruited Financial Advisors: 8,782, with client assets of $14.9 billion.
- Private Client Group Quarterly Net Revenues: $2.42 billion.
- Capital Markets Segment Quarterly Net Revenues: $330 million.
- Capital Markets Segment Pretax Loss: $14 million.
- Asset Management Segment Pretax Income: $112 million on net revenues of $265 million.
- Bank Segment Net Revenues: $418 million.
- Bank Segment Pretax Income: $115 million.
- Bank Segment Net Interest Margin: 2.64%.
- Fiscal Year-to-Date Net Revenues: $9.36 billion.
- Fiscal Year-to-Date Net Income Available to Common Shareholders: $1.46 billion.
- Fiscal Year-to-Date Annualized Return on Common Equity: 18.2%.
- Fiscal Year-to-Date Annualized Adjusted Return on Tangible Common Equity: 22.5%.
- Compensation Expense: $2.09 billion with a total compensation ratio of 64.7%.
- Non-Compensation Expenses: $494 million, up 6% sequentially.
- Pretax Margin: 20% and adjusted pretax margin of 20.7%.
- Total Assets: $80.6 billion, a 1% sequential decrease.
- Corporate Cash at Parent: $2.1 billion.
- Tier One Leverage Ratio: 12.7%.
- Total Capital Ratio: 23.6%.
- Criticized Loans as a Percentage of Total Loans: 1.15%, down from 1.21% in the preceding quarter.
- Bank Loan Allowance for Credit Losses: 1% of total loans held for investment.
Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Raymond James Financial Inc (RJF, Financial) reported record fiscal third-quarter net revenues of $3.23 billion, an increase of 11% over the prior year quarter.
- Quarterly net income available to common shareholders was $491 million, or $2.31 per diluted share, with adjusted net income at $508 million, or $2.39 per diluted share.
- Client assets grew to record levels, driven by rising equity markets and solid adviser retention and recruiting, with total client assets under administration increasing to $1.48 trillion.
- The Private Client Group generated record quarterly net revenues of $2.42 billion and pretax income of $441 million year over year.
- Raymond James Financial Inc (RJF) repurchased 2 million shares of common stock for $243 million during the quarter, bringing the fiscal year-to-date total to 5.1 million shares for $600 million.
Negative Points
- The Capital Markets segment generated a pretax loss of $14 million, reflecting weak M&A results and the impact of amortization of deferred compensation.
- Net interest margin in the bank segment declined by two basis points to 2.64% compared to the preceding quarter.
- Non-compensation expenses increased by 6% sequentially, largely due to a favorable legal and regulatory net reserve release of $32 million in the preceding quarter that did not recur.
- Client domestic cash sweep and enhanced saving program balances ended the quarter at $56.4 billion, down 3% compared to the preceding quarter.
- The firm anticipates a potential headwind from an expected OSJ (Office of Supervisory Jurisdiction) departure in the next quarter, which could impact net new assets.
Q & A Highlights
Q: How would you characterize the current changes in the competitive environment from your view?
A: Our sweep programs are very different, offering from 25 to 300 basis points, compared to others offering one to 50 basis points. We have 3 million of FDIC insurance per individual or 6 million joint in the sweep. We also offer competitive money market funds and enhanced savings programs. We believe our programs are compliant and competitive, and we will adjust if necessary.
Q: How would you frame the trajectory for operating leverage in the business?
A: We believe we can achieve operating leverage through growth and technology investments in the back office. Our focus is on maintaining high levels of support for our advisors while improving efficiency. We aim to continue growing assets and leveraging technology to enhance service and achieve better operating leverage.
Q: What percentage of fee-based accounts is in cash at the lowest rate?
A: About 2.5% of fee-based accounts are in cash, which we consider frictional cash. The average cash amount in these accounts is $8,900. The total money market, CDs, and treasuries in these accounts are $22,600, indicating that clients are investing in higher-yield instruments.
Q: Can you provide more context on the advisory cash rate and potential conflicts of interest?
A: In advisory accounts, advisors are compensated based on the total account value, not on cash balances. There is no incentive for advisors to keep cash in these accounts. On the brokerage side, advisors are compensated for placing clients in higher-rate accounts, but not for sweep accounts. We believe there is no conflict of interest.
Q: What factors support the flat spread revenue guidance for the next quarter?
A: Loan growth and continued asset growth are key factors. Despite some funding cost pressures, we expect these factors to support flat or nominally down spread revenue. We are optimistic about loan growth, particularly in securities-based loans.
Q: How do you view the competitive backdrop and potential changes in your sweep programs?
A: We are monitoring the competitive landscape and recent changes closely. While we have no immediate plans to change our rates, we will adjust if necessary to remain competitive. We believe our current programs are well-positioned.
Q: Can you provide more details on the recruiting backlog and its impact on net new assets?
A: Our recruiting backlog remains strong, with a significant number of large teams in the pipeline. We continue to see strong recruiting activity and are optimistic about future growth. The backlog is replenishing as we onboard new advisors.
Q: How do you see the potential evolution in the way customers pay for services?
A: There are various ways this could evolve, including asset-based pricing, performance fees, and consulting fees. The industry is competitive and mature, and we will adapt to changes as they occur. The relationship with advisors and the value they provide will continue to be important.
Q: How close are we to seeing cash sweep balances grow again, and what catalysts might drive this?
A: We believe we are closer to the end of the sorting cycle. Growth in client assets and stabilization of cash balances will drive future growth. We are optimistic about the continued growth of client assets and the associated cash balances.
Q: How do you view the impact of potential regulatory scrutiny on cash sweep programs?
A: We believe our programs are compliant and competitive. We offer higher rates and significant FDIC insurance. We will continue to monitor regulatory developments and adjust if necessary. Our focus is on providing value to clients while maintaining compliance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
