Press release·08/06/2024 23:44:58

Overview of Financial Performance

Raymond James Financial, Inc. (RJF) reported strong financial results for the quarter and nine months ended June 30, 2024. For the fiscal third quarter, the company generated net revenues of $3.23 billion, an 11% increase compared to the prior-year quarter. Pre-tax income was $644 million, up 33% year-over-year. Net income available to common shareholders was $491 million, also a 33% increase. Earnings per diluted share were $2.31, up 35% from the prior-year quarter.

For the nine months ended June 30, 2024, RJF reported net revenues of $9.36 billion, a 9% increase over the prior-year period. Pre-tax income was $1.88 billion, up 11%, and net income available to common shareholders was $1.46 billion, a 12% increase. Earnings per diluted share were $6.85, 15% higher than the prior-year period.

Revenue and Profit Trends

The increase in net revenues compared to the prior-year periods was driven by several factors:

Asset Management and Administrative Fees

• Increased 17% in the quarter and 16% in the nine-month period, primarily due to higher client assets in fee-based accounts at the beginning of each billing period.

Brokerage Revenues

• Increased 17% in the quarter and 13% in the nine-month period, due to higher client activity in the Private Client Group (PCG) segment.

Investment Banking Revenues

• Increased 23% in the quarter and 23% in the nine-month period, driven by more favorable market conditions and higher debt and equity underwriting activity.

Offsetting these increases was a decline in combined net interest income and fees from the Raymond James Bank Deposit Program (RJBDP). While the benefits of higher short-term interest rates and higher average interest-earning asset balances were positive, a significant increase in interest expense more than offset these gains. The increase in interest expense was primarily due to a shift in the mix of deposit balances, as RJBDP balances at the Bank segment declined and were replaced by higher-cost Enhanced Savings Program (ESP) balances.

On the expense side, compensation, commissions and benefits expense increased 13% in the quarter and 12% in the nine-month period, primarily due to the increase in compensable revenues as well as higher compensation costs to support growth and annual salary increases. The firm’s compensation ratio increased to 64.7% in the quarter and the nine-month period, compared to 63.7% and 63.1% in the respective prior-year periods.

Non-compensation expenses decreased 13% in the quarter and 3% in the nine-month period, largely due to a significant decrease in provisions for legal and regulatory matters, as well as a decrease in the bank loan provision for credit losses.

Strengths and Weaknesses

Strengths:

• Strong capital and liquidity position, with a Tier 1 leverage ratio of 12.7% and Total capital ratio of 23.6% as of June 30, 2024, well above regulatory requirements.
• Robust financial advisor recruiting pipeline and continued growth in client assets, with total client assets under administration of $1.48 trillion as of June 30, 2024.
• Diversified revenue streams, with significant contributions from asset management fees, brokerage revenues, and investment banking.
• Proactive management of credit risk in the loan portfolio, with solid current loan portfolio credit metrics.

Weaknesses:

• Decline in combined net interest income and RJBDP fees, due to a shift in deposit mix and higher interest expense.
• Increase in the compensation ratio, driven by changes in revenue mix and a decrease in net interest-related revenues.
• Potential for future economic deterioration or changes in the macroeconomic outlook to result in increased bank loan provisions for credit losses.

Outlook and Future Prospects

Looking ahead to the fiscal fourth quarter of 2024, RJF expects several factors to positively impact its results:

• Higher asset management and related administrative fees, which will benefit from the 3% sequential increase in PCG fee-based assets and 1% sequential increase in financial assets under management as of June 30, 2024.
• Continued robust financial advisor recruiting activity and a healthy investment banking pipeline.

However, the company also notes that combined net interest income and RJBDP fees are expected to be relatively unchanged from the current quarter, as they are largely dependent on the level of short-term interest rates, client cash balances, and other factors. Additionally, future economic conditions could lead to increased bank loan provisions for credit losses.

Overall, RJF appears well-positioned for long-term growth, with its strong capital and liquidity position, growing client assets, and diversified revenue streams. The company’s ability to navigate changes in the interest rate environment and manage credit risk in its loan portfolio will be key factors in determining its future performance.

Conclusion

Raymond James Financial, Inc. delivered impressive financial results in the third quarter and first nine months of fiscal year 2024, driven by growth in asset management fees, brokerage revenues, and investment banking. While the decline in net interest-related revenues is a concern, the company’s overall financial strength, diversified business model, and proactive risk management suggest it is well-equipped to navigate the current environment and continue its growth trajectory.