Q1 2025 Earnings Summary
- Strong capital position enabling growth and investments: Raymond James Financial has a Tier 1 leverage ratio of 13%, which is $2.5 billion above their 10% target, providing significant excess capital for organic growth, investments, and potential acquisitions. The firm is prioritizing investing in their business, with a focus on advisor recruiting and potential acquisitions across their Private Client Group, Capital Markets, and Asset Management segments.
- Robust advisor recruiting pipeline supporting asset growth: The company reports a strong recruiting pipeline, with advisors representing up to $20 billion in assets , and expects continued growth in net new assets as these advisors join the firm. The large prior advisor attrition is behind them, and there are no significant departures anticipated , indicating stability and potential for accelerated asset growth.
- Optimistic outlook for Investment Banking driven by strong M&A pipeline: Investment Banking revenues have been strong, with recent quarters seeing near-record levels in M&A revenues. The company has a healthy pipeline and remains optimistic for the rest of the fiscal year, expecting continued strength in M&A activity.
- Asset declines and advisor attrition: Raymond James experienced a decline in assets under administration due to the departure of a large branch, resulting in approximately $5 billion reduction in AUA. While management indicates that this issue is behind them, there is ongoing attrition, and they admit there is always some regretted attrition. Continued advisor departures could pose a risk to asset growth. ,
- Elevated expense growth may pressure margins: The company projects non-compensation expenses to increase by approximately 10% in fiscal 2025, driven by investments in technology, higher sub-advisory fees (which grew 33% year-over-year), FDIC insurance premiums, and recruiting costs. This expense growth may pressure margins if revenue growth does not keep pace. ,
- Challenges in expanding C&I loan growth: Raymond James faces difficulties in growing Commercial and Industrial loans due to tight spreads and muted origination flow. Management is cautious about pursuing growth that doesn't meet their risk-adjusted return thresholds, which may limit growth in the Bank segment and overall earnings potential.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +15% | This increase was driven by higher client asset balances, incremental net inflows, and improved investment banking volumes amid more favorable market pricing; additionally, rising short-term interest rates benefited interest income. Continued expense management also supported profitability. |
Private Client Group | +14% | Growth stemmed from stronger recruiting and retention of advisors, leading to net new assets and higher fee-based account revenues; favorable equity markets further strengthened client asset levels. These trends are expected to continue if advisor productivity remains robust. |
Capital Markets | +41% | Investment banking project flow, especially in M&A and underwriting activities, rebounded strongly from prior-year levels, aided by stabilized client sentiment and clearer interest rate trends; company-specific initiatives to expand underwriting capabilities also contributed. |
Asset Management | +25% | Higher assets under management and fee-based revenues, supported by strong market appreciation and steady net inflows, drove this segment’s performance; ongoing product innovation and client demand for advisory solutions are likely to sustain growth. |
Net Income | +20% | Fueled by robust revenue expansion, effective cost controls, and lower provision for legal/regulatory matters compared to previous periods; net income also benefited from operational efficiencies as assets grew faster than expenses. |
EPS (Basic) | +24% | Reflects the net income increase and a slightly lower average share count due to repurchases; moving forward, share buybacks and sustained revenue growth could further enhance per-share results. |
EPS (Diluted) | +23% | Mirroring the drivers of basic EPS, improved profitability across segments and prudent balance sheet management propelled diluted EPS higher than the prior year; continued market stability should support further gains. |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Net Interest Income | Q1 2025 | Expected to be flat or down nominally in the fiscal fourth quarter | 1,027 (in millions of USD) | Met |
Assets in Fee-Based Accounts | Q1 2025 | Positive impact expected from a 3% sequential increase in assets in fee-based accounts | 1,743 (in millions of USD for Asset Mgmt. & Related Fees) | Beat |
Investment Banking (M&A Activity) | Q1 2025 | Expectation for a gradual recovery in M&A activity | 325 (in millions of USD) | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Strong capital position and flexibility for acquisitions or buybacks | Q3 2024: Tier 1 ratio 12.7% and continuing buybacks. Q2 2024: Tier 1 ratio 12.3%, disciplined M&A approach. | **Tier 1 leverage ratio at 13%, remaining opportunistic for M&A; slower buyback pace but willingness to accelerate if no growth investments. ** | Consistently strong capital base with ongoing share repurchases and acquisition focus. |
Advisor recruitment, retention, and potential OSJ departures | Q3 2024: Record pipeline; one OSJ departure anticipated late 2024. Q2 2024: Adviser retention strategy, large teams recruited. | **Strong recruitment momentum, ~1% regretted attrition; no major OSJ departures foreseen. ** | Recruiting remains robust, minimal departure impact. |
Investment Banking, M&A pipeline, and Capital Markets outlook | Q3 2024: $183M IB revenue, subdued M&A but healthy pipeline. Q2 2024: $179M IB, gradual M&A recovery. | **$325M IB revenue (+80% YoY), strong M&A pipeline but lumpy; second-best M&A quarter. ** | Major M&A rebound, cautious on timing. |
Elevated expenses impacting margins | Q3 2024: Pretax margin 20%, adjusted 20.7%. Q2 2024: Pretax margin ~19.5%, elevated costs partly offset by reserve releases. | **Adjusted pretax margin 21.7%, expenses linked to revenue growth; ~10% non-comp growth expected to decelerate. ** | Margins remain strong despite higher expense base. |
Loan growth challenges in C&I and muted corporate demand | Q3 2024: Heavy reliance on securities-based loans, corporate demand stagnant. Q2 2024: Muted demand amid high-rate environment. | **Low C&I origination due to tight spreads; hopeful rebound in 2025. ** | Consistently soft C&I activity, optimism for future pickup. |
Securities-based loan expansion | Q3 2024: Growth driven by rate comfort, record $45.1B bank loans. Q2 2024: Flat SBL growth, awaiting rate stabilization. | **4% SBL growth; cited as best risk-adjusted returns, ample room to grow. ** | Accelerated SBL uptake as clients adapt to rate environment. |
Cash sweep rate competition affecting net interest income | Q3 2024: 2% sequential decline in combined NII, yield drop ~18 bps. Q2 2024: Not explicitly addressed, but stable sweep balances discussed. | **Sorting in later stages, RJBDP yield down 22 bps to 3.12%, maintaining competitive sweep rates. ** | Pressure on yields persists, cautious near-term outlook. |
Fixed income brokerage revenue pressures from deposit trends | Q3 2024: Flat/declining deposits dampened brokerage activity. Q2 2024: Deposit outflows affecting monetization. | **Challenging market but improving depository engagement as yield curve steepens. ** | Potential rebound if deposits stabilize and rates shift. |
Technology investments and adviser productivity | Q3 2024: Targeting operating leverage, high adviser satisfaction. Q2 2024: Investing to enhance service and retention. | **Key focus on automation, strong adviser feedback on platform quality. ** | Consistent technology upgrades supporting adviser efficiency. |
Capital Markets segment profitability and deferred compensation costs | Q3 2024: $330M revenue with $14M loss, $20M deferred comp cost. Q2 2024: $321M revenue, $17M loss, $20M deferred comp. | **Net revenues $480M, pretax margin ~15%-16% with healthy M&A; deferred comp not highlighted this quarter. ** | Better profitability amid M&A strength; mindful of residual deferred comp. |
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Capital Management
Q: How will you deploy excess capital and reduce the Tier 1 leverage ratio?
A: We aim to bring our Tier 1 leverage ratio down from 13% to our target of 10%, which is still twice the regulatory requirement to be well capitalized. We're prioritizing organic growth, investing in our business and our advisors, and expanding our recruiting efforts across all divisions. We're also actively looking for acquisitions that are a good cultural and strategic fit at the right price. We slowed down share buybacks last quarter, but if other capital uses don't consume the excess, we'll consider increasing buybacks to previous levels. -
Net Interest Income Outlook
Q: Will NII improve beyond next quarter?
A: Yes, we anticipate net interest income (NII) to improve beyond next quarter. Despite having two fewer billable days upcoming, we expect asset growth to become a tailwind for NII as rates and net interest margin (NIM) stabilize. Additionally, low-yielding securities of about $1.5 billion will mature over the next 12 months, with $500 million maturing next quarter, which we can redeploy into higher-yielding assets. -
Capital Markets Margins
Q: Can Capital Markets margins return to over 20%?
A: Achieving margins above 20% in Capital Markets would require both equities and fixed income businesses to perform strongly simultaneously, which is atypical. Currently, a margin around 15%-16% is reasonable, given the mix of our business performance. We would be very happy with margins in the 15% to 20% range over cycles. -
Technology and AI Investments
Q: What are your major areas of investment, particularly in technology and AI?
A: We're focusing heavily on technology investments to help advisors save time and provide better services to clients more efficiently. This includes upgrading technology infrastructure across all our businesses and investing in automation. Regarding AI, we're actively exploring its potential impact and setting up dedicated teams to monitor developments, test use cases, and deploy solutions. We'll share more details at our Analyst Investor Day. -
Non-Compensation Expenses
Q: How flexible is the $2.1 billion non-comp expense guidance, and what about operating margins?
A: While there's some flexibility, many of these expenses grow in line with revenues, such as investment sub-advisory fees and branch expenses. We're committed to long-term investments and don't plan to adjust expenses based on short-term revenue fluctuations. Regarding operating margins, we believe a 10% growth rate in non-comp expenses has been reasonable, given our revenue growth, but this may decelerate if associated revenue drivers slow down. -
Net New Asset Growth
Q: How can you accelerate net new asset growth?
A: Our recruiting pipeline is very healthy, which is key to accelerating net new asset growth. Recruiting can be lumpy, and it takes about a year for new advisors to build up their asset base. We remain optimistic and expect strong net new assets as long as advisors continue to join us. -
Loan Growth Expectations
Q: What's the outlook for C&I loan growth?
A: While we're active in the C&I space, new origination flows have been muted due to tight spreads. We expect loan growth to pick up in 2025 as the macroeconomic backdrop improves. In the meantime, we anticipate continued growth in our securities-based loan portfolio. -
Advisory Revenues and M&A Pipeline
Q: How sustainable are the recent high advisory revenues?
A: Our pipeline is strong, but advisory revenues can be lumpy. We had an exceptional first quarter with two large fees, including one over $40 million, which may not be indicative of future quarters. While we're in the midst of a recovery, we caution against extrapolating recent revenues indefinitely. -
Cash Balances and Programs
Q: What's your outlook on sweep cash balance growth?
A: Our cash balances have remained resilient. We prioritize what's best for our clients by offering competitive cash programs, including sweep programs and enhanced savings. While quarter-to-quarter trends may vary, over the long term, we've performed as well as or better than the industry. -
Advisor Compensation Ratio
Q: Is the lower advisor comp ratio of 74% sustainable?
A: It's too early to declare a new run rate based on one or two quarters. For fiscal year 2024, the advisor comp ratio was around 74.5%. The ratio can fluctuate due to mix dynamics and growth in production. We aim to keep the firm's overall comp ratio under 65%, though it may vary quarter to quarter.