01—Abstract
Summary
Summary of the 10-K filed November 27, 2009. Cited figures are marked; the original filing is the authoritative source.
Raymond James Financial, Inc. (RJF) reported fiscal 2009 (year ended September 30, 2009) results marked by a challenging market environment.
Net revenues decreased 9% to $2.5 billiona, and net income was $152.8 million, a 35% decline from the prior year. Total revenues were $2.60 billion versus $3.20 billion in fiscal 2008. Diluted EPS was $1.29, compared with $1.97 in fiscal 2008.
The Private Client Group and Asset Management segments were hit hardest by lower market values, while the Capital Markets segment benefited from record fixed income results and record trading profits of $41.4 millionb. Pre-tax income for the Private Client Group fell 52% to $84.9 million. RJ Bank was the main source of concern.
Its provision for loan losses rose to $169.3 millionc from $54.7 million, driven by commercial real estate weakness and residential loan delinquencies. Net charge-offs reached $107.2 million, and nonperforming assets increased to $167.1 million from $62.3 million. Bank pre-tax income fell 29% to $80.0 million despite a 50% increase in net interest income.
Total assets were $18.2 billiond at September 30, 2009, down from $20.7 billion, mainly because of a decline in segregated assets tied to the new multi-bank sweep program. The company strengthened its funding base by issuing $300 million of 8.60% senior notes due 2019 in August 2009, its first capital markets access in 23 years according to management.
Shareholders' equity rose to $2.03 billion, and book value per share was $17.11. The filing also discloses pending risks, including the Woodard securities class action, SEC, FINRA and state investigations into auction rate securities, and a pending conversion of RJ Bank to a national bank that requires Federal Reserve approval of RJF as a bank holding company.
02—Key points
Key Highlights
- Net revenues fell 9% to $2.55 billion and net income declined 35% to $152.8 million; diluted EPS was $1.29 versus $1.97 in fiscal 2008.
- Private Client Group commissions and fees declined to $1.26 billion from $1.53 billion, and PCG pre-tax income fell 52% to $84.9 million, with PCG margin dropping from 9.6% to 5.5%.
- Capital Markets pre-tax income rose 68% to $73.5 million, supported by record trading profits of $41.4 million and fixed income institutional sales commissions of $160.2 million.
- RJ Bank provision for loan losses rose to $169.3 million from $54.7 million; nonperforming assets increased to $167.1 million from $62.3 million and the allowance for loan losses reached 2.23% of total loans.
- Assets under management fell 12% to $31.9 billion, and Asset Management pre-tax income declined 51% to $30.4 million.
- Issued $300 million of 8.60% senior notes due 2019 in August 2009; the cash dividend was $0.44 per share, unchanged from fiscal 2008.
- Ongoing legal and regulatory exposure includes the Woodard class action, SEC, FINRA and state investigations into auction rate securities with approximately $800 million of ARS still held by clients, and the pending bank holding company application.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed November 27, 2009Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $2.60B$3.20B | −18.8% |
| Net Income | $152.75M$235.08M | −35.0% |
| EPS (Basic) | $1.25$1.95 | −35.9% |
| EPS (Diluted) | $1.25$1.93 | −35.2% |
| Shares Outstanding (Basic) | 117.19M116.11M | +0.9% |
| Shares Outstanding (Diluted) | 117.29M117.14M | +0.1% |
05—Questions
Frequently Asked Questions
Why did Raymond James's net income decline in fiscal 2009?
Net income fell to $152.8 million from $235.1 million. Management attributed the decline mainly to lower revenues in the Private Client Group and Asset Management segments, which depend on market values, along with a $114.6 million increase in RJ Bank's provision for loan losses.
How much did RJ Bank's credit problems affect results?
RJ Bank's provision for loan losses increased to $169.3 million from $54.7 million, and net loan charge-offs rose to $107.2 million from $13.6 million. Pre-tax income at the bank fell 29% to $80.0 million, even though net interest income increased 50% to $322.4 million.
What is the status of RJ Bank's conversion and RJF's holding company application?
RJ Bank applied to the OCC to convert from a federal savings bank to a national bank on November 29, 2008, and RJF applied to the Federal Reserve Board to become a bank holding company on December 5, 2008. The filing states RJF is currently unable to estimate if or when it could be approved, and Federal Reserve staff indicated that resolution of the ARS issue could affect the timing.
What liquidity and funding actions did the company take?
In August 2009 the company sold $300 million of 8.60% senior notes due August 2019 in a registered public offering. At September 30, 2009, it had $920.1 million in financing arrangements with third-party lenders, $950 million in FHLB advances at RJ Bank, and long-term debt ratings of BBB from S&P and Baa2 from Moody's.
What are the main legal risks disclosed?
The filing discloses the Woodard purported class action filed in June 2009 alleging misstatements about RJ Bank loan losses, a Defer LP class action related to auction rate securities, and ongoing SEC, Florida and New York investigations into ARS sales. Management believes the outcome of the various lawsuits and arbitrations will not have a material adverse impact on financial position or results of operations, although any single resolution could affect results in a future period.
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