01—Abstract
Summary
Summary of the 10-K filed November 22, 2017. Cited figures are marked; the original filing is the authoritative source.
Raymond James Financial, Inc. (RJF) reported fiscal 2017 (year ended September 30, 2017) net revenues of $6.37 billiona, an increase of $966 million, or 18%, over fiscal 2016.
Pre-tax income was $925 millionb, up $125 million, or 16%, and net income attributable to RJF was $636 million, up $107 million, or 20%. Diluted earnings per share were $4.33, a 19% increase. Results were reduced by $194 million of pre-tax expenses in the year, including the $130 million Jay Peak settlement, $45.7 million of losses on early extinguishment of senior notes and $18.0 million of acquisition-related expenses.
Excluding these items, adjusted pre-tax income was $1.12 billionc, adjusted net income was $768 million and adjusted diluted EPS was $5.23, all non-GAAP measures reconciled in the filing. All four operating segments grew net revenues. Private Client Group net revenues rose 22% to $4.42 billion, RJ Bank net revenues rose 20% to $593 million, Asset Management rose 21% to $488 million and Capital Markets rose 1% to $1.01 billion.
Client assets under administration reached $692.9 billiond, a 15% increase, and the company reported 7,346 financial advisors. Total assets grew to $34.88 billion, with RJ Bank's total assets at $20.61 billion, and total equity attributable to RJF reached $5.58 billion. The filing also flags regulatory and legal exposure.
The Department of Labor fiduciary rule (the DOL Rule) requires added compliance costs, and the Volcker Rule conformance deadline for illiquid covered funds was extended to July 2022. Pending U.S. tax reform proposals could lower the corporate tax rate from 35% to 20%, which would benefit the effective tax rate, though a remeasurement of deferred tax balances could cause a negative impact in the period of enactment. The company also agreed to acquire Scout Investments, Inc. (the Scout Group) for $173 million, which closed on November 17, 2017.
02—Key points
Key Highlights
- Net revenues of $6.37 billion, up 18% from $5.41 billion in fiscal 2016; net income attributable to RJF of $636 million, up 20%.
- Diluted EPS of $4.33, up 19%; adjusted diluted EPS (non-GAAP) of $5.23, up 33%, after excluding $194 million of pre-tax items.
- Private Client Group net revenues up 22% to $4.42 billion; client assets under administration up 15% to $692.9 billion; 7,346 financial advisors.
- RJ Bank net revenues up 20% to $593 million and pre-tax income up 21% to $409 million; total RJ Bank assets of $20.61 billion.
- Jay Peak settlement of $150 million paid to the SEC-appointed receiver, with a $130 million expense recorded in fiscal 2017; the court's final order was not appealed.
- Total assets of $34.88 billion and total equity attributable to RJF of $5.58 billion at September 30, 2017; dividends declared of $0.88 per share for the year.
- Pending Scout Group acquisition for $173 million, completed November 17, 2017, expanding Asset Management with the Scout and Reams businesses.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed November 22, 2017Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $6.53B$5.52B | +18.2% |
| Interest Expense | $154.00M$116.06M | +32.7% |
| Net Income | $636.00M$529.35M | +20.1% |
| EPS (Basic) | $4.43$3.72 | +19.1% |
| EPS (Diluted) | $4.33$3.65 | +18.6% |
| Shares Outstanding (Basic) | 143.30M141.77M | +1.1% |
| Shares Outstanding (Diluted) | 146.60M144.51M | +1.4% |
05—Questions
Frequently Asked Questions
What drove the increase in Raymond James's fiscal 2017 earnings?
Net revenues rose $966 million, or 18%, to $6.37 billion, with increases in all four operating segments. Private Client Group growth reflected strong financial advisor recruiting, the Alex. Brown and 3Macs acquisitions, and a stronger market environment. Higher short-term interest rates also increased RJBDP fees and RJ Bank net interest income. Net income rose $107 million, or 20%, to $636 million, though it was held back by non-recurring expenses.
How did the Jay Peak matter affect results?
The company recorded a $130 million pre-tax Jay Peak expense in fiscal 2017 to reflect the settlement, which was approved by the court on June 30, 2017. Under the agreement, RJA paid an aggregate of $150 million to the SEC-appointed receiver for the Jay Peak entities, including $4.5 million previously paid to the State of Vermont. The time to appeal expired on August 29, 2017, and no appeal was filed, barring all existing or future claims against the company other than by governmental bodies.
What regulatory risks does the filing highlight?
The filing cites the Department of Labor fiduciary rule (the DOL Rule), which requires added legal, compliance and technology costs and may create enhanced legal risks, with the transition period for certain exemptions extended as recommended by the DOL. It also notes the Volcker Rule, with the Fed approving continued holding of most illiquid covered fund investments until July 2022, and the Incentive-Based Compensation Proposal, which would place the company in the 'Level 3' category. The company also notes possible regulatory changes that could follow the Dodd-Frank Act.
What potential impact could U.S. tax reform have on Raymond James?
The filing notes that U.S. Senate and House proposals contained a corporate tax rate reduction from 35 percent to 20 percent, which would prospectively benefit the company's effective tax rate after enactment. However, the filing also warns that enactment could cause a significant negative impact in the enactment period, primarily from remeasuring U.S. deferred tax balances at lower rates and from a possible repatriation tax on deemed repatriated earnings from foreign subsidiaries.
What is the Scout Group acquisition?
In April 2017 the company agreed to acquire 100% of Scout Investments, Inc. (the Scout Group) from UMB Financial Corporation. The Scout Group includes Scout Investments, its Reams Asset Management fixed income division, and Scout Distributors. The filing states the purchase price was $173 million, funded with cash on hand, and that the acquisition closed on November 17, 2017, after which the Scout Group was included in the Asset Management segment.
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