01—Abstract
Summary
Summary of the 10-K filed November 21, 2018. Cited figures are marked; the original filing is the authoritative source.
Raymond James Financial, Inc. (RJF) reported net revenues of $7.27 billiona for the fiscal year ended September 30, 2018, an increase of $903 million, or 14%, and net income attributable to the firm of $857 million, up $220 million, or 35%.
Diluted earnings per share were $5.75b, a 33% increase. Results include a $105 million negative impact from the Tax Cuts and Jobs Act, primarily from remeasuring U.S. deferred tax assets. Excluding the Tax Act impact and $4 million of acquisition-related expenses, adjusted net income was $965 million, a 26% increase, and adjusted diluted EPS was $6.47.
Growth was driven by Private Client Group, where net revenues rose 15% to $5.09 billionc on higher fee-based assets and strong advisor recruiting, and by RJ Bank, where net revenues rose 23% to $727 million on higher net interest income. Asset Management net revenues rose 34% to $654 million, aided by the Scout Group acquisition, which added $27 billion of assets under management in November 2017. Capital Markets was weaker, with net revenues down 5% to $964 million and pre-tax income down 36%, reflecting weak institutional fixed income and equity commissions partly offset by higher M&A advisory fees.
Total client assets under administration reached $790.4 billiond. Balance sheet growth was moderate: total assets were $37.41 billion, up 7%, and bank loans, net, rose to $19.52 billion.
The firm repurchased shares, with $250 million authorized in May 2018, and quarterly dividends declared rose to $0.30 per share. The filing notes that the firm expects its effective tax rate to be approximately 24%-25% for fiscal 2019 and that a new revenue recognition standard will change the presentation of certain costs on a gross basis from fiscal 2019, without affecting net earnings.
02—Key points
Key Highlights
- Net revenues of $7.27 billion, up 14% from $6.37 billion in fiscal 2017; net income attributable to RJF of $857 million, up 35%.
- Diluted EPS of $5.75 versus $4.33 a year earlier; adjusted diluted EPS of $6.47 excluding Tax Act impact and acquisition-related expenses.
- Tax Act reduced earnings by $105 million, and the effective tax rate was 34.8%; the firm estimates a 24%-25% effective rate for fiscal 2019.
- Private Client Group net revenues rose 15% to $5.09 billion, with pre-tax income up 54% to $576 million; 7,813 financial advisors at year end.
- Asset Management net revenues rose 34% to $654 million after the Scout Group acquisition; financial assets under management reached $140.9 billion.
- Capital Markets net revenues fell 5% to $964 million and pre-tax income fell 36% to $91 million on weaker institutional fixed income and equity commissions.
- Total assets of $37.41 billion, up 7%; total equity attributable to RJF of $6.37 billion; book value per share of $43.73.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed November 21, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $7.48B$6.53B | +14.6% |
| Interest Expense | $202.00M$154.00M | +31.2% |
| Net Income | $857.00M$636.00M | +34.7% |
| EPS (Basic) | $5.89$4.43 | +33.0% |
| EPS (Diluted) | $5.75$4.33 | +32.8% |
| Shares Outstanding (Basic) | 145.30M143.30M | +1.4% |
| Shares Outstanding (Diluted) | 148.80M146.60M | +1.5% |
05—Questions
Frequently Asked Questions
What drove the growth in revenue and earnings for fiscal 2018?
Net revenues rose $903 million, or 14%, led by Private Client Group securities commissions and fees, which increased with fee-based client assets from higher equity markets and strong advisor recruiting. RJBDP fees and higher net interest income from RJ Bank also contributed, and Asset Management grew after the Scout Group acquisition. Non-interest expenses increased $526 million, or 10%, largely from compensation tied to revenue growth and staffing.
How did the Tax Cuts and Jobs Act affect results?
The Tax Act reduced fiscal 2018 earnings by $105 million, primarily from remeasuring U.S. deferred tax assets at the lower enacted federal corporate tax rate. The effective tax rate was 34.8% including this impact, and 26.7% excluding it. The firm's blended federal statutory rate for fiscal 2018 was 24.5%, and it estimates a 24%-25% effective tax rate for fiscal 2019.
What are the main risks highlighted in the filing?
The filing cites risks including macroeconomic and Federal Reserve policy effects, credit and market risk, cybersecurity and data protection, regulatory changes from the Dodd-Frank Act and related rules (including proposed Regulation Best Interest), pricing pressure in fixed income and equity trading, competition for advisors, and a possible credit rating downgrade. It also notes exposure to the Brink and Wistar class action lawsuits concerning Passport Investment Account fees, with trials scheduled for April 2019 and September 2019.
How strong is the balance sheet and capital position?
Total assets were $37.41 billion at September 30, 2018, and total equity attributable to RJF was $6.37 billion. RJF's Common Equity Tier 1 ratio was 24.3% and RJ Bank's was 12.7%, both categorized as well capitalized. Senior notes payable totaled $1.55 billion, and the $300 million RJF Credit Facility was undrawn.
06—Continue