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Raymond James Financial Inc.'s (RJF - Analyst Report) fiscal first-quarter 2013 (ended Dec 31) earnings per share came in at 69 cents, beating the Zacks Consensus Estimate by a penny. Moreover, this substantially exceeded the year-ago earnings of 53 cents.

Better-than-expected results were driven by an improved top line. In addition, growth in assets under management (AUM) and assets under administration were the positives. However, higher expenses remain a cause of concern.

GAAP net income for the reported quarter came in at $85.9 million or 61 cents per share, compared with $67.3 million or 53 cents per share in the prior-year quarter.

Behind the Headlines

Raymond James’ total revenue in the quarter came in at $1,137.5 million, surging 42.4% year over year. The elevation was largely driven by improvements in securities commissions and fees, investment banking revenues, investment advisory fees, interest income, account and service fees as well as other revenues, partially offset by a decline in net trading profits. This surpassed the Zacks Consensus Estimate of $1,089.0 million by 4.5%.

Non-interest expenses augmented 42% from the prior-year quarter to $962.3 million. The hike was primarily attributable to elevated compensation and benefits expenses, communications and information processing, occupancy and equipment costs, clearance and floor brokerage costs as well as business development expenses along with investment sub-advisory fees and other expenses. Lower bank loan loss provision proved as a slightly mitigating factor.

As of Dec 31, 2012, assets under administration spiked 45.4% year over year to $392.0 billion. Similarly, AUM totaled $46.5 billion, expanding 33.2% from the year-ago quarter.

Balance Sheet

As of Dec 31, 2012, Raymond James reported total assets of $22.3 billion, up 24.6% year over year. Shareholders’ equity came in at $3.4 billion, increasing 28.2% from $2.6 billion in the prior-year quarter. Book value per share at the end of the fiscal first quarter was $24.59 compared with $21.34 in the prior-year quarter.

Quarterly Results of Other Asset Managers

On Jan16, The Charles Schwab Corporation (SCHW - Analyst Report) reported its fourth-quarter 2012 earnings in line with the Zacks Consensus Estimate. Overall, growth in the top line, lower provision for loan losses and balance sheet restructuring actions were the positives. Yet, higher operating expenses as well as a fall in trading revenue dented the results.

Further, on Jan 22, TD Ameritrade Holding Corporation (AMTD - Analyst Report) reported its fiscal first quarter 2013 (ended Dec 31, 2012) net income, which marginally surpassing the Zacks Consensus Estimate. Better-than-expected results for the quarter reflected a decline in operating expenses. Further, an increase in total client assets was a positive. However, decreases in total daily average revenue trades (DARTs) and revenue were the downsides.

However, on Jan 15, Interactive Brokers Group Inc.’s (IBKR - Analyst Report) reported a lower than expected fourth-quarter earnings The quarterly results marginally lagged owing to a drop in its top line, partially offset by slight decline in operating expenses.

Our Take

Amidst the slowly recovering market, Raymond James’ solid balance sheet and its efforts to boost revenue by recruiting experienced advisors are expected to be accretive to its financials in the upcoming quarters. Moreover, the company’s capital strength and capital deployment activities should make its stock attractive to yield-seeking investors.

On the other hand, the regulatory issues, a low-interest rate environment and continuously rising expenses will likely put the company’s profitability under pressure.

Currently, Raymond James retains a Zacks Rank #3 (Hold).

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