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Raymond James (RJF) Q2 Earnings Miss on Subdued IB, Provisions

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Raymond James’ (RJF - Free Report) second-quarter fiscal 2022 (ended Mar 31) adjusted earnings of $1.55 per share lagged the Zacks Consensus Estimate of $1.62. The bottom line was also down 8% from the prior-year quarter.

Results were adversely impacted by a rise in expenses and disappointing investment banking (IB) performance due to heightened geopolitical and macroeconomic ambiguities. Also, RJF recorded bank loan provision for credit losses during the quarter. Yet, higher interest income and a rise in loan demand acted as tailwinds. Further, the performance of the Private Client Group and Asset Management segments was impressive.

The company CEO and chairman Paul Reilly, said, “Looking forward, we are well positioned for the expected increases in short-term interest rates with healthy loan growth at Raymond James Bank, a high concentration of floating-rate assets, record clients’ domestic cash sweep balances and solid capital ratios providing us ample balance sheet flexibility.”

Shares of RJF gained 2.6% in aftermarket trading.

Net income (GAAP basis) was $323 million, down 9% year over year.

Revenues & Costs Increase

Net revenues were $2.67 billion, increasing 13% year over year. The rise was driven by higher interest income and account and service fees. The top line also beat the Zacks Consensus Estimate of $2.62 billion.

Segment-wise, in the reported quarter, RJ Bank registered a rise of 23% from the prior year in net revenues. Also, Private Client Group and Asset Management recorded 17% and 12% growth, respectively, in net revenues. Capital Markets’ top line declined 5%. Others recorded negative revenues of $18 million compared with negative revenues of $12 million in the prior-year quarter.
 
Non-interest expenses increased 16% to $2.24 billion. The rise was mainly due to higher compensation, commissions and benefits, business development charges and investment sub-advisory fees. Also, RJF recorded a bank loan provision for credit losses of $21 million in the reported quarter against a benefit of $11 million in the prior-year quarter.

As of Mar 31, 2022, client assets under administration were $1.26 trillion, up 16% from the end of the prior-year quarter. Financial assets under management were $193.7 billion, up 9%.

Strong Balance Sheet & Capital Ratios

As of Mar 31, 2022, Raymond James reported total assets of $73.1 billion, up 7% from the prior quarter. Total equity was relatively stable sequentially at $8.6 billion.

Book value per share was $41.38, up from $36.89 as of Mar 31, 2021.

As of Dec 31, 2021, total capital ratio was 25% compared with 24.7% as of Mar 31, 2021. Tier 1 capital ratio was 23.9% compared with 23.6% as of March 2021-end.

Return on equity (annualized basis) was 15% at the end of the reported quarter compared with 19% a year ago.

Our Take

Raymond James’ global diversification efforts, strategic acquisitions and strength in the investment banking business are expected to keep supporting top-line growth. However, continuously mounting operating expenses and the volatile nature of capital markets businesses remain near-term concerns.
 

Currently, Raymond James carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance Other Brokerage Firms

Charles Schwab’s (SCHW - Free Report) first-quarter 2022 adjusted earnings of 77 cents per share missed the Zacks Consensus Estimate of 85 cents. The bottom line also declined 8% from the prior-year quarter.

Results were hurt by increased market volatility, thereby affecting trading income. Also, higher expenses were a headwind. However, lower fee waivers and growth in brokerage account numbers acted as tailwinds during the quarter.

Interactive Brokers Group’s (IBKR - Free Report) first-quarter 2022 adjusted earnings per share of 82 cents missed the Zacks Consensus Estimate by a penny. The bottom line reflects a decline of 16.3% from the prior-year quarter.

IBKR recorded a decline in revenues in the quarter under review. A fall in daily average revenue trades further hurt results. However, the capital position remained strong. Lower expenses were a tailwind.


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