Raymond James Financial Posts Record Results Amid Rate Headwinds

Raymond James Financial ((RJF)) has held its Q1 earnings call. Read on for the main highlights of the call.

Raymond James Financial Balances Record Results With Rate-Driven Headwinds

Raymond James Financial’s latest earnings call painted a confident yet nuanced picture: the firm is posting record revenues, strong profitability, and robust adviser and asset growth, even as management openly acknowledged pressure from lower interest rates, deposit mix shifts, and volatile capital markets. Executives leaned into a long-term, investment-led strategy—particularly in technology and acquisitions—while stressing disciplined capital returns and margin focus amid short-term revenue variability.

Record Revenues and Earnings Highlight Operating Strength

Raymond James reported record consolidated net revenues of $3.7 billion in the fiscal first quarter, underscoring the breadth of its diversified franchise. Net income available to common shareholders reached $562 million, translating to diluted EPS of $2.79; on an adjusted basis, net income came in at $577 million and EPS at $2.86. These numbers show the firm is monetizing both higher client assets and growing banking activity effectively, despite lower rates starting to bite into interest-sensitive lines. The record top line provides a strong starting point as the firm navigates a more challenging macro and rate backdrop.

Margin Target Achieved Despite Rate and Market Headwinds

Profitability metrics were a key positive theme. The company delivered a 19.5% pretax margin and an adjusted pretax margin of 20.0%, meeting its long-standing 20% adjusted pretax margin objective even as interest income and capital markets revenues faced pressure. Management framed this as proof that the business model can sustain target profitability in less-than-ideal conditions, helped by scale in fee-based businesses and disciplined expense management. Maintaining this margin level is central to the firm’s long-term financial framework.

High Returns on Equity Underscore Capital Efficiency

Returns on capital reinforced the earnings strength. Raymond James generated an annualized return on common equity (ROE) of 18.0%, with an annualized adjusted return on tangible common equity (ROTE) of 21.4%. These levels place the firm in the upper tier of financials in terms of capital efficiency, reflecting a combination of solid earnings, measured balance sheet growth, and active capital return. For investors, these metrics signal that the firm is converting its franchise advantages into attractive shareholder returns.

Adviser Recruiting and Net New Assets Remain a Growth Engine

The Private Client franchise continued to be a powerful growth driver, with the firm reporting annualized net asset growth of 8% and $31 billion of net new assets in the quarter—its second-best quarter ever on this measure. Over the past 12 months, Raymond James recruited advisers with nearly $460 million in trailing 12‑month production and over $63 billion in client assets (over $69 billion when including all platforms such as RIA/custody). This recruiting momentum and organic asset gathering are central to the firm’s long-term growth story, helping offset cyclical headwinds in rate and capital markets businesses.

Record Fee-Based Assets and Strong Asset Management Results

The shift to fee-based advice remains a core tailwind. The Private Client Group’s fee-based assets reached a record $1.04 trillion, up 19% year-on-year and 3% sequentially, reflecting both market appreciation and net inflows. Asset Management posted record net revenues of $326 million and record pretax income of $143 million. Asset management and related administrative fees were nearly $2.0 billion, up 15% from a year ago and 6% sequentially. These recurring, largely market-linked revenues provide an increasingly stable earnings base compared with more volatile interest- and transaction-driven lines.

Private Client Group Delivers Record Revenue

The Private Client Group (PCG) remained the firm’s anchor segment, with record quarterly net revenues of $2.77 billion and pretax income of $439 million. Performance was driven by higher assets under administration, supported by market gains, strong retention, and meaningful net new assets. While PCG pretax income dipped 5% year-over-year due to rate-related revenue pressure and mix effects, the segment’s overall trajectory remains firmly positive, underpinned by advisor productivity and the continued expansion of fee-based offerings.

Bank Loan Growth and Improving Margins Offset Rate Pressure

On the banking side, Raymond James continued to grow its loan book, with bank loans ending the quarter at a record $53.4 billion. Combined net interest income (NII) and RJBDP fees from third-party banks totaled $667 million, up 2% sequentially, as loan growth and deposit strategies partially offset lower yields. The bank segment’s net interest margin expanded by 10 basis points to 2.81%, a notable data point in a falling-rate environment. Management emphasized disciplined credit and pricing, positioning the bank to remain a solid earnings contributor even as rate cuts pull down overall yields.

Aggressive Capital Returns Through Buybacks and Dividends

Capital deployment was another highlight. Raymond James repurchased $400 million of common stock in the quarter at an average price of $162, and has repurchased $1.45 billion over the past 12 months. Including dividends, the firm returned nearly $1.87 billion to shareholders over the past year, equivalent to roughly 89% of earnings. Management reiterated a plan to repurchase around $400 million of stock in the next quarter and maintained a quarterly repurchase framework of $400–$500 million. This aggressive capital return strategy underscores confidence in the firm’s valuation and capital strength.

Robust Capital and Liquidity Underpin Flexibility

The balance sheet remains a source of comfort. Raymond James reported a Tier 1 leverage ratio of 12.7% and a total capital ratio of 24.3%, both well above regulatory minimums. Corporate cash at the parent stood at approximately $3.3 billion, with about $2.1 billion of liquidity—comfortably above the firm’s $1.2 billion target—and roughly $2.4 billion of excess capital capacity before hitting its 10% Tier 1 leverage target. This strong capital and liquidity footing gives the company ample room to keep investing, repurchasing stock, and absorbing market volatility.

Strategic Acquisitions and Heavy Tech Spend, Including AI

Management highlighted continued investment in the platform as a key strategic priority. The company announced acquisitions of Clark Capital Management and Greens Labs to deepen its asset management and investment banking capabilities, respectively. At the same time, Raymond James is spending at roughly a $1.1 billion annual pace on technology, including the launch of a proprietary AI operations agent, RA, designed to automate and enhance adviser service. These moves are aimed at reinforcing competitive positioning, improving adviser productivity, and driving long-term operating leverage, even though they contribute to elevated near-term expenses.

Capital Markets Hit by Revenue Declines and Volatility

The Capital Markets segment was one of the few weak spots. Net revenues fell to $380 million, with pretax income of only $9 million, down both year-over-year and sequentially. The decline was driven by lower M&A and advisory fees, weaker debt underwriting activity, and softer affordable housing investment revenues. By comparison, the prior quarter’s Capital Markets revenues exceeded $500 million, underscoring the inherent quarter-to-quarter volatility in this business. Management stressed that underlying pipelines remain healthy, but the timing of deal closings and revenue recognition is hard to predict.

Rate Cuts Reshape Revenue Mix and Pressure Yields

Recent interest rate reductions—125 basis points of cuts since early November 2024—are weighing on Raymond James’ interest-sensitive lines. Interest-related revenue and non-compensable revenues have come under pressure, contributing to a 5% year-over-year decline in PCG pretax income and squeezing yields across the balance sheet. The average yield on RJBDP (Raymond James Bank Deposit Program) balances fell 15 basis points to 2.76%. Management cautioned that aggregate NII and RJBDP fees are likely to be lower in fiscal Q2 compared with Q1, reflecting both the rate cuts already in place and two fewer interest-earning days in the quarter.

Cash Sweep and Enhanced Savings Balances Under Pressure

Client cash dynamics are shifting as rates decline. Domestic cash sweep and enhanced savings program balances ended the quarter at $58.1 billion, up 3% sequentially at quarter end, but have since faced pressure. In January, combined balances fell by $2.6 billion following quarter end, including a $1.8 billion one-time fee billing impact, with roughly $2.1 billion coming out of sweep balances and about $500 million from enhanced savings as clients moved cash back into investments. While some of this is seasonal and billing-related, it also highlights how lower yields can drive clients to reallocate away from cash solutions, affecting related revenue streams.

Non-Compensation Expenses Rise With Growth Investments

Non-compensation expenses totaled $557 million, up 8% year-over-year but down 7% sequentially. Management expects full-year non-compensation costs (excluding specified items) to reach around $2.3 billion, representing roughly 8% growth versus the prior year. The increases are primarily tied to ongoing technology investments, continued recruiting and transition support, and other growth-related initiatives. While this expense trajectory temporarily weighs on operating leverage, executives framed it as essential to sustaining competitive advantages in advice, platforms, and digital capabilities.

Compensation Ratio Slightly Above Target Amid Mix Shifts

The total compensation ratio came in at 65.6% (65.4% on an adjusted basis), modestly above the firm’s 65% goal. The overshoot was due largely to revenue mix—particularly a greater contribution from independent advisor channels, which carry higher payout rates—and elevated recruiting and retention-related compensation. As part of a clearer reporting structure, recruiting-related costs are now being presented within the PCG segment. Management reiterated its longer-term compensation ratio target, implying an expectation that mix and recruiting intensity normalize over time.

Investment Banking Timing Uncertainty Adds Forecasting Risk

Executives repeatedly noted the unpredictability of capital markets activity. Although advisory and underwriting pipelines are described as robust, the firm highlighted that the timing of M&A deal closings and capital markets transactions remains difficult to forecast, leading to significant earnings volatility from quarter to quarter in the Capital Markets segment. For investors, this underscores that near-term capital markets revenue may diverge meaningfully from underlying demand, making short-term earnings less predictable even if the medium-term opportunity set is solid.

Recruiting Competition Heats Up

The environment for financial adviser recruiting has become more competitive, with private equity-backed roll-up firms reportedly offering richer incentives to attract advisers. Raymond James acknowledged that this has introduced some short-term noise in recruiting and retention costs. Management, however, views the heightened incentives as a cyclical, rather than structural, phenomenon and remains confident in the firm’s value proposition around culture, platform, and independence. Still, these dynamics are contributing to near-term upward pressure on compensation and recruitment spending.

Seasonal and Rate Headwinds Shape Near-Term Outlook

Management also flagged several mechanical and macro headwinds for fiscal Q2. Seasonality—fewer billing days and the reset of payroll taxes—will weigh on reported margins and expenses. At the same time, the recent Fed rate cuts are expected to partially offset asset growth by reducing interest-related revenue, leading to softer NII and RJBDP contributions in the near term. Together, these factors suggest that even with strong underlying business momentum, reported results in Q2 may not fully reflect the firm’s longer-term earnings power.

Bank Yield Compression Remains a Watchpoint

Looking ahead, bank yield dynamics are a key variable. The average yield on RJBDP balances already fell 15 basis points in the quarter, and management emphasized that future outcomes for NII and RJBDP fees will remain highly sensitive to additional rate moves and quarter-end balance levels. Internal modeling for Q2 assumes a further decline in combined NII and RJBDP absent favorable changes in deposit mix or balance sheet structure. This adds another layer of uncertainty for investors tracking earnings sensitivity to the rate environment.

Guidance: Modest Fee Growth, Lower NII, and Continued Capital Returns

Looking forward, Raymond James guided to modest growth in asset-based fees but softer interest income. Management expects fiscal Q2 asset-management and related administrative fees to be roughly 1% higher than Q1, even with two fewer billing days, reflecting the strong base of fee-based assets that grew about 3% in Q1. In contrast, combined NII and RJBDP fees are expected to decline in Q2 versus Q1, assuming current interest rates (including the recent Fed cuts), stable quarter-end balances after the $1.8 billion Q2 fee billing collections, and no major balance shifts. For the full year 2026, non-compensation expenses (excluding specified items) are guided to around $2.3 billion—about 8% year-over-year growth—while the effective tax rate is expected in the 24–25% range. Importantly, management reiterated its commitment to a roughly 20% adjusted pretax margin and about a 65% compensation ratio over time. On capital returns, the company plans approximately $400 million of share repurchases in Q2, supported by a 12.7% Tier 1 leverage ratio, a 24.3% total capital ratio, roughly $3.3 billion of parent cash (with about $2.1 billion in liquidity above its target), and an estimated $2.4 billion of excess capital capacity above its 10% Tier 1 leverage target.

In sum, Raymond James Financial’s earnings call showcased a firm firing on most operational cylinders—record revenues, strong profitability, high returns on equity, and powerful adviser and asset growth—while openly confronting the drag from lower rates, shifting cash behavior, and choppy capital markets. Management is choosing to lean into technology and platform investments and to maintain robust capital returns, even at the cost of near-term expense growth and some margin variability. For investors, the story is one of a structurally attractive wealth and asset management franchise navigating cyclical headwinds with a disciplined balance sheet and a clear long-term profitability framework.