Raymond James Financial, Inc. (
F4Q2010 Earnings Call Transcript
October 21, 2010 8:15 am ET
Paul Reilly – CEO
Tom James – Executive Chairman
Jeff Julien – SVP, Finance and CFO
Steven Raney – President and CEO, Raymond James Bank
Chet Helck – COO
Devin Ryan – Sandler O'Neill & Partners
Hugh Miller – Sidoti
Daniel Harris – Goldman Sachs
Joel Jeffrey – KBW
Douglas Sipkin – Ticonderoga Securities
Steve Stelmach – FBR Capital Markets
Michael Lipper – Lipper Advisors
Previous Statements by RJF
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Good morning. My name is Roshira, and I will be your conference operator today. At this time, I would like to welcome everyone
to the quarterly analyst call. (Operator instructions) Thank you. Mr. Reilly. You may begin your conference.
Good morning everyone, and thanks for joining us. I have two pieces of good news to start our call. First is the company and our earnings are much stronger than my voice this morning, and secondly, I would say that it is rare when you have a company where you can go to the bench and get a replacement for the starter, who has more experience than the starter. So, in a sense my voice won’t hold out through this call due to laryngitis.
I’m going to turn it over to Tom James, who will lead the call this morning. Tom.
Thank you Paul. I’m here with the normal cast of characters, our CFO, Jeff Julien; our bank president, Steve Raney; Jennifer Ackart, our Controller, our lawyer, who must sit in on these calls; Paul Mataki [ph]; and then Chet Helck, our COO, is here. So, hopefully we can all fill in for Paul adequately. It is a pleasure to join you again, albeit I wish Paul was in better condition, because it is kind of fun to do the good numbers, as opposed to some of the ones that are less favorable in comparison.
As I recently announced on CNBC, of course, we had a record quarterly net income and net revenue number. We had 748 million basically in net revenues which was a 12% increase in the quarter. Costs were contained reasonably well with a 6% increase. Again that has bank loan in it, but those are non-interest expenses. And generally I would say cost continued to be well managed as they do mainly for corporate America, generally speaking, although we, of course, have been doing a lot of hiring. So it is not as if we don’t have more comp expenses. You can see that generates most of the increase in expenses during the quarter.
And as a result, net income per common share beat your estimates of $0.43, $0.44. They were $0.55, up from $0.35, and $0.49 in the immediately prior quarter, which means we were up 57% for the quarter, and pre-tax margins were 13.8%. After-tax margins on net revenues were 9.23%. Our comp ratio stays relatively high, especially on net revenues, but you got to remember to eliminate the high payout for independent contractors, which basically translates its way into the expense reductions.
And in fact that comp ratio adjusted would have been 60.6%. So if you are trying to compare it to a normal employee based firm, our comparisons are favorable. We have always made it clear to everyone. We did benefit from the corporate tax rate, where we had a 34.4% effective tax rate, and the reason for that is we had tax credits from our low-income housing operations, we had tax credits from education, charitable contributions we make in Florida, which gets us state tax credits, as well as deductions on the Federal level.
So when you look at this number and you spread it across the year, the tax rate is really around 37%, which is a pretty good run rate, even if you subtract the $0.03 impact of the lower tax rate in this particular quarter. So you can’t eliminate it, because it isn’t extraordinary. I mean it does occur every year. So the results were very good for the quarter, even better than we would have anticipated under the circumstances of having our businesses perform well, and just a few words on that subject before I go to the year.
The fact is we were driven again by Private Client Group, where we had a 113% increase in pre-tax income, but capital market results were very good for the quarter, up 36%, and that really comes from a resurgence in fixed-income a little bit in the fourth quarter, as well as reasonably active, although no more active than last September, ECM calendar, and good M&A activity were I would say the results there are very healthy. As you can see in the press release, we included lead managed underwriting data and took out the managed total, the co-managed total, which you know in today’s era, somehow syndicate guys feel better if you are told that you are a co-manager or a co-lead, when in fact your economics are low. My response to everybody on that is please leave the title escalation out, and just send money.
So the fact is though that we had good lead managed activity, still focused in the real estate, mainly REIT sector in energy, MLPs principally, in financial services, and in some health care transactions. And we have had M&A activity pretty much across the board. you know, we would have expected this as I have told you in prior periods and fall has said the same since he has become CEO, we have done a lot of hiring, and that hiring has been pretty much across the board, not just in the FA count, which actually was down net year-to-year because of some attrition, and much lower recruiting rates.
We like to think that you don’t have attrition, but you have natural attrition, you have desk retirements that affect you, and occasionally you have regrettable attrition. we didn’t have very much of that in this number count, but we have continued to recruit good brokers, but the rate of recruitment is probably in the 35% ratio to last year’s activity levels because of all these high retention payments that were made during early this year and late last year that have really slow down the pace somewhat. And to be frank, we are not going to compete with 2% front money. I mean it is just not going to happen. So it is uneconomic, as I can tell on our rate of return on investments. So unlikely we are going to do that no matter what frenetic activity you might see at some of the majors.
If you look at asset management, the recovery has mirrored the increase in assets under management, which you can see increased from the $25 billion to $30 billion range year-to-year. We have had good results in both net sales and in market appreciation. Raymond James Bank is, I am sure Steve will elaborate on, had a very good comparability in the quarter. More importantly, from our standpoint I would tell you with those numbers up 163%, we have seen moderation and hopefully bottoming on the loan loss reserve provisions.