Press Release

January 21, 2009
Printable version (PDF)

RAYMOND JAMES FINANCIAL, INC.
ANNOUNCES FIRST QUARTER RESULTS,
REPORTS 9 PERCENT INCREASE IN NET INCOME

ST. PETERSBURG, Fla. – Raymond James Financial, Inc. today reported a 9 percent increase from the prior year’s quarterly net income to $61,093,000, or $0.52 per diluted share, for the first quarter ended December 31, 2008. In comparison, the firm earned $56,242,000, or $0.47 per diluted share, for the first quarter of fiscal year 2008. Net revenues decreased 3 percent to $663,942,000 while gross revenues decreased 16 percent to $695,833,000.

“The 2008 fiscal year was largely a story of massive damage to the financial services industry occasioned by the subprime crisis. Fortunately, we avoided most of the direct damage through our conservative business practices. In our 2009 first quarter, the second wave of the tsunami struck the financial services industry as a growing recession impacted the global economy. As a result, U.S. banks experienced burgeoning problems in their consumer and corporate loan portfolios in addition to the damage already manifested in their mortgage portfolios. Not surprisingly, the stock and bond markets again have begun to deteriorate,” stated Chairman and CEO Thomas A. James.

“These economic conditions, which have resulted in large losses for almost all investors, have led to increasing weakness in our Private Client Group, our largest business segment. Retail commissions and fees declined almost 17 percent in the first quarter from last year’s first quarter. Consequently, the pre-tax profit contribution from the segment declined 42 percent. These same conditions virtually eliminated underwriting business, which contributed to reductions in both retail and equity institutional commissions. On the other hand, our Investment Banking department benefited from a 126 percent increase in domestic merger and acquisition fees over last year’s comparable quarter, which maintained results at last year’s near break-even level.

“Enhanced by additions to its institutional sales force as well as resurgent activity in debt securities, the Fixed Income part of our Capital Markets segment recorded a 158 percent increase in commissions over last year’s first quarter and a 61 percent increment over the immediately preceding quarter. Conjoined with improved trading profits, Fixed Income’s earnings drove more than a 200 percent increase in pre-tax income for the entire Capital Markets segment over 2008’s first quarter.

“The Asset Management Group’s assets under management declined 26 percent from comparable levels last December. Revenues were off over 21 percent, reducing pre-tax income by approximately 50 percent.

“As contrasted to the predictably poor business conditions in the securities industry, Raymond James Bank continues to record much higher profits. First and foremost, federal market intervention with low rates has dramatically increased spreads. Secondly, while we continue to make large additions to reserves for loan losses to reflect deteriorating economic conditions and loan growth, both our real estate and corporate loan portfolios continue to perform far better than industry benchmarks and actual charge-offs remain low. Third, at the end of December, the loan portfolio was 36 percent larger than it was a year ago. We did experience a dramatic pre-tax decline of $85 million in the market value of the bank’s mortgage-backed securities portfolio, which is charged directly to shareholder’s equity, but a rigorous review of the credit quality of the securities revealed little, if any, erosion in the underlying quality of the securities (i.e., the valuation change appears to reflect emotional short-term perceptions). Thus, Raymond James Bank’s pre-tax income increased 270 percent to $54.6 million from the December 2007 quarter,” James continued.

“In summary, in spite of a 3 percent decline in net revenues, and an incredibly inimical environment, net income increased 9 percent to $61.1 million. Obviously, the results are a result of the outstanding performance by Raymond James Bank, a culmination of the blend of conservative lending practices and managed, albeit high, growth over the last five years.

“Unfortunately, one can’t annualize the first quarter because economic conditions are still worsening. The outlook for the revenue side of the securities business looks anemic for the balance of 2009. Although we are aggressively cutting expenses, we are also investing in growing our sales force and adding other professionals as a result of the difficulties experienced by our competitors, which offsets most of the savings. Although I anticipate continuing favorable operating loan spread conditions in the banking industry, spreads could decline and charge-offs increase as the economic malaise spreads through the economy. Nonetheless, I still expect our results to compare favorably with our peers and the firm to be well-positioned to capitalize on our investment in high quality people when the economy and stock market recovers,” stated James.

The company will conduct its quarterly conference call Thursday, January 22, at 8:15 a.m. EST. The telephone number is 877-777-1971. The call will also be available on demand on the company’s website, raymondjames.com, under “About Our Company,” “Investor Relations,” “Financial Reports,” “Quarterly Analyst Conference Call.” The subjects to be covered may include forward-looking information. Questions may be posed to management by participants on the call, and in response the company may disclose additional material information.

Raymond James Financial (NYSE-RJF) is a Florida-based diversified holding company providing financial services to individuals, corporations and municipalities through its subsidiary companies. Its three wholly owned broker/dealers, (Raymond James & Associates, Raymond James Financial Services and Raymond James Ltd.) and Raymond James Investment Services Limited, a majority-owned independent contractor subsidiary in the United Kingdom, have a total of more than 5,000 financial advisors serving approximately 1.9 million accounts in approximately 2,200 locations throughout the United States, Canada and overseas. In addition, total client assets are approximately $170 billion, of which approximately $28 billion are managed by the firm’s asset management subsidiaries.

To the extent that Raymond James makes or publishes forward-looking statements (regarding economic conditions, management expectations, strategic objectives, business prospects, anticipated expense savings, financial results, anticipated results of litigation and regulatory proceedings, and other similar matters), a variety of factors, many of which are beyond Raymond James’ control, could cause actual results and experiences to differ materially from the expectations and objectives expressed in these statements. These factors are described in Raymond James’ 2008 annual report on Form 10-K, which is available on raymondjames.com and sec.gov.

[1] Total assets include $1.9 billion in cash, offset by an equal amount in overnight borrowing to meet point-in-time regulatory balance sheet composition requirements related to RJBank’s qualifying as a thrift institution.  See detailed discussion in supplemental RJBank disclosures.

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For more information, contact Anthea Penrose at 727-567-2824.
Please visit the Raymond James Press Center at raymondjames.com/media.

RAYMOND JAMES BANK

Raymond James Bank, FSB (RJBank) is a federally chartered savings bank, regulated by the Office of Thrift Supervision, which provides residential, consumer and commercial loans, as well as FDIC-insured deposit accounts, to clients of Raymond James Financial, Inc. (RJF) broker-dealer subsidiaries and to the general public. RJBank also purchases residential whole loan packages to hold for investment and is active in bank participations and corporate loan syndications. RJBank operates from a single branch location adjacent to the Raymond James headquarters complex in St. Petersburg, Florida. RJBank’s deposits consist predominately of cash balances swept from the client investment accounts carried by Raymond James & Associates, Inc. in the Raymond James Bank Deposit Program (RJBDP).

Corporate Loan Portfolio

RJBank's corporate loan portfolio is comprised of project finance real estate loans and commercial lines of credit and term loans. Approximately 90 percent of loans outstanding are participations in Shared National Credits agented by approximately 30 different financial institutions with whom RJBank has a relationship. RJBank is sometimes involved in the initial syndication of the loan at inception and some of these loans have been purchased in secondary trading markets. Regardless of the source, all loans are independently underwritten to RJBank credit policies, are subject to loan committee approval, and credit quality is continually monitored by corporate lending staff. Approximately one-third of the corporate borrowers have a capital markets relationship with Raymond James. More than half of RJBank's corporate borrowers are public companies and nearly two-thirds have annual EBITDA greater than $50 million. RJBank's corporate loans are generally secured by all assets of the borrower and in some instances are secured by mortgages on specific real estate. In a limited number of transactions, loans in the portfolio are extended on an unsecured basis to very creditworthy borrowers. There are no subordinated loans or mezzanine financings in the corporate loan portfolio. RJBank has experienced some credit quality deterioration in its corporate loan portfolio in light of current economic conditions, leading to higher loan loss provision expense. However, corporate charge-offs over the past year have been limited to the Residential Acquisition & Development/Homebuilder segment of the portfolio, which constitutes less than 1 percent of RJBank assets.

Residential Loan Portfolio

RJBank's residential loan portfolio consists primarily of first mortgage loans originated by RJBank via referrals from RJF Private Client Group financial advisors, and first mortgage loans purchased by RJBank originated by select large financial institutions. These purchased mortgage loans represent over 90 percent of RJBank's residential portfolio. All of RJBank's residential loans adhere to strict RJBank underwriting parameters pertaining to credit score and credit history, debt-to-income ratio of the borrower, loan-to-value (LTV), and combined loan-to-value (including second mortgage/ home equity loans). On average, three-fourths of the purchased residential loans are re-underwritten with new credit information and valuations, if warranted, by RJBank staff prior to purchase, with the remainder coming from long-standing sources and meeting extremely high credit criteria. Approximately 90 percent of the residential loans are fully documented loans to owner-occupant borrowers. Approximately 70 percent of RJBank's residential loan portfolio are adjustable rate mortgage (ARM) loans with interest-only payments based on a fixed rate for an initial period of the loan, typically 3-5 years, then become fully amortizing, subject to annual and lifetime interest rate caps. RJBank does not originate or purchase option ARM loans with negative amortization, reverse mortgages, or other types of exotic loan products. Loans with deeply discounted teaser rates are not originated or purchased. Adjustable mortgage rate resets in the next six months are expected to be to rates similar to or lower than the current loan rates. RJBank has a long history with these types of loans. Originated 15 or 30-year fixed rate mortgages are typically sold to correspondents and only retained on an exception basis. All of RJBank’s first mortgage loans are serviced by the seller or by third party professional firms.

Investments, Securities Purchased Under Agreement to Resell and Borrowings

RJBank’s investment portfolio consists of mortgage securities, Federal Home Loan Bank (FHLB) stock and a very small Community Reinvestment Act investment. About 50 percent of the portfolio is invested in relatively short average-life floating rate securities issued by Ginnie Mae, Fannie Mae or Freddie Mac. Most of the remaining mortgage-backed securities portfolio is comprised of Private Label mortgage-backed collateralized mortgage obligations (CMO). These CMO securities were purchased based on the underlying loan characteristics such as loan-to-value ratio, credit scores, property type, location and the current level of credit enhancement. Current characteristics of each security owned such as delinquency and foreclosure levels, credit enhancement, projected losses and coverage are reviewed monthly by management.

All mortgage securities are classified as Available for Sale and the fair value reported includes an aggregate pretax unrealized loss of $174 million. These securities have experienced losses in fair value due to ongoing uncertainty and continued illiquidity in the markets and a significant widening of interest rate spreads. Two securities were considered to be other-than-temporarily impaired as of December 31, 2008 with no new impairments occurring during the December quarter. This is based on RJBank’s evaluation of the performance and underlying characteristics of the securities including the level of current and estimated credit losses relative to the level of credit enhancement, and RJBank’s consideration of its intent and ability to hold the securities for a period of time sufficient to allow for the anticipated recovery in the market value of the securities.

RJBank manages its cash position primarily through overnight deposits in the FHLB, money market deposit accounts at major financial institutions or investments in repurchase agreements with the collateral held by third party custodians. Collateral for these repurchase agreements consists of agency-issued mortgage securities or U.S. Treasury securities. Collateral backing these agreements is required to be a minimum of 102 percent of the principal amount.

On September 30, 2008, RJBank had advances outstanding at the FHLB Atlanta of $1.95 billion, which included $1.9 billion in overnight borrowing to meet point-in-time regulatory balance sheet composition requirements related to RJBank’s qualifying as a thrift institution. The latter action was discussed well in advance with the Office of Thrift Supervision. These borrowed funds were invested in qualifying assets and the necessary qualification was met. Prior to the advance, RJF infused $120 million additional capital into RJBank. After the advance was repaid on October 1, 2008, RJBank made a return of capital distribution of $60 million back to RJF on October 2, 2008. The September 30, 2008 results are presented on the following page, along with adjusted assets and capital excluding the borrowing and capital returned to RJF.

¹Net revenue equals gross revenue, which includes interest income and non-interest income, less interest expense. ²Data presents 9/30/08 total assets adjusted to exclude the $1.9 billion FHLB advance repaid on 10/1/08, and the $60 million return of capital to RJF on 10/2/08. See information on first page of RJBank supplement for additional information. ³Total capital adjusted for the $60 million return of capital to RJF on 10/2/08. ⁴Commercial, Real Estate Construction, and Commercial Real Estate Loans, net of unearned income and deferred expenses. ⁵Residential Mortgage and Consumer Loans, net of unearned income and deferred expenses. ⁶Nonperforming Loans includes 90+ days Past Due plus Nonaccrual Loans, and as of 12/31/08, consisted of six corporate loans and 86 residential mortgage loans. ⁷Includes Nonperforming Loans and Other Real Estate Owned. ⁸At origination. A small group of local loans representing less than 0.5% of residential portfolio excluded. ⁹Nonperforming Assets and Concentration ratios are presented as percent of Adjusted Total Assets (see note 2 above).