10-Q: Raymond James Q1 Net Revenue Up 6%, Pre-Tax Income Dips 3%

Raymond James Financial reported a 6% increase in net revenues to $3.74 billion for Q1 fiscal 2026, though pre-tax income declined 3% to $728 million, impacted by lower investment banking and higher expenses.

Summary

• Net revenues for the three months ended December 31, 2025, increased 6% to $3.74 billion compared to $3.54 billion in the prior-year quarter.
• Pre-tax income decreased 3% to $728 million from $749 million in the prior-year quarter.
• Net income available to common shareholders was $562 million, a 6% decrease from $599 million in the prior-year quarter.
• Diluted earnings per common share decreased 2% to $2.79 from $2.86 in the prior-year quarter.
• Asset management and related administrative fees increased 15% to $1.999 billion, primarily due to higher Private Client Group (PCG) client assets in fee-based accounts.
• Brokerage revenues increased 9% to $612 million, driven by higher client activity in both PCG and Capital Markets segments.
• Investment banking revenues decreased 36% to $208 million, mainly due to lower merger & acquisition and advisory revenues.
• Compensation, commissions and benefits expense increased 8% to $2.45 billion, attributed to higher compensable revenues in PCG and increased financial advisor recruiting-related expenses.
• Non-compensation expenses rose 8% to $557 million, due to investments in technology, business development, and higher investment sub-advisory fees.
• The effective income tax rate increased to 22.7% from 19.9% in the prior-year quarter, primarily due to a lower benefit from share-based compensation.
• Total assets stood at $88.76 billion as of December 31, 2025, a 1% increase from September 30, 2025.
• Bank loans, net, increased by $1.9 billion, while cash and cash equivalents decreased by $1.5 billion.
• Bank deposits increased by $1.3 billion to $60.15 billion.
• Domestic PCG net new assets more than doubled to $30.83 billion, with an annualized growth rate of 8.0%.
• RJBDP fees from third-party banks decreased 30% to $101 million due to lower short-term interest rates and average balances.
• The Bank segment's pre-tax income increased 47% to $173 million, while the Capital Markets segment's pre-tax income decreased 88% to $9 million.
• The Asset Management segment's pre-tax income increased 14% to $143 million, and the Other segment's pre-tax loss increased to $(36) million.

Sentiment

Score: 6

Explanation: StockSavvy.ai views this as a mixed report. While revenue growth and strong client asset inflows are positive, the decline in pre-tax income and EPS, coupled with a significant drop in investment banking, indicates challenges in profitability and specific business segments. The impact of falling interest rates is a notable headwind.

Positives

• Net revenues increased by 6% to $3.74 billion compared to the prior-year quarter.
• Asset management and related administrative fees grew by 15% to $1.999 billion, driven by higher PCG client assets in fee-based accounts.
• Brokerage revenues increased by 9% to $612 million, reflecting higher client activity.
• Domestic Private Client Group (PCG) net new assets more than doubled to $30.83 billion, achieving an annualized growth rate of 8.0%.
• PCG Assets Under Administration (AUA) increased 15% year-over-year to $1,708.5 billion, and Assets in fee-based accounts increased 19% year-over-year to $1,040.1 billion.
• The Bank segment's net interest income increased 14% to $470 million, and its pre-tax income increased 47% to $173 million.
• The Bank segment's net interest margin improved to 2.81% from 2.60% in the prior-year quarter.
• The Asset Management segment's net revenues increased 11% to $326 million, and its pre-tax income increased 14% to $143 million.
• Maintained strong capital and liquidity positions, with a Tier 1 leverage ratio of 12.7% and a total capital ratio of 24.3%, both exceeding regulatory requirements.
• RJF corporate cash of $3.31 billion provides substantial liquidity.
• The Board of Directors increased the quarterly cash dividend on common shares by 8% to $0.54 per share.
• The Board authorized common stock repurchases of up to $2 billion, replacing the previous authorization.
• Announced agreements to acquire GreensLedge Holdings LLC and Clark Capital Management Group, Inc., expected to close in fiscal 2026 and funded by cash on hand, adding strategic capabilities.
• The Voluntary Application for Imposition of Requirements (VREQ) with the Financial Conduct Authority (FCA) for Raymond James Investment Services Limited (UK subsidiary) was lifted in January 2026.

Negatives

• Pre-tax income decreased 3% to $728 million compared to the prior-year quarter.
• Net income available to common shareholders decreased 6% to $562 million.
• Diluted earnings per common share decreased 2% to $2.79.
• Investment banking revenues decreased 36% to $208 million, primarily due to lower merger & acquisition and advisory revenues.
• RJBDP fees from third-party banks decreased 30% to $101 million, impacted by lower short-term interest rates and reduced average balances.
• The Capital Markets segment's pre-tax income decreased 88% to $9 million.
• The total compensation ratio increased to 65.6% from 64.2% in the prior-year quarter.
• The effective income tax rate increased to 22.7% from 19.9%.
• The Other segment's pre-tax loss increased to $(36) million from $(30) million, due to incremental interest expense from senior notes and lower interest income on corporate cash.
• Cash and cash equivalents decreased by $1.5 billion during the quarter.

Risks

• Market risk from changes in market prices on trading inventory, derivatives, and investment positions, including interest rate, credit spread, equity, and foreign exchange risks.
• Credit risk of loss due to adverse changes in a borrower's, issuer's, or counterparty's ability to meet financial obligations, affecting bank loans, brokerage margin loans, and financial advisor loans.
• Liquidity risk of being unable to meet expected or unexpected cash flow requirements, such as debt payments, credit commitments, and customer deposit withdrawals.
• Operational risk, including losses from business disruptions, improper transaction execution, technology deficiencies, control breaches, and cybersecurity incidents.
• Model risk, referring to unintended business outcomes arising from the design, implementation, or use of models.
• Compliance risk of legal or regulatory sanctions, financial loss, or reputational damage from non-compliance with applicable laws, standards, or internal requirements.
• Sensitivity to interest rate changes, where decreases in short-term interest rates are expected to generally reduce net earnings, particularly impacting net interest income and RJBDP fees from third-party banks.
• Potential credit rating downgrades, which could increase financing costs, hinder public debt offerings, trigger derivative contract terminations, damage reputation, and lead to client deposit withdrawals.
• Ongoing legal and regulatory matters, including an SEC inquiry into cash sweep programs and class action lawsuits regarding client rates, which could result in material losses, fines, or sanctions.
• Geographic concentration risk in residential mortgage loans (e.g., California, Florida, Texas, New York, Colorado), where natural disasters or severe weather events could lead to additional credit loss provisions and/or charge-offs.
• Collateral-dependent loans, where repayment is substantially reliant on the sale of underlying collateral, making them vulnerable to fluctuations in collateral value.
• Potential for increased nonperforming assets, credit loss allowance, and net charge-offs in future periods if market deterioration is prolonged, despite current low levels.

Future Outlook

Raymond James anticipates its combined net interest income and RJBDP fees from third-party banks will be unfavorably impacted in fiscal Q2 2026 due to the full-quarter effect of recent short-term interest rate decreases. However, declines in short-term interest rates are also expected to have an indirect favorable impact on certain non-interest-related components of net revenues. The company intends to deploy capital for the announced acquisitions of GreensLedge and Clark Capital, both expected to close later in fiscal 2026. Raymond James expects to continue paying cash dividends, subject to operating results and regulatory requirements, and does not anticipate current capital requirements will negatively impact future business activities. The company is evaluating the impact of new accounting guidance on purchased loans (ASU 2025-08).

Management Comments

• "We believe our strong capital and liquidity positions enable us to invest in growth across our businesses and remain opportunistic in our capital deployment."
• "We intend to vigorously defend against the claims asserted by the remaining named plaintiffs [in class action lawsuits related to cash sweep programs]."
• "We expect to continue paying cash dividends."

Industry Context

StockSavvy.ai notes that Raymond James's performance reflects broader industry trends where wealth management and asset management fees benefit from market appreciation and strong advisor recruitment, while investment banking remains sensitive to M&A cycle downturns. The impact of declining interest rates on net interest income and cash sweep fees is a common challenge for financial institutions with significant banking operations, requiring strategic adjustments to deposit offerings and asset allocation. The lifting of the FCA VREQ for its UK subsidiary suggests a positive resolution of a regulatory matter, potentially allowing for renewed growth in that market.

Comparison to Industry Standards

• Raymond James's December 31, 2025, percentage of over 30-day delinquent residential mortgage loans (0.09%) compares favorably to the national average of 1.86% as most recently reported by the Fed.

Corporate Governance

Legal Proceedings

• SEC's Division of Enforcement requested information regarding cash sweep programs for investment advisory clients, with the firm cooperating with the inquiry (ongoing since August 2024).
• Three putative class action lawsuits were filed in federal district court alleging breach of fiduciary duties or agreements regarding rates paid to clients in cash sweep programs; these cases were consolidated, and one plaintiff's claims were voluntarily dismissed. The firm intends to vigorously defend against the remaining claims.
• A Voluntary Application for Imposition of Requirements (VREQ) with the Financial Conduct Authority (FCA) for Raymond James Investment Services Limited (UK subsidiary), which prohibited onboarding new branches or financial advisors without prior consent, was lifted in January 2026.
• The estimated upper end of the range of reasonably possible aggregate loss for legal and regulatory matters was approximately $10 million in excess of aggregate accruals as of December 31, 2025.

Related Party Transactions

• RJBDP fees paid to PCG from the Bank segment are eliminated in consolidation.
• Cash loaned by the parent company (RJF) to RJ&A totaled $1.23 billion as of December 31, 2025.
• RJF maintained depository accounts at Raymond James Bank and TriState Capital Bank totaling $380 million as of December 31, 2025.
• Assets managed for affiliated entities ($16.1 billion as of December 31, 2025) are included in both AMS and Raymond James Investment Management AUM but removed in the calculation of Total financial assets under management to avoid double-counting.

Stakeholder Impact

• Shareholders: Benefit from an increased quarterly dividend and a new $2 billion share repurchase authorization, but face lower diluted EPS and ROCE. Strategic acquisitions could offer long-term value.
• Employees/Financial Advisors: Continued investment in talent is evident through increased compensation expenses in the PCG segment due to growth and recruiting activities. Share-based compensation plans remain active.
• Customers/Clients: Experience continued growth in client assets and fee-based accounts. The Enhanced Savings Program (ESP) offers higher yields and FDIC coverage. However, cash sweep programs are subject to regulatory scrutiny and class action lawsuits regarding rates paid.
• Regulatory Authorities: The company maintains compliance with capital requirements and is cooperating with an SEC inquiry. A previous VREQ for a UK subsidiary was successfully lifted, indicating resolution of a regulatory matter.
• Creditors: Stable credit ratings (A-/A3/A-) are maintained, but there is a risk of increased financing costs if ratings were to deteriorate.

Next Steps

• Closing of the acquisition of a majority stake in GreensLedge Holdings LLC in fiscal 2026.
• Closing of the acquisition of all outstanding shares in Clark Capital Management Group, Inc. in fiscal 2026.
• Redemption of Series B Preferred Stock to be reflected in fiscal Q2 2026 financial statements.
• Adoption of ASU 2023-09 (income tax disclosures) in the fiscal year 2026 Form 10-K.
• Continued monitoring of market conditions by the Federal Reserve for additional short-term interest rate adjustments.
• Continued payment of cash dividends.
• Evaluation of the impact of ASU 2025-08 (accounting for purchased loans) on financial condition and results of operations.

Key Dates

Recommendation

The company shows resilience in client asset growth and strategic expansion through acquisitions, but faces headwinds from declining interest rates and a challenging investment banking environment, leading to a dip in profitability. The dividend increase and share repurchase program offer some support, but the overall picture is mixed, suggesting a wait-and-see approach for now.

Keywords

Financial Services, Wealth Management, Investment Banking, Brokerage, Asset Management, Banking, SEC Filing, 10-Q, Quarterly Report, Earnings, Revenue, Net Income, EPS, AUA, AUM, Capital Ratios, Liquidity, Credit Risk, Market Risk, Regulatory Compliance, Acquisitions, Share Repurchase, Dividends, Interest Rates, Financial Advisor Recruiting