Raymond James Financial’s earnings fell short of analysts’ estimates for the second quarter running, but revenue grew to uncharted territory.

For the fiscal quarter that ended September 30, net income available to common shareholders was $2.02 per diluted share. Excluding $34 million of expenses related to acquisitions, adjusted net income available to common shareholders was $2.13 per share in the quarter. The average analyst estimate had projected adjusted net income of $2.25 per share.

For the quarter, the number of financial advisors in Raymond James's private client group was unchanged both sequentially and year-over-year at 8,712.

“In our view, this miss was primarily driven by weaker NII growth than expected,” said CFRA Research analyst Michael Elliott in an interview, referring to net interest income. NII advanced 12% year-over-year but slipped 7% from the previous quarter. Net interest margins dropped to 3.09% from 3.33% in the preceding quarter, he added.

But quarterly revenue came in at $3.05 billion, up 8% from the prior year’s fourth quarter. The average analyst revenue estimate was $3 billion.

This record quarterly revenue was primarily driven by higher asset management and related administrative fees, Paul Reilly, chair and CEO of Raymond James Financial, said in an earnings call.

Reilly also attributed the revenue increase to higher short-term interest rates on net interest income and third-party banking fees related to Raymond James Bank Deposit Program (RJBDP), in which uninvested brokerage-account funds are deposited into interest-bearing accounts.

Sequentially, net revenue in the quarter advanced 5% from the prior quarter, which Reilly said was mostly due to higher asset management fees and investment banking revenues.

Annual results also beat previous records.

In fiscal 2023, net revenue was $11.6 billion, a 6% gain from the prior year. Net income available to common shareholders increased 15% to $1.7 million, and the return on common equity for the year was 17.7%, up from just 17% a year ago.

In the conference call, chief financial officer Paul Shoukry explained that quarterly earnings were negatively impacted by legal and regulatory expenses, including $55 million related to a previously-disclosed SEC industry sweep on off-platform communications.

Independent broker-dealers’ profits are also being squeezed by outflows of cash, as investors continue to move money from lower-interest cash balance sweep accounts into higher-interest cash equivalents.

Not surprisingly, given industrywide outflows of cash into higher yielding cash equivalents, aggregate balances for Raymond James clients’ domestic cash sweep and in the enhanced savings program fell 16% year-over-year and 3% from the prior quarter to $56.4 billion.

Nevertheless, the Private Client Group generated record net revenues in the fiscal year and record pre-tax income. It saw net new assets of $14.2 billion in the quarter and $73.3 billion in the year. Net revenues advanced 14% year-over-year to $2.3 billion, a new quarterly record, and pretax income for the quarter surged 29% from the corresponding period a year earlier to $477 million.

The group also posted record annual net revenues of $8.65 billion, a 12% year-over-year gain, and record annual pre-tax income of $1.76 billion, a whopping 71% increase from the previous year.

That was on assets under administration of $1.2 trillion, a 16% jump year-over-year—though it represents a 2% sequential decrease.

“The Private Client Group growth remains impressive,” said Elliott. “AUM remains resilient and net new asset growth healthy at 5.0% annualized. Assets in fee-based accounts also rose 17% year-over-year.”

Reilly was similarly upbeat about these results. “Despite the challenging macroeconomic environment,” he said, ”our third consecutive year of record results once again highlights the strength of our diverse and complementary businesses.”

The challenging environment, he explained, included interest-rate volatility, high inflation, the possibility of recession, and “the geopolitical situation.”

But Reilly said that Raymond James is starting fiscal 2024 with a solid balance sheet, strong client asset levels, and “healthy pipelines for growth across the business.”

Still, he acknowledged keeping “focused on maintaining strong capital ratios and a flexible balance sheet to support our results in any market environment.”

Advisors, Reilly said, are “attracted to our robust technology capabilities and client-first values, leading to strong retention and recruiting across our employee, independent contractor and independent RIA affiliation options.”

The capital markets group did not fare as well.

Quarterly net revenues dropped 15% year-over-year to $341 million, and quarterly investment banking revenues declined 6% from the previous year to $194 million. Annual net revenue for the group fell 33% from fiscal 2022, to $1.2 billion.

Elliott said, however, that the capital markets group provides “significant headwinds” as CEO Reilly remains in “’risk-off’ mode given higher interest rates, continued geopolitical risks, and uncertainty around where the U.S. economy is headed over the next 12 months.”

He anticipates improved results next year, though not a return to the capital markets activity levels of 2021 and 2022.

Reilly was optimistic for the year ahead, too. “The investment banking pipeline remains healthy, and new business activity is solid,” he said.

Finally, bank loan growth was up 1% in the quarter compared to the same period a year ago. Elliott said that he does not expect big increases in loan growth until market volatility subsides. Nevertheless, he said, Raymond James is “well positioned to increase loans moving forward with a strong capital position.”