Raymond James Financial(RJF) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and related notes, offering a detailed view of the company's financial position, performance, and cash flows for the quarter ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements, including the statements of financial condition, income, changes in shareholders' equity, and cash flows, along with detailed notes providing context and breakdowns of key accounts and accounting policies Condensed Consolidated Statements of Financial Condition (Unaudited) This statement provides a snapshot of the company's assets, liabilities, and shareholders' equity as of December 31, 2023, and September 30, 2023 Condensed Consolidated Statements of Financial Condition (Unaudited) | $ in millions, except per share amounts | December 31, 2023 | September 30, 2023 | | :-------------------------------------- | :---------------- | :----------------- | | Total assets | 80,130 | 78,360 | | Total liabilities | 69,349 | 68,173 | | Total shareholders' equity | 10,781 | 10,187 | - Total assets increased by $1,770 million (2.26%) from September 30, 2023, to December 31, 2023[8] - Total liabilities increased by $1,176 million (1.72%) over the same period[8] - Total shareholders' equity increased by $594 million (5.83%) from September 30, 2023, to December 31, 2023[8] Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited) This statement details the company's revenues, expenses, net income, and comprehensive income for the three months ended December 31, 2023, and 2022 Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited) | in millions, except per share amounts | Three months ended December 31, 2023 | Three months ended December 31, 2022 | | :------------------------------------ | :----------------------------------- | :----------------------------------- | | Total revenues | 3,520 | 3,027 | | Interest expense | (507) | (241) | | Net revenues | 3,013 | 2,786 | | Total non-interest expenses | 2,383 | 2,134 | | Pre-tax income | 630 | 652 | | Net income | 498 | 509 | | Net income available to common shareholders | 497 | 507 | | Earnings per common share – diluted | 2.32 | 2.30 | | Total comprehensive income | 776 | 600 | - Total revenues increased by $493 million (16.29%) year-over-year[9] - Net income available to common shareholders decreased by $10 million (1.97%) year-over-year[9] - Diluted earnings per common share increased by $0.02 (0.87%) year-over-year[9] Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) This statement outlines the changes in retained earnings, treasury stock, and accumulated other comprehensive loss for the periods presented Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) | $ in millions, except per share amounts | December 31, 2023 | December 31, 2022 | | :-------------------------------------- | :---------------- | :---------------- | | Retained earnings (end of period) | 10,609 | 9,254 | | Treasury stock (end of period) | (2,365) | (1,604) |\ | Accumulated other comprehensive loss (end of period) | (693) | (891) | | Total shareholders' equity (end of period) | 10,781 | 9,830 | - Retained earnings increased by $396 million during the three months ended December 31, 2023, primarily due to net income attributable to Raymond James Financial, Inc. of $498 million, partially offset by common and preferred stock cash dividends declared of $102 million[11] - Treasury stock increased by $113 million due to purchases/surrenders of $159 million, partially offset by reissuances of $46 million[11] - Accumulated other comprehensive loss improved by $278 million due to other comprehensive income, net of tax[11] Condensed Consolidated Statements of Cash Flows (Unaudited) This statement presents the cash flows from operating, investing, and financing activities, and the net change in cash and cash equivalents Condensed Consolidated Statements of Cash Flows (Unaudited) | $ in millions | Three months ended December 31, 2023 | Three months ended December 31, 2022 | | :------------------------------------ | :----------------------------------- | :----------------------------------- | | Net cash provided by/(used in) operating activities | 543 | (3,136) | | Net cash used in investing activities | (176) | (666) | | Net cash provided by financing activities | 907 | 221 | | Net increase/(decrease) in cash and cash equivalents, including those segregated for regulatory purposes and restricted cash | 1,389 | (3,366) | | Cash and cash equivalents, including those segregated for regulatory purposes and restricted cash at end of period | 13,937 | 11,293 | - Net cash provided by operating activities significantly improved to $543 million in Q1 FY2024 from a use of $3,136 million in Q1 FY2023[14][17] - Net cash provided by financing activities increased to $907 million in Q1 FY2024 from $221 million in Q1 FY2023, primarily due to an increase in bank deposits[14][17] - Total cash and cash equivalents, including segregated and restricted cash, increased by $1,389 million to $13,937 million at period-end[14][17] Note 1 - Organization and basis of presentation This note describes Raymond James Financial, Inc.'s business as a financial holding company and the basis for preparing its unaudited consolidated financial statements - RJF is a financial holding company providing investment management, M&A advisory, securities underwriting, and banking/trust services[20] - Financial statements consolidate RJF and its controlled subsidiaries, including Variable Interest Entities (VIEs) where RJF is the primary beneficiary[21] - Interim financial statements are unaudited and reflect management's necessary adjustments and estimates, which may differ from actual results[22][23] Note 2 - Update of significant accounting policies This note details the adoption of new accounting guidance related to troubled debt restructurings and credit losses, with no material impact on financial position or results - Adopted ASU 2022-02 on October 1, 2023, eliminating the discounted cash flow approach for TDRs and allowing a CECL approach for all loans[26] - New disclosures are required for loan modifications to borrowers experiencing financial difficulty and for current period gross charge-offs by year of origination[26] - The adoption of this guidance did not have a material impact on the company's financial position or results of operations[26] Note 3 - Fair value This note provides detailed fair value measurements for assets and liabilities, categorized by Level 1, 2, and 3 inputs, on a recurring and nonrecurring basis Assets at fair value on a recurring basis (December 31, 2023) | Category | Level 1 ($M) | Level 2 ($M) | Level 3 ($M) | Netting Adjustments ($M) | Total ($M) | | :---------------------------------------- | :----------- | :----------- | :----------- | :----------------------- | :----------- | | Trading assets | 80 | 1,022 | 1 | — | 1,103 | | Available-for-sale securities | 1,149 | 8,049 | — | — | 9,198 | | Derivative assets | 8 | 375 | — | (188) | 195 | | All other investments | 178 | 2 | 29 | — | 209 | | Other assets - client-owned fractional shares | 110 | — | — | — | 110 | | Private equity - measured at NAV | — | — | — | — | 101 | | Total Assets at Fair Value | 1,525 | 9,448 | 30 | (188) | 10,916 | Liabilities at fair value on a recurring basis (December 31, 2023) | Category | Level 1 ($M) | Level 2 ($M) | Level 3 ($M) | Netting Adjustments ($M) | Total ($M) | | :---------------------------------------- | :----------- | :----------- | :----------- | :----------------------- | :----------- | | Trading liabilities | 179 | 615 | — | — | 794 | | Derivative liabilities | 9 | 415 | — | (114) | 310 | | Other payables - repurchase liabilities | 110 | — | — | — | 110 | | Total Liabilities at Fair Value | 298 | 1,030 | — | (114) | 1,214 | - As of December 31, 2023, 14% of assets and 2% of liabilities were measured at fair value on a recurring basis, with Level 3 assets representing less than 1% of recurring fair value assets[38] Note 4 - Available-for-sale securities This note details the available-for-sale securities portfolio, including fair value, cost basis, and unrealized gains and losses, primarily consisting of agency MBS and U.S. Treasuries Available-for-sale securities (Fair Value) | Date | Cost Basis ($M) | Gross Unrealized Gains ($M) | Gross Unrealized Losses ($M) | Fair Value ($M) | | :----------------- | :-------------- | :-------------------------- | :--------------------------- | :-------------- | | Dec 31, 2023 | 10,092 | 3 | (897) | 9,198 | | Sep 30, 2023 | 10,433 | — | (1,252) | 9,181 | - The weighted-average life of the AFS portfolio was approximately 4.0 years as of December 31, 2023[53] - As of December 31, 2023, 1,030 securities were in a continuous unrealized loss position for greater than 12 months, totaling $(897) million in unrealized losses[57] Note 5 - Derivative assets and derivative liabilities This note outlines the fair value of derivative assets and liabilities, and their use in hedging interest rate and foreign exchange risks, with impacts on AOCI and earnings Derivative Balances (December 31, 2023) | Category | Gross Fair Value Assets ($M) | Gross Fair Value Liabilities ($M) | Notional Amount ($M) | | :---------------------------------------- | :--------------------------- | :---------------------------- | :------------------- | | Derivatives not designated as hedging instruments | 377 | 416 | 20,081 | | Derivatives designated as hedging instruments | 6 | 8 | 2,433 | | Total Gross Fair Value/Notional | 383 | 424 | 22,514 | | Net amounts presented on Condensed Consolidated Statements of Financial Condition | 195 | 310 | N/A | Losses Included in AOCI, Net of Taxes (Three months ended December 31) | $ in millions | 2023 | 2022 | | :------------------------------------ | :--- | :--- | | Interest rate (cash flow hedges) | (21) | (2) | | Foreign exchange (net investment hedges) | (22) | (14) | | Total losses included in AOCI, net of taxes | (43) | (16) | Gains/(Losses) on Derivatives Not Designated as Hedging Instruments (Three months ended December 31, 2023) | $ in millions | Location of gain/(loss) | 2023 | | :------------------------------------ | :---------------------- | :--- | | Interest rate | Principal transactions/other revenues | 1 | | Foreign exchange | Other revenues | (33) | Note 6 - Collateralized agreements and financings This note details collateralized agreements and financings, including repurchase agreements and securities lending, and assets pledged with the FHLB and FRB Collateralized Agreements and Financings (December 31, 2023) | Category | Gross Amounts ($M) | Net Amounts ($M) | | :--------------------------------- | :----------------- | :--------------- | | Collateralized agreements | 454 | 12 | | Collateralized financings | 516 | 15 | Repurchase Agreements and Securities Lending Transactions by Maturity (December 31, 2023) | $ in millions | Overnight and continuous | | :--------------------------------- | :----------------------- | | Repurchase agreements | 169 | | Securities loaned | 347 | | Total collateralized financings| 516 | Assets Pledged with FHLB and FRB (December 31, 2023) | $ in millions | Amount | | :--------------------------------- | :----- | | Available-for-sale securities | 3,947 | | Bank loans | 10,396 |\ | Total assets pledged | 14,343 | Note 7 - Bank loans, net This note provides a breakdown of bank loans, net, including changes in the allowance for credit losses and nonperforming loans, by loan category Bank Loans, Net (December 31, 2023 vs. September 30, 2023) | $ in millions | December 31, 2023 | September 30, 2023 | | :--------------------------------- | :---------------- | :----------------- | | SBL | 14,647 | 14,606 | | C&I loans | 10,503 | 10,406 | | CRE loans | 7,331 | 7,221 | | REIT loans | 1,697 | 1,668 | | Residential mortgage loans | 8,861 | 8,662 | | Tax-exempt loans | 1,411 | 1,541 | | Total loans held for investment | 44,450 | 44,104 | | Held for sale loans | 211 | 145 | | Total loans held for sale and investment | 44,661 | 44,249 | | Allowance for credit losses | (479) | (474) | | Bank loans, net | 44,182 | 43,775 | Allowance for Credit Losses on Held for Investment Bank Loans (Three months ended December 31, 2023) | $ in millions | SBL | C&I loans | CRE loans | REIT loans | Residential mortgage loans | Tax-exempt loans | Total | | :--------------------------------- | :-- | :-------- | :-------- | :--------- | :------------------------- | :--------------- | :---- | | Balance at beginning of period | 7 | 214 | 161 | 16 | 74 | 2 | 474 | | Provision/(benefit) for credit losses | — | 3 | 14 | 1 | (6) | — | 12 | | Net (charge-offs)/recoveries | — | (6) | (2) | — | — | — | (8) | | Balance at end of period | 7 | 211 | 174 | 17 | 68 | 2 | 479 | Nonperforming Loans and Assets (December 31, 2023 vs. September 30, 2023) | $ in millions | December 31, 2023 | September 30, 2023 | | :--------------------------------- | :---------------- | :----------------- | | Nonperforming loans | 164 | 128 | | Nonperforming assets | 164 | 128 | | Nonperforming loans as a % of total loans held for sale and investment | 0.37 % | 0.29 % | | Allowance for credit losses as a % of nonperforming loans | 292 % | 370 % | Note 8 - Loans to financial advisors, net This note details loans to financial advisors, net, primarily for recruiting, and the associated allowance for credit losses Loans to Financial Advisors, Net (December 31, 2023 vs. September 30, 2023) | $ in millions | December 31, 2023 | September 30, 2023 | | :--------------------------------- | :---------------- | :----------------- | | Affiliated with the firm as of period-end | 1,206 | 1,158 | | No longer affiliated with the firm as of period-end | 13 | 10 | | Total loans to financial advisors | 1,219 | 1,168 | | Allowance for credit losses | (35) | (32) | | Loans to financial advisors, net | 1,184 | 1,136 | | Allowance for credit losses as a percent of total loans to financial advisors | 2.87 % | 2.74 % | - Loans to financial advisors affiliated with the firm were predominantly current, while those no longer affiliated were predominantly past due for 180 days or more[119][120] Note 9 - Variable interest entities This note describes the company's consolidation of Variable Interest Entities (VIEs) and its variable interests in non-consolidated VIEs, primarily LIHTC funds Aggregate Assets and Liabilities of Consolidated VIEs (December 31, 2023) | $ in millions | Aggregate assets | Aggregate liabilities | | :--------------------------------- | :--------------- | :-------------------- | | LIHTC funds | 123 | 50 | | Restricted Stock Trust Fund | 29 | 29 | | Total | 152 | 79 | Carrying Value of Consolidated VIE Assets and Liabilities (December 31, 2023) | $ in millions | December 31, 2023 | | :--------------------------------- | :---------------- | | Assets: Cash and cash equivalents and assets segregated for regulatory purposes and restricted cash | 14 | | Other assets | 109 | | Total assets | 123 | | Liabilities: Other payables | 30 | | Total liabilities | 30 | Risk of Loss from VIEs Not Consolidated (December 31, 2023) | $ in millions | Our risk of loss | | :--------------------------------- | :--------------- | | LIHTC funds | 47 | | Private Equity Interests | 101 | | Other | 3 | | Total | 151 | Note 10 - Other assets This note provides a breakdown of other assets, including investments in company-owned life insurance, property and equipment, and lease right-of-use assets Components of Other Assets (December 31, 2023 vs. September 30, 2023) | $ in millions | December 31, 2023 | September 30, 2023 | | :---------------------------------------- | :---------------- | :----------------- | | Investments in company-owned life insurance policies | 1,228 | 1,110 | | Property and equipment, net | 580 | 561 | | Lease right-of-use ("ROU") assets | 552 | 560 | | Prepaid expenses | 257 | 209 | | Investments in FHLB and FRB stock | 114 | 114 | | Client-owned fractional shares | 110 | 98 | | All other | 219 | 141 | | Total other assets | 3,060 | 2,793 | - Total other assets increased by $267 million (9.56%) from September 30, 2023, to December 31, 2023[130] Note 11 - Leases This note details lease right-of-use assets and lease liabilities, along with lease expense for the period Lease Balances (December 31, 2023 vs. September 30, 2023) | $ in millions | December 31, 2023 | September 30, 2023 | | :--------------------------------- | :---------------- | :----------------- | | ROU assets (included in "Other assets") | 552 | 560 | | Lease liabilities (included in "Other payables") | 537 | 539 | Lease Expense (Three months ended December 31) | $ in millions | 2023 | 2022 | | :--------------------------------- | :--- | :--- | | Lease costs | 35 | 31 | | Variable lease costs | 9 | 7 | - $42 million of minimum lease payments for legally binding but uncommenced leases are estimated to commence between fiscal year 2024 and 2025[132] Note 12 - Bank deposits This note provides a summary of bank deposits by type, weighted-average interest rates, FDIC insurance coverage, and interest expense on deposits Summary of Bank Deposits (December 31, 2023 vs. September 30, 2023) | $ in millions | Balance (Dec 31, 2023) | Weighted-average rate (Dec 31, 2023) | Balance (Sep 30, 2023) | Weighted-average rate (Sep 30, 2023) | | :--------------------------------- | :--------------------- | :----------------------------------- | :--------------------- | :----------------------------------- | | Money market and savings accounts | 31,315 | 1.96 % | 32,268 | 1.85 % | | Interest-bearing demand deposits | 20,423 | 5.02 % | 18,376 | 4.98 % | | Certificates of deposit | 2,885 | 4.63 % | 2,831 | 4.41 % | | Non-interest-bearing demand deposits | 770 | — | 724 | — | | Total bank deposits | 55,393 | 3.25 % | 54,199 | 3.06 % | FDIC-Insured Bank Deposits (December 31, 2023 vs. September 30, 2023) | $ in millions | December 31, 2023 | September 30, 2023 | | :--------------------------------- | :---------------- | :----------------- | | FDIC-insured bank deposits | 49,152 | 48,344 | | Bank deposits exceeding FDIC insurance limit | 6,241 | 5,855 | | Total bank deposits | 55,393 | 54,199 | | FDIC-insured bank deposits as a % of total bank deposits | 89 % | 89 % | Total Interest Expense on Deposits (Three months ended December 31) | $ in millions | 2023 | 2022 | | :--------------------------------- | :--- | :--- | | Money market and savings accounts | 156 | 117 | | Interest-bearing demand deposits | 243 | 47 | | Certificates of deposit | 32 | 8 | | Total interest expense on deposits | 431 | 172 | Note 13 - Other borrowings This note details other borrowings, primarily FHLB advances and subordinated notes, and the use of interest rate swaps to manage risk Components of Other Borrowings (December 31, 2023) | $ in millions | Weighted-average interest rate | Maturity date | Balance | | :--------------------------------- | :----------------------------- | :------------ | :------ | | FHLB advances - Floating rate - term | 5.71 % | March 2025 - June 2025 | 650 | | FHLB advances - Fixed rate | 4.76 % | March 2024 - December 2028 | 350 | | Subordinated notes | 5.75 % | May 2030 | 99 | | Total other borrowings | N/A | N/A | 1,099 | - The company uses interest rate swaps to manage the risk of increases in interest rates associated with floating-rate FHLB advances by converting them to a fixed interest rate[145] - No borrowings were outstanding on the $750 million revolving Credit Facility as of December 31, 2023[147] Note 14 - Income taxes This note explains the effective income tax rate, its drivers, and the potential decrease in uncertain tax position liability due to statute expirations - The effective income tax rate for the three months ended December 31, 2023, was 21.0%, lower than the 23.7% effective tax rate for fiscal year 2023 and 21.9% for the prior-year quarter[150][231] - The decrease in the effective income tax rate was primarily due to a larger tax benefit recognized from share-based compensation and the absence of prior-year non-deductible fines and penalties[150] - The uncertain tax position liability balance may decrease by up to $6 million within the next 12 months due to expiration of statutes of limitations[151] Note 15 - Commitments, contingencies and guarantees This note outlines significant lending commitments, unfunded investment commitments, and the estimated range of reasonably possible losses from legal and regulatory matters Lending Commitments and Other Credit-Related Off-Balance Sheet Financial Instruments (December 31, 2023 vs. September 30, 2023) | $ in millions | December 31, 2023 | September 30, 2023 | | :--------------------------------- | :---------------- | :----------------- | | SBL and other consumer lines of credit | 39,731 | 38,791 | | Commercial lines of credit | 4,144 | 4,131 | | Unfunded lending commitments | 869 | 936 | | Standby letters of credit | 112 | 123 | - Unfunded commitments to various investments, primarily held by Raymond James Bank and TriState Capital Bank, totaled $63 million as of December 31, 2023[160] - Raymond James Affordable Housing Investments, Inc. (RJAHI) had committed approximately $248 million to project partnerships that had not yet been sold to LIHTC funds[161] - The estimated upper end of the range of reasonably possible aggregate loss for legal and regulatory matters is approximately $35 million in excess of the aggregate accruals for such matters as of December 31, 2023[170] Note 16 - Shareholders' equity This note details changes in shareholders' equity, including common stock repurchases, dividends, and the impact of accumulated other comprehensive loss Common Shares Outstanding (Three months ended December 31) | Shares in millions | 2023 | 2022 | | :--------------------------------- | :--- | :--- | | Balance beginning of period | 208.8 | 215.1 | | Repurchases of common stock | (1.4) | (1.3) | | Issuances due to vesting of RSUs and exercise of stock options, net of forfeitures | 1.3 | 1.2 | | Balance end of period | 208.7 | 215.0 | - During the three months ended December 31, 2023, the company repurchased 1.41 million shares of common stock for $150 million at an average price of $106.51 per share[176] - As of December 31, 2023, $1.39 billion remained available under the Board of Directors' common stock repurchase authorization[176] Common Stock Dividends and Payout Ratio (Three months ended December 31) | Metric | 2023 | 2022 | | :--------------------------------- | :--- | :--- | | Dividends per common share - declared | $0.45 | $0.42 | | Dividend payout ratio | 19.4 % | 18.3 % | - Accumulated other comprehensive loss (AOCI) improved from $(971) million at the beginning of the period to $(693) million at the end of the period, driven by $278 million in other comprehensive income, net of tax, for the period[181] Note 17 - Revenues This note provides a breakdown of total revenues by type and net revenues by segment, highlighting key contributors to overall revenue growth Total Revenues by Type (Three months ended December 31) | Revenue Type | 2023 ($M) | 2022 ($M) | % Change | | :--------------------------------- | :-------- | :-------- | :------- | | Asset management and related administrative fees | 1,407 | 1,242 | 13.3% | | Brokerage revenues | 522 | 484 | 7.8% | | Account and service fees | 319 | 289 | 10.4% | | Investment banking | 181 | 141 | 28.4% | | Interest income | 1,053 | 827 | 27.3% | | Other | 38 | 44 | (13.6)% | | Total revenues | 3,520 | 3,027 | 16.3%| Net Revenues by Segment (Three months ended December 31, 2023) | Segment | Net Revenues ($M) | | :------------------ | :---------------- | | Private Client Group | 2,226 | | Capital Markets | 338 | | Asset Management | 235 | | Bank | 441 | | Other | 26 | | Intersegment eliminations | (253) | | Total net revenues | 3,013 | Note 18 - Interest income and interest expense This note details total interest income and expense, identifying primary drivers and the resulting net interest income for the period Interest Income and Expense (Three months ended December 31) | $ in millions | 2023 | 2022 | | :--------------------------------- | :--- | :--- | | Interest income: | | | | Bank loans, net | 734 | 599 | | Total interest income | 1,053 | 827 | | Interest expense: | | | | Bank deposits | 431 | 172 | | Total interest expense | 507 | 241 | | Net interest income | 546 | 586 | - Total interest income increased by $226 million (27.33%) year-over-year, primarily from bank loans[191] - Total interest expense increased by $266 million (110.37%) year-over-year, primarily from bank deposits[191] - Net interest income decreased by $40 million (6.83%) year-over-year[191] Note 19 - Share-based compensation This note outlines the granting of Restricted Stock Units (RSUs), share-based compensation amortization, and unrecognized compensation costs for RSUs and RSAs - Granted approximately 1.7 million RSUs with a weighted-average grant-date fair value of $106.68 during the three months ended December 31, 2023, compared with 1.9 million RSUs at $117.66 in the prior-year quarter[193] - Total share-based compensation amortization related to RSUs was $87 million for Q1 FY2024 (vs. $76 million in Q1 FY2023), and for RSAs was $2 million (vs. $3 million in Q1 FY2023)[193][195] - As of December 31, 2023, unrecognized pre-tax compensation costs were $425 million for RSUs (expected over three years) and $10 million for RSAs (expected over two years)[194][195] Note 20 - Regulatory capital requirements This note confirms that RJF and its banks exceeded 'well-capitalized' status, detailing regulatory capital ratios and potential impacts of proposed new rules RJF Regulatory Capital Ratios (December 31, 2023) | Ratio | Actual | Requirement for capital adequacy purposes | To be well-capitalized under regulatory provisions | | :---------------- | :----- | :---------------------------------------- | :----------------------------------------------- | | Tier 1 leverage | 12.1 % | 4.0 % | 5.0 % | | Tier 1 capital | 21.6 % | 6.0 % | 8.0 % | | CET1 | 21.5 % | 4.5 % | 6.5 % | | Total capital | 23.0 % | 8.0 % | 10.0 % | - RJF's regulatory capital increased compared with September 30, 2023, driven by an increase in equity due to positive earnings, partially offset by share repurchases and dividends[201] - Proposed U.S. banking regulators' rules, if enacted, could result in higher capital requirements and eliminate the AOCI opt-out election, potentially reducing regulatory capital ratios in the future[321] Note 21 - Earnings per share This note presents basic and diluted earnings per common share, along with net income available to common shareholders and average shares outstanding Earnings Per Common Share (Three months ended December 31) | in millions, except per share amounts | 2023 | 2022 | | :------------------------------------ | :--- | :--- | | Net income available to common shareholders | 497 | 507 | | Average common shares in basic computation | 208.6 | 214.7 | | Average common and common equivalent shares used in diluted computation | 213.8 | 220.4 | | Earnings per common share – basic | $2.38 | $2.36 | | Earnings per common share – diluted | $2.32 | $2.30 | - Diluted earnings per common share increased by $0.02 (0.87%) year-over-year[209] Note 22 - Segment information This note provides a detailed breakdown of net revenues, pre-tax income, total assets, and goodwill by the company's operating segments Net Revenues and Pre-tax Income by Segment (Three months ended December 31) | $ in millions | Net revenues 2023 | Net revenues 2022 | Pre-tax income/(loss) 2023 | Pre-tax income/(loss) 2022 | | :------------------ | :---------------- | :---------------- | :------------------------- | :------------------------- | | Private Client Group | 2,226 | 2,063 | 439 | 434 | | Capital Markets | 338 | 295 | 3 | (16) | | Asset Management | 235 | 207 | 93 | 80 | | Bank | 441 | 508 | 92 | 136 | | Other | 26 | 9 | 3 | 18 | | Total | 3,013 | 2,786 | 630 | 652 | Total Assets by Segment (December 31, 2023 vs. September 30, 2023) | $ in millions | December 31, 2023 | September 30, 2023 | | :------------------ | :---------------- | :----------------- | | Private Client Group | 12,744 | 12,375 | | Capital Markets | 2,732 | 3,087 | | Asset Management | 569 | 567 | | Bank | 61,517 | 60,041 | | Other | 2,568 | 2,290 | | Total | 80,130 | 78,360 | Goodwill by Segment (December 31, 2023 vs. September 30, 2023) | $ in millions | December 31, 2023 | September 30, 2023 | | :------------------ | :---------------- | :----------------- | | Private Client Group | 571 | 564 | | Capital Markets | 275 | 275 | | Asset Management | 69 | 69 | | Bank | 529 | 529 | | Total | 1,444 | 1,437 | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides a comprehensive overview of the company's financial performance and condition, including an executive summary, segment results, financial condition analysis, liquidity, capital resources, regulatory updates, and risk management strategies Factors affecting "forward-looking statements" This section cautions that forward-looking statements involve risks and uncertainties, and actual results may differ materially from expectations - Forward-looking statements involve risks, uncertainties, and assumptions, and actual results may differ materially from those expressed[225] - Investors are cautioned not to unduly rely on forward-looking statements and to carefully consider risks described in SEC filings[225] - The company expressly disclaims any obligation to update any forward-looking statement[225] Introduction This introduction explains that the MD&A supplements financial statements, highlighting the impact of economic conditions and market factors on company results - The MD&A supplements the condensed consolidated financial statements to help readers understand operations and financial condition[226] - Company results are highly correlated to general economic conditions, U.S. equity and fixed income markets, changes in interest rates, market volatility, and credit trends[227] - Overall market conditions, economic, political, and regulatory trends, and industry competition are unpredictable factors beyond the company's control[227] Executive overview This overview summarizes key financial performance metrics for the quarter, including net revenues, pre-tax income, EPS, and return on equity Key Financial Performance (Q1 FY2024 vs. Q1 FY2023) | Metric | Q1 FY2024 ($M) | Q1 FY2023 ($M) | % Change | | :---------------------------------------- | :------------- | :------------- | :------- | | Net revenues | 3,013 | 2,786 | 8% | | Pre-tax income | 630 | 652 | (3)% | | Net income available to common shareholders | 497 | 507 | (2)% | | Diluted EPS ($) | 2.32 | 2.30 | 1% | | Annualized ROCE | 19.1% | 21.3% | (2.2) pp | | Annualized ROTCE | 23.0% | 26.2% | (3.2) pp | - Net revenue increase was driven by higher asset management fees and brokerage revenues, partially offset by a 3% decrease in combined net interest income and RJBDP fees due to increased interest expense from a shift to higher-cost deposits[229] - Compensation, commissions and benefits expense increased 11%, leading to a compensation ratio of 63.8% (vs. 62.3% YoY)[230] - Non-compensation expenses increased 16%, partly due to a $32 million prior-year insurance settlement and a $9 million FDIC special assessment[230] - The company anticipates a further decline of an estimated 5% in combined net interest income and RJBDP fees in Q2 FY2024 due to lower net interest income in the Bank segment[232] Reconciliation of non-GAAP financial measures to GAAP financial measures This section provides a reconciliation of non-GAAP financial measures, such as adjusted net income and adjusted return on equity, to their GAAP equivalents Adjusted Net Income Available to Common Shareholders (Three months ended December 31) | $ in millions, except per share amounts | 2023 | 2022 | | :-------------------------------------- | :--- | :--- | | Net income available to common shareholders | 497 | 507 | | Total non-GAAP adjustments, net of tax | 17 | (2) | | Adjusted net income available to common shareholders | 514 | 505 | Adjusted Diluted Earnings Per Common Share (Three months ended December 31) | $ in millions, except per share amounts | 2023 | 2022 | | :-------------------------------------- | :--- | :--- | | Diluted earnings per common share | $2.32 | $2.30 | | Total non-GAAP adjustments, net of tax | 0.08 | (0.01) | | Adjusted diluted earnings per common share | $2.40 | $2.29 | Adjusted Return on Common Equity and Tangible Common Equity (Three months ended December 31) | Metric | 2023 | 2022 | | :-------------------------------------- | :--- | :--- | | Adjusted return on common equity | 19.7 % | 21.2 % | | Adjusted return on tangible common equity | 23.8 % | 26.1 % | Net interest analysis This analysis details the drivers of net interest income and net interest margin, including changes in interest-earning assets and interest-bearing liabilities - Combined net interest income and RJBDP fees from third-party banks decreased 3% to $698 million for Q1 FY2024 compared with the prior-year quarter[241] - The decrease was primarily due to a significant increase in interest expense, resulting from a shift in the mix of deposit balances in the Bank segment towards higher-cost ESP balances[241] Consolidated Average Interest-Earning Assets and Interest-Bearing Liabilities (Q1 FY2024 vs. Q1 FY2023) | Category | Average daily balance 2023 ($M) | Annualized average rate 2023 | Average daily balance 2022 ($M) | Annualized average rate 2022 | | :------------------------------------ | :------------------------------ | :--------------------------- | :------------------------------ | :--------------------------- | | Total interest-earning assets | 73,014 | 5.69 % | 72,719 | 4.48 % | | Total interest-bearing liabilities | 63,997 | 3.15 % | 64,086 | 1.47 % | | Firmwide net interest income | 546 | N/A | 586 | N/A | | Firmwide net interest margin | 2.97 % | N/A | 3.19 % | N/A | Results of operations This section provides a detailed breakdown of the financial performance of each of the company's five operating segments for the quarter Private Client Group This section details the operating results of the Private Client Group, including net revenues, pre-tax income, and client asset balances Private Client Group Operating Results (Three months ended December 31) | $ in millions | 2023 | 2022 | % change | | :--------------------------------- | :--- | :--- | :------- | | Net revenues | 2,226 | 2,063 | 8 % | | Pre-tax income | 439 | 434 | 1 % | | Asset management and related administrative fees | 1,191 | 1,053 | 13 % | | Total brokerage revenues | 382 | 345 | 11 % | | Total account and service fees | 546 | 563 | (3)% | PCG Client Asset Balances (As of December 31) | $ in billions | 2023 | 2022 | | :--------------------------------- | :--- | :--- | | Assets under administration ("AUA") | 1,310.5 | 1,114.3 | | Assets in fee-based accounts | 746.6 | 633.1 | - PCG AUA and PCG assets in fee-based accounts each increased 9% compared with September 30, 2023, due to market appreciation and strong net inflows of client assets[257] Clients' Domestic Cash Sweep and ESP Balances (As of December 31) | $ in millions | 2023 | 2022 | | :--------------------------------- | :--- | :--- | | RJBDP: Bank segment | 23,912 | 39,098 | | RJBDP: Third-party banks | 17,820 | 18,231 | | Subtotal RJBDP | 41,732 | 57,329 | | ESP | 14,476 | — | | Total clients' domestic cash sweep and ESP balances | 57,973 | 60,382 | Capital Markets This section presents the operating results for the Capital Markets segment, focusing on net revenues, pre-tax income, and investment banking performance Capital Markets Operating Results (Three months ended December 31) | $ in millions | 2023 | 2022 | % change | | :--------------------------------- | :--- | :--- | :------- | | Net revenues | 338 | 295 | 15 % | | Pre-tax income/(loss) | 3 | (16) | NM | | Total brokerage revenues | 140 | 134 | 4 % | | Total investment banking | 170 | 133 | 28 % | - Investment banking revenues increased $37 million (28%) compared with the prior-year quarter, reflecting improved market conditions despite ongoing uncertainty[277] - Compensation-related expenses increased $25 million (12%) primarily due to the increase in revenues and annual cost increases[277] Asset Management This section outlines the operating results for the Asset Management segment, including net revenues, pre-tax income, and financial assets under management Asset Management Operating Results (Three months ended December 31) | $ in millions | 2023 | 2022 | % change | | :--------------------------------- | :--- | :--- | :------- | | Net revenues | 235 | 207 | 14 % | | Pre-tax income | 93 | 80 | 16 % | | Total asset management and related administrative fees | 224 | 197 | 14 % | Financial Assets Under Management (As of December 31) | $ in billions | 2023 | 2022 | | :--------------------------------- | :--- | :--- | | AMS | 154.2 | 129.5 | | RJIM | 73.3 | 67.4 | | Subtotal financial assets under management | 227.5 | 196.9 | | Less: Assets managed for affiliated entities | (12.5) | (11.0) | | Total financial assets under management | 215.0 | 185.9 | - Total financial assets under management increased to $227.5 billion as of December 31, 2023, from $207.9 billion at the beginning of the period, with $18.8 billion in net market appreciation[286] - Assets held in non-discretionary asset-based programs increased to $431.4 billion as of December 31, 2023, from $391.1 billion at September 30, 2023, primarily due to market appreciation, successful financial advisor recruiting and retention, and client migration to fee-based accounts[292] Bank This section details the operating results for the Bank segment, including net revenues, pre-tax income, net interest income, and net interest margin Bank Operating Results (Three months ended December 31) | $ in millions | 2023 | 2022 | % change | | :--------------------------------- | :--- | :--- | :------- | | Net revenues | 441 | 508 | (13)% | | Pre-tax income | 92 | 136 | (32)% | | Net interest income | 426 | 491 | (13)% | | Bank loan provision for credit losses | 12 | 14 | (14)% | - Net interest income decreased $65 million (13%) primarily due to increased interest expense resulting from a higher-cost mix of deposits, as balances from the ESP replaced a portion of lower-cost RJBDP cash sweep balances[302] - The net interest margin decreased to 2.74% from 3.36% for the prior-year quarter[302] - Non-compensation expenses, excluding the bank loan provision for credit losses, decreased $24 million (8%), primarily due to a decrease in RJBDP fees paid to PCG, partially offset by a $9 million FDIC special assessment[305] Other This section covers the operating results for the 'Other' segment, including net revenues and pre-tax income, and factors influencing their changes Other Segment Operating Results (Three months ended December 31) | $ in millions | 2023 | 2022 | % change | | :--------------------------------- | :--- | :--- | :------- | | Net revenues | 26 | 9 | 189 % | | Pre-tax income | 3 | 18 | (83)% | - Pre-tax income decreased $15 million (83%) compared with the prior-year quarter[308] - Net revenues increased $17 million primarily due to an increase in interest income earned as a result of higher short-term interest rates applicable to corporate cash balances[308] - Non-interest expenses increased $32 million, primarily due to a $32 million insurance settlement received during the prior-year quarter that did not recur in the current-year quarter[309] Statement of financial condition analysis This analysis reviews changes in total assets and liabilities, identifying key drivers such as cash, bank loans, bank deposits, and brokerage client payables - Total assets increased 2% to $80.13 billion as of December 31, 2023, from $78.36 billion at September 30, 2023[311] - Key asset increases include cash and cash equivalents (+$893 million), assets segregated for regulatory purposes and restricted cash (+$496 million), and bank loans, net (+$407 million)[311] - Total liabilities increased 2% to $69.35 billion as of December 31, 2023, from $68.17 billion at September 30, 2023[312] - Key liability changes include an increase in bank deposits (+$1.19 billion) and brokerage client payables (+$346 million), partially offset by a decrease in accrued compensation, commissions, and benefits (-$418 million)[312] Liquidity and capital resources This section discusses the company's liquidity position, capital adequacy, available credit facilities, and credit ratings, highlighting financial strength - RJF maintains substantial liquidity with $2.08 billion of corporate cash as of December 31, 2023[232][326] - Liquidity is principally available from RJ&A and Raymond James Bank, both of which significantly exceed minimum regulatory capital requirements and internal targets[333][334] - The company had $1 billion in FHLB borrowings outstanding at December 31, 2023, and an additional $9.37 billion in immediate credit available from the FHLB[340][341] - A $750 million committed unsecured Credit Facility was available, with no outstanding borrowings as of December 31, 2023[337] Credit Ratings (As of Most Current Report) | | Fitch Ratings, Inc. | Moody's | Standard & Poor's Ratings Services | | :---------------------- | :------------------ | :------ | :--------------------------------- | | Issuer and senior long-term debt: Rating | A- | A3 | A | | Outlook | Stable | Stable | Stable | - Company-owned life insurance policies had a cash surrender value of $1.01 billion as of December 31, 2023, with $909 million readily borrowable without restriction[350] Regulatory This section confirms regulatory capital compliance for subsidiaries and discusses potential impacts of proposed new rules, such as the 'Retirement Security Rule' - All active regulated domestic and international subsidiaries had net capital in excess of minimum requirements as of December 31, 2023[354] - RJF, Raymond James Bank, and TriState Capital Bank were categorized as "well-capitalized" as of December 31, 2023[354] - The proposed "Retirement Security Rule" by the Department of Labor, if finalized, could have a material adverse effect on the company's business and results of operations[355] Critical accounting estimates This section highlights key accounting estimates requiring significant management judgment, particularly for legal and regulatory loss provisions and the allowance for credit losses - The preparation of financial statements requires significant management judgment and estimates, particularly for loss provisions related to legal and regulatory matters and the allowance for credit losses (ACL)[357][358] - A hypothetical downside economic scenario could result in an approximate $230 million increase in the quantitative portion of the allowance for credit losses on bank loans[361] Accounting standards update This section details recent FASB Accounting Standards Updates related to segment reporting and income tax disclosures, and the company's evaluation of their impact - FASB issued ASU 2023-07 (segment reporting disclosures), effective for fiscal 2025, requiring disclosure of significant segment expenses[363] - FASB issued ASU 2023-09 (income tax disclosures), effective for fiscal 2026, enhancing tabular reconciliation of tax rates and disaggregating income taxes paid[364] - The company is evaluating the impact that this new guidance will have on its disclosures[363][364] Risk management This section describes the company's Enterprise Risk Management program, covering market, credit, liquidity, operational, model, and compliance risks - The company has a formal Enterprise Risk Management (ERM) program to assess and review aggregate risks across the firm, including market, credit, liquidity, operational, model, and compliance risks[366][367] - Market risk from trading activities is managed through dollar-based and exposure-based limits, and Value-at-Risk (VaR) monitoring[373][374] - Credit risk in the bank loan portfolio is managed through well-defined credit policies, uniform underwriting criteria, and ongoing risk monitoring and review processes[403] - The effective duration of the available-for-sale securities portfolio was approximately 3.37 as of December 31, 2023, indicating sensitivity to interest rate changes[387] - Delinquent residential mortgage loans (30+ days past due) were 0.09% of outstanding balances as of December 31, 2023, comparing favorably to the national average of 1.88%[416] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section refers to the "Risk management" section within Management's Discussion and Analysis for detailed quantitative and qualitative disclosures about market risk - Quantitative and qualitative disclosures about market risk are provided in the "Risk management" section of the MD&A[429] ITEM 4. CONTROLS AND PROCEDURES Management evaluated the effectiveness of disclosure controls and procedures, concluding they are effective with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective as of December 31, 2023[431] - No material changes in internal control over financial reporting occurred during the three months ended December 31, 2023[432] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, defaults, mine safety, other information, and exhibits ITEM 1. LEGAL PROCEEDINGS This section states that there are no legal proceedings to report - No legal proceedings to report[434] ITEM 1A. RISK FACTORS This section indicates that risk factors are not applicable for this quarterly report, typically referring to the annual 10-K for such disclosures - Risk factors are not applicable for this quarterly report[435] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The company reported no unregistered sales of securities, but repurchased 1.49 million common shares, with a new $1.5 billion repurchase authorization approved - No unregistered sales of equity securities occurred for the three months ended December 31, 2023[436] Purchases of Common Stock (Three months ended December 31, 2023) | | Total number of shares purchased | Average price per share | Number of shares purchased as part of publicly announced plans or programs | Approximate dollar value (in millions) at each month-end of securities that may yet be purchased under the plans or programs | | :--------------------------------- | :----------------------- | :---------------------- | :----------------------------------------------------------------------- | :----------------------------------------------------------------------------------------------------------------------- | | October 1, 2023 – October 31, 2023 | 2,602 | $100.13 | — | $750 | | November 1, 2023 – November 30, 2023 | 516,466 | $99.63 | 439,678 | $1,500 | | December 1, 2023 – December 31, 2023 | 970,735 | $110.03 | 968,566 | $1,393 | | First quarter | 1,489,803 | $106.40 | 1,408,244 | N/A | - In November 2023, the Board of Directors authorized common stock repurchases of up to $1.5 billion, which replaced the previous authorization[438] - As of December 31, 2023, $1.39 billion remained available[438] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This section states that there were no defaults upon senior securities - No defaults upon senior securities[441] ITEM 4. MINE SAFETY DISCLOSURES This section states that mine safety disclosures are not applicable - Mine safety disclosures are not applicable[442] ITEM 5. OTHER INFORMATION No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - No directors or officers ado