Raymond James Financial(RJF) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (Unaudited) Presents the company's unaudited condensed consolidated financial statements and detailed explanatory notes Condensed Consolidated Statements of Financial Condition (Unaudited) Condensed Consolidated Statements of Financial Condition (Unaudited) | Metric | March 31, 2024 ($ in millions) | September 30, 2023 ($ in millions) | Change ($ in millions) | | :--- | :--- | :--- | :--- | | Total Assets | 81,232 | 78,360 | 2,872 | | Total Liabilities | 70,253 | 68,173 | 2,080 | | Total Shareholders' Equity | 10,979 | 10,187 | 792 | Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited) Condensed Consolidated Statements of Income (Unaudited) - Three Months Ended March 31 | Metric | 2024 ($ in millions) | 2023 ($ in millions) | Change ($ in millions) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | 3,638 | 3,157 | 481 | 15.2% | | Net Revenues | 3,118 | 2,873 | 245 | 8.5% | | Net Income available to common shareholders | 474 | 425 | 49 | 11.5% | | Earnings per common share – diluted | 2.22 | 1.93 | 0.29 | 15.0% | Condensed Consolidated Statements of Income (Unaudited) - Six Months Ended March 31 | Metric | 2024 ($ in millions) | 2023 ($ in millions) | Change ($ in millions) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | 7,158 | 6,184 | 974 | 15.7% | | Net Revenues | 6,131 | 5,659 | 472 | 8.3% | | Net Income available to common shareholders | 971 | 932 | 39 | 4.2% | | Earnings per common share – diluted | 4.54 | 4.23 | 0.31 | 7.3% | Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) - Six Months Ended March 31 | Metric | 2024 ($ in millions) | 2023 ($ in millions) | Change ($ in millions) | | :--- | :--- | :--- | :--- | | Total shareholders' equity (End of period) | 10,979 | 9,969 | 1,010 | | Retained earnings (End of period) | 10,988 | 9,590 | 1,398 | | Treasury stock (End of period) | (2,547) | (1,954) | (593) | Condensed Consolidated Statements of Cash Flows (Unaudited) Condensed Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended March 31 | Metric | 2024 ($ in millions) | 2023 ($ in millions) | Change ($ in millions) | | :--- | :--- | :--- | :--- | | Net cash provided by/(used in) operating activities | 934 | (3,760) | 4,694 | | Net cash used in investing activities | (109) | (319) | 210 | | Net cash provided by financing activities | 266 | 2,522 | (2,256) | | Cash and cash equivalents, including segregated for regulatory purposes and restricted cash at end of period | 13,706 | 13,360 | 346 | Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1 - Organization and basis of presentation - Raymond James Financial, Inc (RJF) is a financial holding company engaged in diverse financial services, including investment management, M&A advisory, securities brokerage, and corporate/retail banking services[19] - The unaudited condensed consolidated financial statements include RJF and its controlled subsidiaries, including Variable Interest Entities (VIEs) where RJF is the primary beneficiary[20] - Interim financial statements are condensed and rely on management estimates and assumptions, which may differ from actual results[21][22] Note 2 - Update of significant accounting policies - No significant changes to accounting policies occurred during the three and six months ended March 31, 2024, other than the adoption of new or amended accounting guidance[24] - The company adopted ASU 2022-02 related to troubled debt restructurings (TDRs) and credit loss disclosures on October 1, 2023, which did not have a material impact on its financial position or results of operations[25] Note 3 - Fair value Assets at Fair Value on a Recurring Basis (March 31, 2024) | Level | Amount ($ in millions) | | :--- | :--- | | Level 1 | 1,545 | | Level 2 | 9,621 | | Level 3 | 33 | | Total | 11,096 | Liabilities at Fair Value on a Recurring Basis (March 31, 2024) | Level | Amount ($ in millions) | | :--- | :--- | | Level 1 | 385 | | Level 2 | 1,088 | | Level 3 | 0 | | Total | 1,388 | - As of March 31, 2024, 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 assets measured at fair value on a recurring basis[42] Private Equity Investments Measured at NAV (March 31, 2024) | Metric | Amount ($ in millions) | | :--- | :--- | | Recorded value | 99 | | Unfunded commitment | 26 | Note 4 - Available-for-sale securities Available-for-Sale Securities (March 31, 2024 vs September 30, 2023) | Metric | March 31, 2024 ($ in millions) | September 30, 2023 ($ in millions) | | :--- | :--- | :--- | | Total Fair Value | 9,031 | 9,181 | | Total Gross Unrealized Gains | 3 | 0 | | Total Gross Unrealized Losses | (931) | (1,252) | | Total Cost Basis | 9,959 | 10,433 | - The available-for-sale securities portfolio primarily consists of agency residential MBS, agency commercial MBS, agency CMOs, and U.S. Treasuries[54] - As of March 31, 2024, the weighted-average life of the available-for-sale securities portfolio, after factoring in estimated prepayments, was approximately 3.9 years, with a weighted-average yield of 2.25%[57][58] - No sales of available-for-sale securities occurred during the three and six months ended March 31, 2024 and 2023[63] Note 5 - Derivative assets and derivative liabilities Derivative Balances (March 31, 2024) | Metric | Derivative Assets ($ in millions) | Derivative Liabilities ($ in millions) | Notional Amount ($ in millions) | | :--- | :--- | :--- | :--- | | Derivatives not designated as hedging instruments | 403 | 447 | 20,791 | | Derivatives designated as hedging instruments | 5 | 3 | 2,498 | | Total Gross Fair Value/Notional Amount | 408 | 450 | 23,289 | | Net amounts presented on the Condensed Consolidated Statements of Financial Condition | 206 | 365 | N/A | Gains/(Losses) on Derivatives Not Designated as Hedging Instruments (Six Months Ended March 31) | Type | 2024 ($ in millions) | 2023 ($ in millions) | | :--- | :--- | :--- | | Interest rate | 4 | 11 | | Foreign exchange | (8) | (36) | | Other | 0 | (1) | - Certain derivative contracts contain credit-risk-related contingent features; the aggregate fair value of those in a liability position was $2 million as of March 31, 2024[74] Note 6 - Collateralized agreements and financings Collateralized Agreements and Financings (March 31, 2024) | Type | Gross Amounts ($ in millions) | | :--- | :--- | | Collateralized Agreements: || | Reverse repurchase agreements | 449 | | Securities borrowed | 278 | | Total Collateralized Agreements | 727 | | Collateralized Financings: || | Repurchase agreements | 371 | | Securities loaned | 584 | | Total Collateralized Financings | 955 | - Collateral received that was available to be delivered or repledged totaled $3,464 million as of March 31, 2024[84] Assets Pledged with FHLB or FRB (March 31, 2024) | Asset Type | Amount ($ in millions) | | :--- | :--- | | Available-for-sale securities | 3,796 | | Bank loans | 10,483 | | Total Assets Pledged | 14,279 | Note 7 - Bank loans, net Bank Loans, Net (March 31, 2024 vs September 30, 2023) | Metric | March 31, 2024 ($ in millions) | September 30, 2023 ($ in millions) | | :--- | :--- | :--- | | Total Loans Held for Investment | 44,424 | 44,104 | | Held for Sale Loans | 146 | 145 | | Allowance for Credit Losses (ACL) | (471) | (474) | | Bank Loans, Net | 44,099 | 43,775 | | ACL as a % of total loans held for investment | 1.06% | 1.07% | Changes in Allowance for Credit Losses (ACL) on Held for Investment Bank Loans (Six Months Ended March 31, 2024) | Metric | Amount ($ in millions) | | :--- | :--- | | Balance at beginning of period | 474 | | Provision for credit losses | 33 | | Net charge-offs | (36) | | Balance at end of period | 471 | | ACL by loan portfolio segment as a % of total ACL: C&I loans (41.7%), CRE loans (38.4%), Residential mortgage loans (14.2%) | N/A | Nonaccrual Loans (March 31, 2024) | Loan Portfolio Segment | Amount ($ in millions) | | :--- | :--- | | C&I loans | 66 | | CRE loans | 103 | | Residential mortgage loans | 0 | | Total Nonaccrual Loans | 169 | Note: $103 million of these nonaccrual loans were current per their contractual terms Note 8 - Loans to financial advisors, net Loans to Financial Advisors, Net (March 31, 2024 vs September 30, 2023) | Metric | March 31, 2024 ($ in millions) | September 30, 2023 ($ in millions) | | :--- | :--- | :--- | | Total Loans to Financial Advisors | 1,223 | 1,168 | | Allowance for Credit Losses | (33) | (32) | | Loans to Financial Advisors, Net | 1,190 | 1,136 | | ACL as a percent of total loans to financial advisors | 2.70% | 2.74% | - Loans to affiliated financial advisors were predominantly current, while loans to non-affiliated advisors were mostly past due for 180 days or more[122][123] Note 9 - Variable interest entities Consolidated VIEs (March 31, 2024) | Entity | Aggregate Assets ($ in millions) | Aggregate Liabilities ($ in millions) | | :--- | :--- | :--- | | LIHTC funds | 152 | 75 | | Restricted Stock Trust Fund | 28 | 28 | | Total | 180 | 103 | VIEs Where RJF Holds a Variable Interest but is Not the Primary Beneficiary (March 31, 2024) | Entity | Our Risk of Loss ($ in millions) | | :--- | :--- | | LIHTC funds | 67 | | Private Equity Interests | 99 | | Other | 3 | | Total Risk of Loss | 169 | Note 10 - Goodwill and identifiable intangible assets, net - Goodwill and identifiable intangible assets, net, totaled $1,894 million as of March 31, 2024, slightly down from $1,907 million at September 30, 2023[8] - The company performed its latest annual impairment testing as of January 1, 2024, using qualitative assessments, and identified no impairment[134][135] Note 11 - Other assets Components of Other Assets (March 31, 2024 vs September 30, 2023) | Component | March 31, 2024 ($ in millions) | September 30, 2023 ($ in millions) | | :--- | :--- | :--- | | Investments in company-owned life insurance policies | 1,312 | 1,110 | | Property and equipment, net | 596 | 561 | | Lease right-of-use ("ROU") assets | 538 | 560 | | Prepaid expenses | 258 | 209 | | Total Other Assets | 3,202 | 2,793 | Note 12 - Leases Lease Balances (March 31, 2024 vs September 30, 2023) | Metric | March 31, 2024 ($ in millions) | September 30, 2023 ($ in millions) | | :--- | :--- | :--- | | ROU assets | 538 | 560 | | Lease liabilities | 528 | 539 | Lease Expense (Three Months Ended March 31) | Metric | 2024 ($ in millions) | 2023 ($ in millions) | | :--- | :--- | :--- | | Lease costs | 34 | 32 | | Variable lease costs | 10 | 8 | Note 13 - Bank deposits Bank Deposits Summary (March 31, 2024 vs September 30, 2023) | Metric | March 31, 2024 Balance ($ in millions) | March 31, 2024 Weighted-average rate | September 30, 2023 Balance ($ in millions) | September 30, 2023 Weighted-average rate | | :--- | :--- | :--- | :--- | :--- | | Money market and savings accounts | 31,094 | 2.11% | 32,268 | 1.85% | | Interest-bearing demand deposits | 20,784 | 4.97% | 18,376 | 4.98% | | Certificates of deposit | 2,471 | 4.68% | 2,831 | 4.41% | | Non-interest-bearing demand deposits | 494 | — | 724 | — | | Total Bank Deposits | 54,843 | 3.32% | 54,199 | 3.06% | - FDIC-insured bank deposits totaled $48,268 million, representing 88% of total bank deposits as of March 31, 2024[146] Total Interest Expense on Deposits (Three Months Ended March 31) | Metric | 2024 ($ in millions) | 2023 ($ in millions) | | :--- | :--- | :--- | | Money market and savings accounts | 159 | 128 | | Interest-bearing demand deposits | 252 | 62 | | Certificates of deposit | 30 | 16 | | Total Interest Expense on Deposits | 441 | 206 | Note 14 - Other borrowings Other Borrowings (March 31, 2024 vs September 30, 2023) | Metric | March 31, 2024 Balance ($ in millions) | September 30, 2023 Balance ($ in millions) | | :--- | :--- | :--- | | FHLB advances | 1,000 | 1,000 | | Subordinated notes | 99 | 100 | | Unsecured lines of credit | 200 | 0 | | Total Other Borrowings | 1,299 | 1,100 | - FHLB advances include floating-rate term (5.65% weighted-average interest rate) and fixed-rate (4.77% weighted-average interest rate) advances[152] - RJF and RJ&A have a $750 million revolving credit facility with no outstanding borrowings as of March 31, 2024[154] Note 15 - Income taxes - The effective income tax rate for the six months ended March 31, 2024, was 21.4%, a decrease from 23.7% for fiscal year 2023[158] - The decrease was primarily due to a larger tax benefit from nontaxable valuation gains on company-owned life insurance policies and lower nondeductible fines and penalties[158] - It is reasonably possible that the uncertain tax position liability balance may decrease by up to $6 million within the next 12 months due to the expiration of statutes of limitations[159] Note 16 - Commitments, contingencies and guarantees Lending Commitments and Other Credit-Related Off-Balance Sheet Financial Instruments (March 31, 2024) | Type | Amount ($ in millions) | | :--- | :--- | | SBL and other consumer lines of credit | 41,269 | | Commercial lines of credit | 4,482 | | Unfunded lending commitments | 749 | | Standby letters of credit | 125 | - Unfunded commitments for loans to financial advisors totaled $27 million as of March 31, 2024[167] - The company reached a settlement in principle with the SEC for a $50 million civil monetary penalty related to records preservation requirements, which was accrued as of March 31, 2024[174] - The estimated upper end of the range of reasonably possible aggregate loss for other legal and regulatory matters was approximately $30 million in excess of the aggregate accruals as of March 31, 2024[177] Note 17 - Shareholders' equity Preferred Stock (March 31, 2024) | Metric | Amount | | :--- | :--- | | Shares outstanding | 80,500 | | Carrying value ($ in millions) | 79 | | Aggregate liquidation preference ($ in millions) | 81 | Common Stock Repurchases (Six Months Ended March 31, 2024) | Metric | Amount | | :--- | :--- | | Shares repurchased (in millions) | 3.1 | | Total cost ($ in millions) | 357 | | Average price per share | $114.96 | Common Stock Dividends Declared (Six Months Ended March 31) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Dividends per common share | $0.90 | $0.84 | | Dividend payout ratio | 19.8% | 19.9% | - Accumulated other comprehensive loss (AOCI) improved from $(971) million at September 30, 2023, to $(724) million at March 31, 2024[8][190] Note 18 - Revenues Total Revenues by Segment (Three Months Ended March 31) | Segment | 2024 ($ in millions) | 2023 ($ in millions) | % Change | | :--- | :--- | :--- | :--- | | Private Client Group | 2,371 | 2,173 | 9% | | Capital Markets | 345 | 322 | 7% | | Asset Management | 252 | 216 | 17% | | Bank | 879 | 759 | 16% | | Other and intersegment eliminations | (209) | (313) | (33)% | | Total Revenues | 3,638 | 3,157 | 15% | Total Revenues by Segment (Six Months Ended March 31) | Segment | 2024 ($ in millions) | 2023 ($ in millions) | % Change | | :--- | :--- | :--- | :--- | | Private Client Group | 4,623 | 4,258 | 9% | | Capital Markets | 705 | 640 | 10% | | Asset Management | 487 | 423 | 15% | | Bank | 1,766 | 1,452 | 22% | | Other and intersegment eliminations | (423) | (589) | (28)% | | Total Revenues | 7,158 | 6,184 | 16% | - Net receivables related to contracts with customers were $576 million as of March 31, 2024, up from $519 million at September 30, 2023[199] Note 19 - Interest income and interest expense Interest Income and Expense (Three Months Ended March 31) | Metric | 2024 ($ in millions) | 2023 ($ in millions) | | :--- | :--- | :--- | | Total Interest Income | 1,049 | 915 | | Total Interest Expense | 520 | 284 | | Net Interest Income | 529 | 631 | | Bank loan provision for credit losses | (21) | (28) | | Net Interest Income after bank loan provision for credit losses | 508 | 603 | Interest Income and Expense (Six Months Ended March 31) | Metric | 2024 ($ in millions) | 2023 ($ in millions) | | :--- | :--- | :--- | | Total Interest Income | 2,102 | 1,742 | | Total Interest Expense | 1,027 | 525 | | Net Interest Income | 1,075 | 1,217 | | Bank loan provision for credit losses | (33) | (42) | | Net Interest Income after bank loan provision for credit losses | 1,042 | 1,175 | Note 20 - Share-based compensation - During the six months ended March 31, 2024, approximately 1.8 million Restricted Stock Units (RSUs) were granted with a weighted-average grant-date fair value of $107.21[204] Share-based Compensation Amortization (Three Months Ended March 31) | Metric | 2024 ($ in millions) | 2023 ($ in millions) | | :--- | :--- | :--- | | RSUs | 53 | 54 | | Restricted Stock Awards (RSAs) | 2 | 2 | - As of March 31, 2024, $377 million of total pre-tax compensation costs for RSUs and $8 million for RSAs were not yet recognized, expected to be recognized over weighted-average periods of three and two years, respectively[205][206] Note 21 - Regulatory capital requirements - RJF, Raymond James Bank, and TriState Capital Bank were all categorized as "well-capitalized" as of March 31, 2024, exceeding minimum regulatory capital requirements[209] RJF Regulatory Capital Ratios (March 31, 2024) | Metric | Actual Ratio | Requirement for Capital Adequacy | To be Well-Capitalized | | :--- | :--- | :--- | :--- | | Tier 1 leverage | 12.3% | 4.0% | 5.0% | | Tier 1 capital | 21.9% | 6.0% | 8.0% | | CET1 | 21.8% | 4.5% | 6.5% | | Total capital | 23.3% | 8.0% | 10.0% | - RJF has elected the AOCI opt-out for regulatory capital purposes, excluding certain elements of Accumulated Other Comprehensive Income (AOCI) from capital calculations[210][360] - Proposed U.S. banking rules, if enacted, could result in higher capital requirements and the elimination of the AOCI opt-out election, with a three-year transition period[210][361] Raymond James & Associates, Inc. (RJ&A) Net Capital (March 31, 2024) | Metric | Amount ($ in millions) | | :--- | :--- | | Net capital | 993 | | Required net capital | (59) | | Excess net capital | 934 | Note 22 - Earnings per share Earnings Per Common Share (Three Months Ended March 31) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Basic | $2.27 | $1.97 | | Diluted | $2.22 | $1.93 | Earnings Per Common Share (Six Months Ended March 31) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Basic | $4.65 | $4.33 | | Diluted | $4.54 | $4.23 | - Weighted-average common and common equivalent shares outstanding (diluted) for the three months ended March 31, 2024, were 213.4 million, down from 219.2 million in the prior-year period[219] Note 23 - Segment information Net Revenues by Segment (Three Months Ended March 31, 2024) | Segment | Amount ($ in millions) | | :--- | :--- | | Private Client Group | 2,341 | | Capital Markets | 321 | | Asset Management | 252 | | Bank | 424 | | Other | 17 | | Intersegment eliminations | (237) | | Total Net Revenues | 3,118 | Pre-tax Income/(Loss) by Segment (Three Months Ended March 31, 2024) | Segment | Amount ($ in millions) | | :--- | :--- | | Private Client Group | 444 | | Capital Markets | (17) | | Asset Management | 100 | | Bank | 75 | | Other | 7 | | Total Pre-tax Income | 609 | Net Revenues by Geographic Area (Three Months Ended March 31, 2024) | Geographic Area | Amount ($ in millions) | | :--- | :--- | | U.S. | 2,846 | | Canada | 155 | | Europe | 117 | | Total Net Revenues | 3,118 | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's perspective on financial condition, operational results, and risk management strategies Factors affecting "forward-looking statements" - Forward-looking statements in this report concern future strategic objectives, business prospects, financial results, market conditions, acquisitions, litigation, regulatory developments, and general economic conditions[236] - These statements are not guarantees and involve risks, uncertainties, and assumptions, with actual results potentially differing materially from those expressed[236] - Investors are cautioned not to rely unduly on forward-looking statements and to carefully consider the risks described in the company's SEC filings[236] Introduction - The MD&A supplements the condensed consolidated financial statements and accompanying notes[237] - The company operates as a financial holding company and bank holding company, with results highly correlated to general economic conditions, U.S. equity and fixed income markets, interest rates, market volatility, and credit trends[238] - Overall market conditions, economic, political, and regulatory trends, and industry competition are unpredictable factors beyond the company's control that affect financial decisions and business results[238] Executive overview Key Financial Highlights (Q2 FY2024 vs Q2 FY2023) | Metric | 2024 ($ in millions, except EPS) | 2023 ($ in millions, except EPS) | % Change | | :--- | :--- | :--- | :--- | | Net Revenues | 3,118 | 2,873 | 9% | | Pre-tax Income | 609 | 557 | 9% | | Net Income available to common shareholders | 474 | 425 | 12% | | Diluted EPS | 2.22 | 1.93 | 15% | | Annualized Return on Common Equity (ROCE) | 17.5% | 17.3% | 0.2 pp | | Annualized Return on Tangible Common Equity (ROTCE) | 21.0% | 21.3% | (0.3 pp) | Key Financial Highlights (H1 FY2024 vs H1 FY2023) | Metric | 2024 ($ in millions, except EPS) | 2023 ($ in millions, except EPS) | % Change | | :--- | :--- | :--- | :--- | | Net Revenues | 6,131 | 5,659 | 8% | | Pre-tax Income | 1,239 | 1,209 | 2% | | Net Income available to common shareholders | 971 | 932 | 4% | | Diluted EPS | 4.54 | 4.23 | 7% | | Annualized ROCE | 18.3% | 19.3% | (1.0 pp) | | Annualized ROTCE | 22.0% | 23.8% | (1.8 pp) | - Revenue growth was primarily driven by higher asset management and related administrative fees, brokerage revenues, and investment banking revenues[241][247] - Combined net interest income and RJBDP fees declined due to a significant increase in interest expense, primarily from a shift in deposit mix at the Bank segment towards higher-cost ESP and certificates of deposit[241][247] - Compensation, commissions and benefits expense increased 12% in Q2 FY2024 due to higher compensable revenues and annual salary increases[242] - The effective income tax rate decreased to 21.8% in Q2 FY2024, primarily due to a larger tax benefit from company-owned life insurance policies and lower nondeductible fines and penalties[243] - The company repurchased 1.70 million common shares for $207 million in Q2 FY2024, with $1.14 billion remaining available under the Board's authorization as of the Form 10-Q filing date[244] Reconciliation of non-GAAP financial measures to GAAP financial measures - The company utilizes non-GAAP financial measures to provide useful information to management and investors by excluding certain material items not indicative of core operating results, facilitating comparison of current- and prior-period results[251] Adjusted Net Income Available to Common Shareholders (Q2 FY2024 vs Q2 FY2023) | Metric | 2024 ($ in millions) | 2023 ($ in millions) | % Change | | :--- | :--- | :--- | :--- | | Net income available to common shareholders (GAAP) | 474 | 425 | 11.5% | | Total non-GAAP adjustments, net of tax | 20 | 21 | (4.8)% | | Adjusted net income available to common shareholders | 494 | 446 | 10.8% | Adjusted Diluted Earnings Per Common Share (Q2 FY2024 vs Q2 FY2023) | Metric | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Diluted earnings per common share (GAAP) | $2.22 | $1.93 | 15.0% | | Total non-GAAP adjustments, net of tax (per share) | $0.09 | $0.10 | (10.0)% | | Adjusted diluted earnings per common share | $2.31 | $2.03 | 13.8% | Adjusted Return on Common Equity (ROCE) and Tangible Common Equity (ROTCE) (Q2 FY2024 vs Q2 FY2023) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Return on common equity (GAAP) | 17.5% | 17.3% | | Adjusted return on common equity | 18.3% | 18.2% | | Return on tangible common equity (GAAP) | 21.0% | 21.3% | | Adjusted return on tangible common equity | 21.8% | 22.3% | Net interest analysis - The Fed funds target rate increased from 3.00%-3.25% at September 30, 2022, to 5.25%-5.50% at March 31, 2024, impacting the company's interest-sensitive assets and liabilities[258] - Combined net interest income and RJBDP fees from third-party banks declined in Q2 and H1 FY2024 due to a significant increase in interest expense, primarily from a shift to higher-cost deposits (ESP, CDs) in the Bank segment[260] Firmwide Net Interest Income and Margin (Q2 FY2024 vs Q2 FY2023) | Metric | 2024 ($ in millions) | 2023 ($ in millions) | Change ($ in millions) | | :--- | :--- | :--- | :--- | | Firmwide Net Interest Income | 529 | 631 | (102) | | Firmwide Net Interest Margin | 2.91% | 3.59% | (0.68 pp) | Firmwide Net Interest Income and Margin (H1 FY2024 vs H1 FY2023) | Metric | 2024 ($ in millions) | 2023 ($ in millions) | Change ($ in millions) | | :--- | :--- | :--- | :--- | | Firmwide Net Interest Income | 1,075 | 1,217 | (142) | | Firmwide Net Interest Margin | 2.94% | 3.38% | (0.44 pp) | Results of operations Private Client Group PCG Operating Results (Q2 FY2024 vs Q2 FY2023) | Metric | 2024 ($ in millions) | 2023 ($ in millions) | % Change | | :--- | :--- | :--- | :--- | | Net Revenues | 2,341 | 2,144 | 9% | | Pre-tax Income | 444 | 441 | 1% | PCG Operating Results (H1 FY2024 vs H1 FY2023) | Metric | 2024 ($ in millions) | 2023 ($ in millions) | % Change | | :--- | :--- | :--- | :--- | | Net Revenues | 4,567 | 4,207 | 9% | | Pre-tax Income | 883 | 875 | 1% | - Asset management and related administrative fees increased 16% in Q2 FY2024 and 15% in H1 FY2024, driven by higher assets in fee-based accounts due to market appreciation and advisor recruiting[292][297] - Brokerage revenues increased 12% in Q2 FY2024 and 11% in H1 FY2024, primarily due to higher client activity and asset values[293][298] - Account and service fees decreased 5% in Q2 FY2024 and 4% in H1 FY2024, mainly due to lower RJBDP fees from the Bank segment, partially offset by increased fees from third-party banks and mutual fund service fees[294][299] PCG Key Metrics (March 31, 2024 vs March 31, 2023) | Metric | March 31, 2024 | March 31, 2023 | % Change | | :--- | :--- | :--- | :--- | | Assets under administration (AUA) ($ in billions) | 1,388.8 | 1,114.3 | 24.6% | | Assets in fee-based accounts ($ in billions) | 798.8 | 633.1 | 26.2% | | Total advisors | 8,761 | 8,726 | 0.4% | | Total clients' domestic cash sweep and ESP balances ($ in millions) | 58,217 | 52,221 | 11.5% | Capital Markets Capital Markets Operating Results (Q2 FY2024 vs Q2 FY2023) | Metric | 2024 ($ in millions) | 2023 ($ in millions) | % Change | | :--- | :--- | :--- | :--- | | Net Revenues | 321 | 302 | 6% | | Pre-tax Loss | (17) | (34) | 50% (reduced loss) | Capital Markets Operating Results (H1 FY2024 vs H1 FY2023) | Metric | 2024 ($ in millions) | 2023 ($ in millions) | % Change | | :--- | :--- | :--- | :--- | | Net Revenues | 659 | 597 | 10% | | Pre-tax Loss | (14) | (50) | 72% (reduced loss) | - Investment banking revenues increased 18% in Q2 FY2024 and 23% in H1 FY2024, primarily due to improved merger & acquisition and advisory revenues and higher debt underwriting revenues[306][309] - Brokerage revenues decreased 6% in Q2 FY2024 due to lower fixed income brokerage revenues, primarily from lower interest rate volatility[307] - Non-compensation expenses decreased 7% in Q2 FY2024 and 4% in H1 FY2024, mainly due to lower provisions for legal and regulatory matters and legal fee expenses[308][310] Asset Management Asset Management Operating Results (Q2 FY2024 vs Q2 FY2023) | Metric | 2024 ($ in millions) | 2023 ($ in millions) | % Change | | :--- | :--- | :--- | :--- | | Net Revenues | 252 | 216 | 17% | | Pre-tax Income | 100 | 82 | 22% | Asset Management Operating Results (H1 FY2024 vs H1 FY2023) | Metric | 2024 ($ in millions) | 2023 ($ in millions) | % Change | | :--- | :--- | :--- | :--- | | Net Revenues | 487 | 423 | 15% | | Pre-tax Income | 193 | 162 | 19% | - Asset management and related administrative fees increased 17% in Q2 FY2024 and 16% in H1 FY2024, driven by higher beginning balances of financial assets under management (AUM) and assets in non-discretionary asset-based programs due to market appreciation[327][330] Financial Assets Under Management (March 31, 2024 vs March 31, 2023) | Metric | March 31, 2024 ($ in billions) | March 31, 2023 ($ in billions) | % Change | | :--- | :--- | :--- | :--- | | AMS | 165.7 | 136.5 | 21.4% | | RJIM | 74.4 | 69.4 | 7.2% | | Total Financial Assets Under Management | 226.8 | 194.4 | 16.7% | - Net market appreciation in asset values contributed $30.2 billion to financial assets under management during the six months ended March 31, 2024[318] - Non-compensation expenses increased 15% in Q2 FY2024 and 13% in H1 FY2024, largely due to higher investment sub-advisory fees[328][331] Bank Bank Operating Results (Q2 FY2024 vs Q2 FY2023) | Metric | 2024 ($ in millions) | 2023 ($ in millions) | % Change | | :--- | :--- | :--- | :--- | | Net Revenues | 424 | 540 | (21)% | | Pre-tax Income | 75 | 91 | (18)% | Bank Operating Results (H1 FY2024 vs H1 FY2023) | Metric | 2024 ($ in millions) | 2023 ($ in millions) | % Change | | :--- | :--- | :--- | :--- | | Net Revenues | 865 | 1,048 | (17)% | | Pre-tax Income | 167 | 227 | (26)% | - Net interest income decreased 22% in Q2 FY2024 and 18% in H1 FY2024, primarily due to increased interest expense from a higher-cost deposit mix (ESP replacing lower-cost RJBDP balances)[335][340] - Bank segment net interest margin decreased to 2.66% in Q2 FY2024 (from 3.63%) and 2.70% in H1 FY2024 (from 3.51%)[335][340] - Bank loan provision for credit losses was $21 million in Q2 FY2024 (down 25%) and $33 million in H1 FY2024 (down 21%), reflecting an improved economic outlook and net loan payments, partially offset by specific reserves and loan downgrades[336][341] - Non-compensation expenses, excluding the bank loan provision for credit losses, decreased 25% in Q2 FY2024 and 17% in H1 FY2024, mainly due to lower RJBDP fees paid to PCG, partially offset by increased expenses related to deposits and an $11 million FDIC special assessment in H1 FY2024[337][342] Other Other Segment Operating Results (Q2 FY2024 vs Q2 FY2023) | Metric | 2024 ($ in millions) | 2023 ($ in millions) | Change ($ in millions) | | :--- | :--- | :--- | :--- | | Pre-tax Income/(Loss) | 7 | (23) | 30 | Other Segment Operating Results (H1 FY2024 vs H1 FY2023) | Metric | 2024 ($ in millions) | 2023 ($ in millions) | Change ($ in millions) | | :--- | :--- | :--- | :--- | | Pre-tax Income/(Loss) | 10 | (5) | 15 | - Net revenues increased $7 million in Q2 FY2024 and $24 million in H1 FY2024, primarily due to higher interest income on corporate cash balances resulting from increased short-term interest rates[345][347] - Non-interest expenses decreased $23 million in Q2 FY2024, primarily due to a net legal and regulatory reserve release[346] - Non-interest expenses increased $9 million in H1 FY2024, due to a prior-year insurance settlement and higher compensation expenses, partially offset by the current-year net legal and regulatory reserve release[348] Statement of financial condition analysis - Total assets increased by $2.87 billion (4%) to $81.23 billion as of March 31, 2024, compared to September 30, 2023[350] - Key asset increases included cash and cash equivalents (+$688M), assets segregated for regulatory purposes (+$470M), other assets (+$409M, partially due to company-owned life insurance policies), other receivables (+$391M), bank loans, net (+$324M), and collateralized agreements (+$309M)[350] - Total liabilities increased by $2.08 billion (3%) to $70.25 billion as of March 31, 2024, compared to September 30, 2023[351] - Key liability increases included bank deposits (+$644M, driven by ESP and interest-bearing demand deposits), collateralized financings (+$618M), and brokerage client payables (+$591M)[351] Liquidity and capital resources - The company prioritizes liquidity management to ensure adequate funding across various economic and market environments, maintaining higher liquidity levels during stress[353] - Common equity is the primary component of the capital structure, providing loss absorption and discretion over capital actions[358] - RJF is subject to the Fed's capital rules, requiring minimum leverage, Tier 1, CET1, and Total capital ratios, and has elected the AOCI opt-out for regulatory capital purposes[359][360] - Proposed U.S. banking rules could increase capital requirements and eliminate the AOCI opt-out election, with a three-year transition period[361] - RJF corporate cash was approximately $2.03 billion as of March 31, 2024[366] - The company had $1 billion in FHLB borrowings outstanding and $9.52 billion in immediate credit available from the FHLB as of March 31, 2024[381][382] - RJF and RJ&A have a $750 million committed unsecured Credit Facility, with no outstanding borrowings as of March 31, 2024[376] - Issuer and senior long-term debt credit ratings are A- (Fitch), A3 (Moody's), and A (S&P), all with a Stable outlook as of March 2024/February 2024[389] - Company-owned life insurance policies had a cash surrender value of $1.09 billion, with $984 million readily borrowable, as of March 31, 2024[391] Regulatory - All active regulated domestic and international subsidiaries, including RJF, Raymond James Bank, and TriState Capital Bank, were in compliance with and exceeded all applicable regulatory capital requirements, categorized as "well-capitalized" as of March 31, 2024[395] - The SEC's final rule on climate-related disclosures (effective FY2026/2027) is currently stayed pending judicial review, with the company evaluating its impact[396] - The DOL's final rule expanding the "investment advice fiduciary" definition (effective September 23, 2024) may require alterations to business practices and additional costs[397] - The FTC's final rule prohibiting most new non-competition agreements (effective 120 days after Federal Register publication) is being evaluated for its impact on business practices and compensation expense recognition[398] Critical accounting estimates - The company's financial statements rely on critical accounting estimates, particularly for loss provisions related to legal and regulatory matters and the allowance for credit losses (ACL) on bank loans, which involve significant management judgment and complexity[400][401][402] - ACL estimates are based on credit risk models incorporating historical data, current conditions, and reasonable/supportable economic forecasts, with potential for volatility[402][403] - A hypothetical downside economic scenario could result in an increase of approximately $210 million in the quantitative portion of the ACL on bank loans as of March 31, 2024[404] Accounting standards update - The FASB issued ASU 2023-07 (segment reporting disclosures), effective for annual periods beginning in fiscal 2025 and interim periods beginning in fiscal Q1 2026, which the company is evaluating[408] - The FASB issued ASU 2023-09 (income tax disclosures), effective for annual periods beginning in fiscal 2026, which the company is also evaluating[409] Risk management - The company employs a multi-faceted Enterprise Risk Management (ERM) program to assess and review aggregate risks, including market, credit, liquidity, operational, model, and compliance risks[411][412] - Risk governance involves the Board of Directors (Risk and Audit Committees) and a three-line risk management model (businesses, Compliance/Risk Management, Internal Audit)[413] Market risk - The company is exposed to market risk primarily through broker-dealer trading operations and banking operations, related to interest rates, equity prices, and foreign exchange rates[414] - Interest rate risk in trading is actively managed through hedging strategies (e.g, U.S. Treasuries, derivatives) and position limits, with Value-at-Risk (VaR) monitored daily[417][418][419] Estimated Net Interest Income Sensitivity to Instantaneous Rate Shifts (12-month period, March 31, 2024) | Instantaneous Change in Rate (bps) | Net Interest Income ($ in millions) | Projected Change in Net Interest Income | | :--- | :--- | :--- | | +200 | $1,932 | 13% | | +100 | $1,853 | 8% | | 0 | $1,711 | —% | | -100 | $1,596 | (7)% | | -200 | $1,580 | (8)% | - As of March 31, 2024, the available-for-sale securities portfolio had a fair value of $9.03 billion, a weighted-average yield of 2.25%, a weighted-average life of 3.9 years, and an effective duration of approximately 3.30[432] - Foreign exchange risk arises from investments in foreign subsidiaries (e.g, Canadian subsidiary with CAD 1.35 billion in loans) and transactions denominated in non-USD currencies[439] Credit risk - Credit risk is the risk of loss from adverse changes in a borrower's, issuer's, or counterparty's ability to meet financial obligations, managed through exposure monitoring, credit reviews, and collateral[444][446] - The bank loan portfolio's credit risk management includes well-defined credit policies, uniform underwriting criteria, and ongoing risk monitoring and review processes[450] Net Loan (Charge-offs)/Recoveries (Six Months Ended March 31) | Loan Portfolio Segment | 2024 Amount ($ in millions) | 2024 Annualized % of Avg. Outstanding Loans | 2023 Amount ($ in millions) | 2023 Annualized % of Avg. Outstanding Loans | | :--- | :--- | :--- | :--- | :--- | | C&I loans | (29) | 0.56% | (24) | 0.43% | | CRE loans | (7) | 0.19% | 2 | 0.06% | | Total loans held for sale and investment | (36) | 0.16% | (22) | 0.10% | Nonperforming Loans and Assets (March 31, 2024 vs September 30, 2023) | Metric | March 31, 2024 ($ in millions) | September 30, 2023 ($ in millions) | | :--- | :--- | :--- | | Nonperforming loans | 187 | 128 | | Nonperforming assets | 187 | 128 | | Nonperforming loans as a % of total loans held for sale and investment | 0.42% | 0.29% | | Allowance for credit losses as a % of nonperforming loans | 252% | 370% | | Nonperforming assets as a % of Bank segment total assets | 0.31% | 0.21% | - Delinquent residential mortgage loans (two or more payments past due or in foreclosure) totaled $7 million (0.08% of outstanding balances) as of March 31, 2024, which compares favorably to the national average of 1.94%[462] - Office real estate loans within the CRE portfolio face increased risks from higher interest rates, tenant lease renewal uncertainty, and refinancing risks; 11% were criticized and 5% nonperforming as of March 31, 2024[471][472] Liquidity risk - Information regarding liquidity risk management is provided in the "Liquidity and capital resources" section of this Form 10-Q[474] Operational risk - Operational risk includes losses from business disruptions, transaction errors, technology deficiencies, and control breaches, such as cybersecurity incidents[475] - The transition to a T+1 settlement timeframe for securities transactions (effective late May 2024) increases operational risk but is not expected to have a material impact due to preparation efforts[476] - Periods of severe market volatility can lead to operational challenges and potential losses from trade errors, failed settlements, or system interruptions[477] Model risk - Model risk refers to unintended business outcomes arising from the design, implementation, or use of models, managed through the company's Model Risk Management function[480] Compliance risk - Compliance risk is the risk of legal or regulatory sanctions, financial loss, or reputational damage from failure to comply with applicable laws, external standards, or internal requirements[481] ITEM 3. Quantitative and Qualitative Disclosures about Market Risk Refers to the MD&A section for detailed quantitative and qualitative disclosures about market risk - Quantitative and qualitative disclosures about market risk are provided in "Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk management" of this Form 10-Q[482] ITEM 4. Controls and Procedures Confirms the effectiveness of disclosure controls and procedures with no material changes to internal controls - Disclosure controls and procedures were evaluated under the supervision and with the participation of management, including the CEO and CFO, and concluded to be effective as of March 31, 2024[484] - There were no changes during the three months ended March 31, 2024, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[485] PART II. OTHER INFORMATION ITEM 1. Legal Proceedings States there are no legal proceedings to report - There are no legal proceedings to report[487] ITEM 1A. Risk Factors Indicates that risk factor disclosures are not applicable for this quarterly report - Risk Factors are not applicable for this quarterly report[488] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds Details common stock repurchases under the Board's authorization and notes no unregistered equity sales - The company did not have any sales of unregistered securities for the six months ended March 31, 2024[489] Common Stock Purchases (Six Months Ended March 31, 2024) | Metric | Amount | | :--- | :--- | | Total number of shares purchased | 3,227,011 | | Average price per share | $114.66 | | Number of shares purchased as part of publicly announced plans or programs | 3,103,281 | | Approximate dollar value remaining under plans or programs (at March 31, 2024) | $1,187 million | - In November 2023, the Board of Directors authorized common stock repurchases of up to $1.5 billion, replacing the previous authorization[490] - Total shares purchased also include shares for the Restricted Stock Trust Fund and shares surrendered by employees for option exercises or withholding taxes, which do not utilize the public repurchase authorization[491][492] ITEM 3. Defaults Upon Senior Securities States there are no defaults upon senior securities to report - There are no defaults upon senior securities to report[493] ITEM 4. Mine Safety Disclosures States that mine safety disclosures are not applicable - Mine safety disclosures are not applicable[494] ITEM 5. Other Information Reports no adoption or termination of Rule 10b5-1 trading arrangements by directors or officers - None of the directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the three months ended March 31, 2024[495] ITEM 6. Exhibits Lists all exhibits filed with the Form 10-Q, including certifications and XBRL-related documents - Exhibits include Amended and Restated Articles of Incorporation, By-Laws, Certifications (pursuant to Sarbanes-Oxley Act Sections 302 and 906), and XBRL Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents[496] Signatures Confirms the report's authorization by the CEO and CFO on May 7, 2024 - The report was signed by Paul C. Reilly, Chair and Chief Executive Officer, and Paul M. Shoukry, President and Chief Financial Officer, on May 7, 2024[498]