Raymond James Financial 10-Q 2022-06-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

For the quarterly period ended June 30, 2022

or

Commission File Number: 1-9109

RAYMOND JAMES FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

880 Carillon Parkway, St. Petersburg, Florida 33716

(Address of principal executive offices) (Zip Code)

(727) 567-1000

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

215,824,993 shares of common stock as of August 4, 2022

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

PART I. FINANCIAL INFORMATION

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

FACTORS AFFECTING “FORWARD-LOOKING STATEMENTS”

Certain statements made in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. Forward-looking statements include information concerning future strategic objectives, business prospects, anticipated savings, financial results (including expenses, earnings, liquidity, cash flow and capital expenditures), industry or market conditions, demand for and pricing of our products, acquisitions (including our announced acquisition of SumRidge Partners), divestitures, anticipated results of litigation, regulatory developments, and general economic conditions. In addition, words such as “expects,” “anticipates,” and future or conditional verbs such as “will,” “may,” “could,” “should,” and “would,” as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements. Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from those expressed in the forward-looking statements. We caution investors not to rely unduly on any forward-looking statements and urge you to carefully consider the risks described in our filings with the SEC from time to time, including our most recent Annual Report on Form 10-K, subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, which are available at www.raymondjames.com and the SEC’s website at www.sec.gov. We expressly disclaim any obligation to update any forward-looking statement in the event it later turns out to be inaccurate, whether as a result of new information, future events or otherwise.

INTRODUCTION

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of our operations and financial condition. This MD&A is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and accompanying notes to condensed consolidated financial statements. Where “NM” is used in various percentage change computations, the computed percentage change has been determined to be not meaningful.

We operate as a financial holding company and bank holding company. Results in the businesses in which we operate are highly correlated to general economic conditions and, more specifically, to the direction of the U.S. equity and fixed income markets, changes in interest rates, market volatility, corporate and mortgage lending markets and commercial and residential credit trends. Overall market conditions, economic, political and regulatory trends, and industry competition are among the factors which could affect us and which are unpredictable and beyond our control. These factors affect the financial decisions made by market participants, including investors, borrowers, and competitors, impacting their level of participation in the financial markets. These factors also impact the level of investment banking activity and asset valuations, which ultimately affect our business results.

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

EXECUTIVE OVERVIEW

Quarter ended June 30, 2022 compared with the quarter ended June 30, 2021

For our fiscal third quarter of 2022, we generated net revenues of $2.72 billion, an increase of 10% compared with the prior-year quarter, and pre-tax income of $415 million increased 8%. Our net income available to common shareholders of $299 million decreased 3%, and our earnings per diluted share were $1.38, reflecting a 5% decrease. Our annualized return on common equity (“ROCE”) for the quarter was 13.3%, compared with 15.9% for the prior-year quarter, and our annualized return on tangible common equity (“ROTCE”) was 15.6%(1), compared with 17.7%(1) for the prior-year quarter.

On June 1, 2022, we completed our acquisition of all the outstanding shares of TriState Capital, and its results of operations have been included in our results prospectively from the closing date of June 1, 2022. During the quarter, we incurred $65 million of expenses related to our TriState Capital acquisition and other current and prior-year acquisitions, comprised of acquisition-related compensation expenses largely related to retention awards, initial provisions for credit losses on acquired loans and unfunded lending commitments of $26 million and $5 million, respectively, amortization of identifiable intangible assets arising from acquisitions, and other costs incurred to effect our acquisitions, including legal expenses and other professional fees. Excluding these acquisition-related expenses, our adjusted net income available to common shareholders was $348 million(1), 13% lower than adjusted net income for the prior-year quarter, and our adjusted earnings per diluted share were $1.61(1), 14% lower than adjusted earnings per diluted share for the prior-year quarter. Adjusted annualized ROCE for the quarter was 15.4%(1) and adjusted annualized ROTCE was 18.1%(1), compared with adjusted annualized ROCE of 20.5%(1) and adjusted annualized ROTCE of 22.9%(1) for the prior-year quarter.

The increase in net revenues compared with the prior-year quarter was driven by the benefit of higher short-term interest rates on both RJBDP fees from third-party banks and net interest income and higher asset management and related administrative fees, largely attributable to strong growth in PCG assets in fee-based accounts compared with the prior-year quarter. In addition, the current-year quarter includes incremental revenues from our acquisitions of TriState Capital, which was completed on June 1, 2022, and Charles Stanley, which was completed on January 21, 2022. These increases more than offset the declines in investment banking and brokerage revenues resulting from the challenging market environment during the curr

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See “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management” of this Form 10-Q for our quantitative and qualitative disclosures about market risk.

Disclosure Controls and Procedures

Disclosure controls are procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this report, are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed to ensure that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Securities Exchange Act of 1934 Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

Effective June 1, 2022, we completed our acquisition of TriState Capital. Management has elected to exclude TriState Capital from our assessment of the effectiveness of our internal control over financial reporting as of June 30, 2022, as permitted by the SEC Staff guidance. TriState Capital’s assets represented approximately 17% of our consolidated total assets as of June 30, 2022, and its net revenues and net loss for the period from the acquisition date through June 30, 2022 represented approximately 1% and 5%, respectively, of our consolidated net revenues and net income for the three months ended June 30, 2022. As of June 30, 2022, management was in the process of integrating TriState Capital into our internal control over financial reporting.

Other than as discussed above, there were no changes during the three months ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

Our operations and financial results are subject to various risks and uncertainties which could adversely affect our business, financial condition, results of operations, liquidity and the trading price of our common stock. For information regarding these risks and uncertainties, see “Item 1A - Risk Factors” of our 2021 Form 10-K. The following represents significant changes to our risk factors disclosed in our 2021 Form 10-K.

The rights of holders of our common stock are generally subordinate to the rights of holders of our outstanding and any future issuances of debt securities and preferred stock.

Our Board of Directors has the authority to issue debt securities as well as an aggregate of up to 10 million shares of preferred stock on the terms it determines without shareholder approval. In connection with our acquisition of TriState Capital Holdings on June 1, 2022, we issued 40,250 shares of 6.75% Fixed-to-Floating Rate Series A Non-Cumulative Perpetual Preferred Stock, par value $0.10 per share (“Series A Preferred Stock”), in the form of 1.61 million depositary shares, each representing a 1/40th interest in a share of Series A Preferred Stock, and 80,500 shares of 6.375% Fixed-to-Floating Rate Series B Non-Cumulative Perpetual Preferred Stock, par value $0.10 per share (“Series B Preferred Stock” in the form of 3.22 million depositary shares, each representing a 1/40th interest in a share of Series B Preferred Stock. Any debt or shares of preferred stock that we may issue in the future will also be senior to our common stock. Because our decision to issue debt or equity securities or incur other borrowings in the future will depend on market conditions and other factors beyond our control, the amount, timing, nature or success of our future capital raising efforts is uncertain. Thus, holders of our common stock bear the risk that our future issuances of debt or equity securities or our incurrence of other borrowings may negatively affect the market price of our common stock.

The depositary shares representing our preferred stock are thinly traded and have limited voting rights.

The depositary shares representing interests in our preferred stock are listed on the New York Stock Exchange, but an active, liquid trading market for such securities may not be sustained. A public trading market having depth, liquidity and orderliness depends upon the presence in the marketplace and independent decisions of willing buyers and sellers of our preferred stock, over which we have no control. Without an active, liquid trading market, holders of our depositary shares may not be able to sell their shares at the volume, prices and times desired. In addition, holders of our preferred stock (and, accordingly, holders of the depositary shares representing such stock), will have no voting rights with respect to matters that generally require the approval of our voting common shareholders. Holders of preferred stock have voting rights that are generally limited to, with respect to the particular series of preferred stock held, (i) authorizing, creating or issuing any capital stock ranking senior to such preferred stock as to dividends or the distribution of assets upon liquidation, and (ii) amending, altering or repealing any provision of our Articles of Incorporation so as to adversely affect the powers, preferences or special rights of such series of preferred stock.

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

We did not have any sales of unregistered securities for the nine months ended June 30, 2022.

We purchase our own stock from time to time in conjunction with a number of activities, each of which is described in the following paragraphs. The following table presents information on our purchases of our own stock, on a monthly basis, for the nine months ended June 30, 2022.

In December 2021, the Board of Directors authorized repurchase of our common stock in an aggregate amount of up to $1 billion, which replaced the previous authorization.

In the preceding table, the total number of shares purchased includes shares purchased pursuant to the Restricted Stock Trust Fund, which was established to acquire our common stock in the open market and used to settle RSUs granted as a retention vehicle for certain employees of our wholly-owned Canadian subsidiaries. For more information on this trust fund, see Note 2 of the Notes to Consolidated Financial Statements of our 2021 Form 10-K and Note 10 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q. These activities do not utilize the repurchase authorization presented in the preceding table.

The total number of shares purchased also includes shares repurchased as a result of employees surrendering shares as payment for option exercises or withholding taxes. These activities do not utilize the repurchase authorization presented in the preceding table.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

None.

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.