RAYMOND JAMES FINANCIAL INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INDEX PAGE Factors affecting “forward-looking statements” 47 Introduction 47 Executive overview 47 Reconciliation of non-GAAP financial measures to GAAP financial measures 49 Net interest analysis 52 Results of Operations Private Client Group 55 Capital Markets 59 Asset Management 60 Bank 63 Other 64 Statement of financial condition analysis 65 Liquidity and capital resources 65 Regulatory 71 Critical accounting estimates 72 Recent accounting developments 73 Risk management 73 46 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, divestitures, anticipated results of litigation, regulatory developments, and general economic conditions. In addition, words such as “believes,” “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, is 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 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. EXECUTIVE OVERVIEW Quarter ended December 31, 2022 compared with the quarter ended December 31, 2021 For our fiscal first quarter of 2023, we generated net revenues of $2.79 billion, flat compared with the prior-year quarter, while pre-tax income of $652 million increased 17%. Our net income available to common shareholders of $507 million increased 14%, and our earnings per diluted share were $2.30, reflecting a 10% increase. Our annualized return on common equity (“ROCE”) for the quarter was 21.3%, compared with 21.2% for the prior-year quarter, and our annualized return on tangible common equity (“ROTCE”) was 26.2% (1) , compared with 23.4% (1) for the prior-year quarter. The three months ended December 31, 2022 included the favorable impact of a $32 million insurance settlement received during the quarter related to a previously settled litigation matter. Excluding the favorable impact of the insurance settlement received, as well as expenses related to acquisitions completed in prior years, such as compensation related to retention awards and amortization of identifiable intangible assets, our adjusted net income available to common shareholders was $505 million (1) , 9% higher than adjusted net income for the prior-year quarter, and our adjusted earnings per diluted share were $2.29 (1) , 6% higher than adjusted earnings per diluted share for the prior-year quarter. Adjusted annualized ROCE for the quarter was 21.2% (1) and adjusted annualized ROTCE was 26.1% (1) , compared with adjusted annualized ROCE of 21.9% (1) and adjusted annualized ROTCE of 24.3% (1) for the prior-year quarter. (1) ROTCE, adjusted net income available to common shareholders, adjusted earnings per diluted share, adjusted annualized ROCE, and adjusted annualized ROTCE are non-GAAP financial measures. Please see the “Reconciliation of non-GAAP financial measures to GAAP financial measures” in this MD&A for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures, and for other important disclosures. 47 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Quarterly net revenues were flat compared with the prior-year quarter as the benefit of higher short-term interest rates on net interest income and RJBDP fees from third-party banks, as well as incremental revenues from our prior-year acquisitions of TriState Capital, Charles Stanley Group PLC (“Charles Stanley”), and SumRidge Partners, LLC (“SumRidge Partners”) were offset by lower investment banking revenues due to a challenging market environment during the current quarter, and a decrease in asset management and related administrative fees, as a result of lower fee-based assets at the beginning of the current quarter compared with the prior-year quarter. Brokerage revenues also declined compared with the prior-year quarter primarily due to decreased activity from depository clients, as well as lower asset-based trailing revenues in the PCG segment. Compensation, commissions and benefits expense decreased 8%, primarily attributable to the decrease in compensable revenues compared with the prior-year quarter, partially offset by incremental compensation expenses related to the aforementioned acquisitions. Our compensation ratio, or the ratio of compensation, commissions and benefits expense to net revenues, was 62.3%, compared with 67.7% for the prior-year quarter. Excluding acquisition-related compensation expenses, our adjusted compensation ratio was 61.7% (1) , compared with 67.3% (1) for the prior-year quarter. The decline in the compensation ratio primarily resulted from changes in our revenue mix due to higher net interest income and RJBDP fees from third-party banks, which have little associated direct compensation. Non-compensation expenses increased 17%, due to incremental expenses from the aforementioned acquisitions, as well as increases in the bank loan provision for credit losses, business development expenses and communications and information processing expenses. The bank loan provision for credit losses was $14 million for the current-year quarter, compared with a benefit of $11 million for the prior-year quarter. Partially offsetting these increases was the aforementioned favorable insurance settlement received. Our effective income tax rate was 21.9% for our fiscal first quarter of 2023, an increase compared with the 20.1% effective income tax rate for the prior-year quarter, a modest increase, as both periods included similar levels of non-taxable gains associated with our company-owned life insurance policies, as well as excess tax benefits on share-based compensation. As of December 31, 2022, our Tier 1 leverage ratio of 11.3% and Total capital ratio of 21.6% were both more than double the regulatory requirement to be considered well-capitalized. We also continue to have substantial liquidity with $2.0 billion (2) of cash at the parent as of December 31, 2022, which includes cash the parent loans to RJ&A to invest on its behalf. We believe our funding and capital position provide us the opportunity to continue to grow our balance sheet prudently. In December, the Board of Directors increased the quarterly cash dividend on common shares to $0.42 per share and authorized common stock repurchases of up to $1.5 billion. During the three months ended December 31, 2022, we repurchased 1.29 million shares of our common stock for $138 million at an average price of $106 per share under the Board of Directors’ common stock repurchase authorization. After the effect of those repurchases, $1.4 billion remained under such authorization. We currently expect to continue to repurchase our common stock in fiscal 2023 to offset the shares issued with the acquisition of TriState Capital in fiscal 2022, as well as to offset dilution from share-based compensation; however, we will continue to monitor market conditions and other capital needs as we consider these repurchases. We remain well-positioned entering our fiscal second quarter of 2023. We expect our fiscal second quarter results to positively benefit from the realization of a full quarter impact of the increases in the Fed’s short-term benchmark interest rate of 75-basis points in November 2022 and 50-basis points in December 2022, as well as the 25-basis points increase in February 2023. With clients’ domestic cash sweep balances of $60.4 billion as of December 31, 2022 and our high concentration of floating-rate assets, we also believe we are well-positioned for any further increases in short-term interest rates, which we expect to positively impact our net interest income and our RJBDP fees from third-party banks; however, we anticipate further declines in client cash balances during the second quarter as clients continue to move their cash from our cash sweep program into higher-yielding investment alternatives which could partially offset the otherwise positive impact on our results from the increase in interest rates. Asset management and related administrative fees will be positively impacted by the 8% increase in PCG fee-based assets as of December 31, 2022, and we anticipate this to result in a benefit approximating 5%-6% compared to the first quarter level. In addition, our recruiting pipelines remain solid across our affiliation options and we continue to see solid retention of existing advisors. However, we expect to continue to face macroeconomic uncertainties which may continue to have a negative impact on equity and fixed income markets. As a result, we may continue to experience headwinds for brokerage revenues and investment banking revenues, despite our healthy investment banking pipelines. Net loan growth should result in additional provisions for credit losses and future economic deterioration could result in increased bank loan provisions for credit losses in future periods. In addition, although we remain focused on the management of expenses, we expect that expenses will continue to increase in part as a result of inflationary pressures on our costs, and as we continue to make investments in our people and technology to support our growth. (1) Adjusted compensation ratio is a non-GAAP financial measure. Please see the “Reconciliation of non-GAAP financial measures to GAAP financial measures” in this MD&A for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures, and for other important disclosures. (2) For additional information, please see the “Liquidity and capital resources - Sources of liquidity” section in this MD&A. 48 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL MEASURES We utilize certain non-GAAP financial measures as additional measures to aid in, and enhance, the understanding of our financial results and related measures. These non-GAAP financial measures have been separately identified in this document. We believe certain of these non-GAAP financial measures provide useful information to management and investors by excluding certain material items that may not be indicative of our core operating results. We utilize these non-GAAP financial measures in assessing the financial performance of the business, as they facilitate a comparison of current- and prior-period results. Beginning with our fiscal third quarter of 2022, certain of our non-GAAP financial measures have been adjusted for additional expenses directly related to our acquisitions that we believe are not indicative of our core operating results, such as those related to amortization of identifiable intangible assets arising from acquisitions and acquisition-related retention. Prior periods have been conformed to the current period presentation. We believe that return on tangible common equity is meaningful to investors as it facilitates comparisons of our results to the results of other companies. In the following tables, the tax effect of non-GAAP adjustments reflects the statutory rate associated with each non-GAAP item. These non-GAAP financial measures should be considered in addition to, and not as a substitute for, measures of financial performance prepared in accordance with GAAP. In addition, our non-GAAP financial measures may not be comparable to similarly titled non-GAAP financial measures of other companies. The following tables provide a reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures. Three months ended $ in millions December 31, 2022 December 31, 2021 Net income available to common shareholders $ 507 $ 446 Non-GAAP adjustments : Expenses directly related to acquisitions included in the following financial statement line items: Compensation, commissions and benefits — Acquisition-related retention 18 11 Professional fees — 2 Other — Amortization of identifiable intangible assets 11 8 Total expenses related to acquisitions 29 21 Other — Insurance settlement received (32) — Pre-tax impact of non-GAAP adjustments (3) 21 Tax effect of non-GAAP adjustments 1 (5) Total non-GAAP adjustments, net of tax (2) 16 Adjusted net income available to common shareholders $ 505 $ 462 Compensation, commissions and benefits expense $ 1,736 $ 1,884 Less: Acquisition-related retention (as detailed above) 18 11 Adjusted “Compensation, commissions and benefits” expense $ 1,718 $ 1,873 Three months ended December 31, 2022 December 31, 2021 Total compensation ratio 62.3 % 67.7 % Less the impact of non-GAAP adjustments on compensation ratio : Acquisition-related retention 0.6 % 0.4 % Adjusted total compensation ratio 61.7 % 67.3 % 49 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Three months ended Earnings per common share December 31, 2022 December 31, 2021 Diluted earnings per common share $ 2.30 $ 2.10 Impact of non-GAAP adjustments on diluted earnings per common share: Compensation, commissions and benefits — Acquisition-related retention 0.08 0.05 Professional fees — 0.01 Other — Amortization of identifiable intangible assets 0.06 0.03 Total expenses related to acquisitions 0.14 0.09 Other — Insurance settlement received (0.15) — Tax effect of non-GAAP adjustments — (0.02) Total non-GAAP adjustments, net of tax (0.01) 0.07 Adjusted diluted earnings per common share $ 2.29 $ 2.17 Return on common equity Three months ended $ in millions December 31, 2022 December 31, 2021 Average common equity $ 9,537 $ 8,423 Impact of non-GAAP adjustments on average common equity : Compensation, commissions and benefits — Acquisition-related retention 9 6 Professional fees — 1 Other — Amortization of identifiable intangible assets 5 4 Total expenses related to acquisitions 14 11 Other — Insurance settlement received (16) — Tax effect of non-GAAP adjustments 1 (3) Total non-GAAP adjustments, net of tax (1) 8 Adjusted average common equity $ 9,536 $ 8,431 Three months ended $ in millions December 31, 2022 December 31, 2021 Average common equity $ 9,537 $ 8,423 Less : Average goodwill and identifiable intangible assets, net 1,935 878 Average deferred tax liabilities related to goodwill and identifiable intangible assets, net (128) (64) Average tangible common equity $ 7,730 $ 7,609 Impact of non-GAAP adjustments on average tangible common equity: Compensation, commissions and benefits — Acquisition-related retention 9 6 Professional fees — 1 Other — Amortization of identifiable intangible assets 5 4 Total expenses related to acquisitions 14 11 Other — Insurance settlement received (16) — Tax effect of non-GAAP adjustments 1 (3) Total non-GAAP adjustments, net of tax (1) 8 Adjusted average tangible common equity $ 7,729 $ 7,617 Return on common equity 21.3 % 21.2 % Adjusted return on common equity 21.2 % 21.9 % Return on tangible common equity 26.2 % 23.4 % Adjusted return on tangible common equity 26.1 % 24.3 % 50 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Total compensation ratio is computed by dividing compensation, commissions and benefits expense by net revenues for each respective period. Adjusted total compensation ratio is computed by dividing adjusted compensation, commissions and benefits expense by net revenues for each respective period. Tangible common equity is computed by subtracting goodwill and identifiable intangible assets, net, along with the associated deferred tax liabilities, from total common equity attributable to RJF. Average common equity is computed by adding the total common equity attributable to RJF as of the date indicated to the prior quarter-end total, and dividing by two, or in the case of average tangible common equity, computed by adding tangible common equity as of the date indicated to the prior quarter-end total, and dividing by two. Adjusted average common equity is computed by adjusting for the impact on average common equity of the non-GAAP adjustments, as applicable for each respective period. Adjusted average tangible common equity is computed by adjusting for the impact on average tangible common equity of the non-GAAP adjustments, as applicable for each respective period. ROCE is computed by dividing annualized net income available to common shareholders for the period indicated by average common equity for each respective period or, in the case of ROTCE, computed by dividing annualized net income available to common shareholders by average tangible common equity for each respective period. Adjusted ROCE is computed by dividing annualized adjusted net income available to common shareholders by adjusted average common equity for each respective period, or in the case of adjusted ROTCE, computed by dividing annualized adjusted net income available to common shareholders by adjusted average tangible common equity for each respective period. 51 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis NET INTEREST ANALYSIS Largely in response to inflationary pressures, the Fed rapidly increased its benchmark short-term interest rates, commencing in March 2022 and continuing into our fiscal first quarter of 2023, including a 75-basis point increase in November 2022, a 50-basis point increase in December 2022, and a 25-basis point increase in February 2023. The Fed indicated that it intends to closely monitor short-term interest rates throughout the remainder of our fiscal 2023. The following table details the Fed’s recent short-term interest rate activity. Fed Funds Target Rate Schedule RJF Fiscal quarter ended Date of interest rate action Increase/(decrease) in interest rates (in basis points) Fed funds target rate March 31 2020 March 16, 2020 (100) 0.00% - 0.25% March 31, 2022 March 17, 2022 25 0.25% - 0.50% June 30, 2022 May 5, 2022 50 0.75% - 1.00% June 30, 2022 June 16, 2022 75 1.50% - 1.75% September 30, 2022 July 28, 2022 75 2.25% - 2.50% September 30, 2022 September 22, 2022 75 3.00% - 3.25% December 31, 2022 November 3, 2022 75 3.75% - 4.00% December 31, 2022 December 15, 2022 50 4.25% - 4.50% Rate changes subsequent to December 31, 2022 March 31, 2023 February 1, 2023 25 4.50% - 4.75% Increases in short-term interest rates positively impacted our net interest income during our fiscal first quarter 2023, as well as the fee income we earn from third-party banks on client cash balances swept to such banks as part of the RJBDP (included in account and service fees), which are also sensitive to changes in interest rates. Given the relationship between our interest-sensitive assets and liabilities (primarily held in our PCG, Bank, and Other segments) and the nature of fees we earn from third-party banks in the RJBDP, increases in short-term interest rates generally result in an increase in our net earnings, although the magnitude of the impact to our net interest margin depends on the yields on interest-earning assets relative to the cost of interest-bearing liabilities, including deposit rates paid to clients on their cash balances. Changes to the regulatory landscape governing the fees the firm earns on client assets, including cash sweep balances, could negatively impact our earnings. In addition, our pace of loan growth may continue to fluctuate over time in response to changes in interest rates. As a result of our diverse funding sources, strong loan growth and high concentration of floating-rate assets, we benefited from the increases in short-term interest rates in our fiscal first quarter 2023 and believe we are well-positioned for our net interest earnings and RJBDP fees to continue to be favorably impacted by the recent increases in short-term interest rates, as well as any further fiscal 2023 increases. However, we also expect this benefit to be offset to some degree by declines in domestic client cash sweep balances as clients invest a portion of these cash balances in higher-yielding investment alternatives. In addition, our domestic client cash sweep balances represent a relatively low-cost funding source. The favorable impact we experience from further increases in short-term interest rates may be partially offset to the extent we pursue diversified funding sources other than our domestic client cash sweep balances, as those funding sources are typically more expensive than our domestic client cash sweep balances. Refer to the discussion of our net interest income within the “Management’s Discussion and Analysis - Results of Operations” of our PCG, Bank, and Other segments, where applicable. Also refer to “Management’s Discussion and Analysis - Results of Operations - Private Client Group - Clients’ domestic cash sweep balances” for further information on the RJBDP. 52 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis The following table presents our consolidated average interest-earning asset and interest-bearing liability balances, interest income and expense and the related rates. Quarter ended December 31, 2022 compared with the quarter ended December 31, 2021 Three months ended December 31, 2022 2021 $ in millions Average daily balance Interest Annualized average rate Average daily balance Interest Annualized average rate Interest-earning assets: Bank segment: Cash and cash equivalents $ 2,325 $ 22 3.72 % $ 2,145 $ 1 0.17 % Available-for-sale securities 11,050 53 1.92 % 8,511 22 1.02 % Loans held for sale and investment: (1) (2) Loans held for investment: SBL 15,038 226 5.87 % 6,289 35 2.20 % C&I loans 11,176 169 5.91 % 8,581 55 2.49 % CRE loans 6,798 110 6.35 % 2,941 20 2.67 % REIT loans 1,628 24 5.87 % 1,133 7 2.56 % Residential mortgage loans 7,626 57 2.99 % 5,451 37 2.68 % Tax-exempt loans (3) 1,594 10 3.06 % 1,297 8 3.19 % Loans held for sale 189 3 5.39 % 239 2 2.94 % Total loans held for sale and investment 44,049 599 5.35 % 25,931 164 2.52 % All other interest-earning assets 143 2 5.29 % 169 — 1.85 % Interest-earning assets — Bank segment $ 57,567 $ 676 4.63 % $ 36,756 $ 187 2.03 % All other segments: Cash and cash equivalents $ 3,436 $ 33 3.78 % $ 3,931 $ 2 0.18 % Assets segregated for regulatory purposes and restricted cash 6,237 50 3.17 % 13,011 4 0.12 % Trading assets — debt securities 1,080 14 5.10 % 544 4 2.95 % Brokerage client receivables 2,398 41 6.70 % 2,484 21 3.35 % All other interest-earning assets 2,001 13 2.58 % 1,663 7 1.57 % Interest-earning assets — all other segments $ 15,152 $ 151 3.93 % $ 21,633 $ 38 0.69 % Total interest-earning assets $ 72,719 $ 827 4.48 % $ 58,389 $ 225 1.53 % Interest-bearing liabilities: Bank segment: Bank deposits: Money market and savings accounts $ 45,165 $ 121 1.06 % $ 31,960 $ 1 0.01 % Interest-bearing checking accounts 5,149 47 3.59 % 187 1 1.62 % Certificates of deposit 1,225 8 2.48 % 843 4 1.87 % Total bank deposits (4) 51,539 176 1.35 % 32,990 6 0.07 % FHLB advances and all other interest-bearing liabilities 1,397 9 2.61 % 863 4 2.21 % Interest-bearing liabilities — Bank segment $ 52,936 $ 185 1.38 % $ 33,853 $ 10 0.12 % All other segments: Trading liabilities — debt securities $ 778 $ 10 5.07 % $ 206 $ 1 1.43 % Brokerage client payables 5,597 17 1.17 % 14,300 1 0.03 % Senior notes payable 2,038 23 4.44 % 2,037 23 4.44 % All other interest-bearing liabilities 245 6 3.65 % 185 2 3.84 % Interest-bearing liabilities — all other segments $ 8,658 $ 56 2.36 % $ 16,728 $ 27 0.62 % Total interest-bearing liabilities $ 61,594 $ 241 1.52 % $ 50,581 $ 37 0.28 % Firmwide net interest income $ 586 $ 188 Net interest margin (net yield on interest-earning assets) Bank segment 3.36 % 1.92 % Firmwide 3.19 % 1.29 % (1) Loans are presented net of unamortized purchase discounts or premiums, unearned income, and deferred origination fees and costs. (2) Nonaccrual loans are included in the average loan balances. Any payments received for corporate nonaccrual loans are applied entirely to principal. Interest income on residential mortgage nonaccrual loans is recognized on a cash basis. (3) The yield on tax-exempt loans in the preceding table is presented on a taxable-equivalent basis utilizing the applicable federal statutory rates for each of the years presented. (4) The average balance, interest expense, and average rate for “Total bank deposits” included amounts associated with affiliate deposits. Such amounts are eliminated in consolidation and are offset in “All other interest-bearing liabilities” under “All other segments”. 53 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on our interest-earning assets and the interest incurred on our interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the previous period’s volume. Changes attributable to both volume and rate have been allocated proportionately. Three months ended December 31, 2022 compared to 2021 Increase/(decrease) due to $ in millions Volume Rate Total Interest-earning assets: Interest income Bank segment: Cash and cash equivalents $ — $ 21 $ 21 Available-for-sale securities 8 23 31 Loans held for sale and investment: Loans held for investment: SBL 87 104 191 C&I loans 21 93 114 CRE loans 44 46 90 REIT loans 4 13 17 Residential mortgage loans 16 4 20 Tax-exempt loans 4 (2) 2 Loans held for sale (3) 4 1 Total loans held for sale and investment 173 262 435 All other interest-earning assets (1) 3 2 Interest-earning assets — Bank segment $ 180 $ 309 $ 489 All other segments: Cash and cash equivalents $ (2) $ 33 $ 31 Assets segregated for regulatory purposes and restricted cash (15) 61 46 Trading assets — debt securities 6 4 10 Brokerage client receivables (5) 25 20 All other interest-earning assets 1 5 6 Interest-earning assets — all other segments $ (15) $ 128 $ 113 Total interest-earning assets $ 165 $ 437 $ 602 Interest-bearing liabilities: Interest expense Bank segment: Bank deposits: Money market and savings accounts $ — $ 120 $ 120 Interest-bearing checking accounts 44 2 46 Certificates of deposit 2 2 4 Total bank deposits 46 124 170 FHLB advances and all other interest-bearing liabilities 4 1 5 Interest-bearing liabilities — Bank segment $ 50 $ 125 $ 175 All other segments: Trading liabilities — debt securities 5 4 9 Brokerage client payables (5) 21 16 All other interest-bearing liabilities 2 2 4 Interest-bearing liabilities — all other segments $ 2 $ 27 $ 29 Total interest-bearing liabilities $ 52 $ 152 $ 204 Change in firmwide net interest income $ 113 $ 285 $ 398 54 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis RESULTS OF OPERATIONS – PRIVATE CLIENT GROUP For an overview of our PCG segment operations, as well as a description of the key factors impacting our PCG results of operations, refer to the information presented in “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2022 Form 10-K. Operating results Three months ended December 31, $ in millions 2022 2021 % change Revenues: Asset management and related administrative fees $ 1,053 $ 1,162 (9) % Brokerage revenues: Mutual and other fund products 128 171 (25) % Insurance and annuity products 104 111 (6) % Equities, ETFs and fixed income products 113 115 (2) % Total brokerage revenues 345 397 (13) % Account and service fees: Mutual fund and annuity service fees 98 114 (14) % RJBDP fees: Bank segment 268 50 436 % Third-party banks 137 17 706 % Client account and other fees 60 49 22 % Total account and service fees 563 230 145 % Investment banking 9 13 (31) % Interest income 109 33 230 % All other 6 7 (14) % Total revenues 2,085 1,842 13 % Interest expense (22) (3) 633 % Net revenues 2,063 1,839 12 % Non-interest expenses: Financial advisor compensation and benefits 1,075 1,187 (9) % Administrative compensation and benefits 342 283 21 % Total compensation, commissions and benefits 1,417 1,470 (4) % Non-compensation expenses: Communications and information processing 89 71 25 % Occupancy and equipment 51 46 11 % Business development 37 27 37 % Professional fees 13 9 44 % All other 22 21 5 % Total non-compensation expenses 212 174 22 % Total non-interest expenses 1,629 1,644 (1) % Pre-tax income $ 434 $ 195 123 % 55 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Selected key metrics PCG client asset balances As of $ in billions December 31, 2022 September 30, 2022 December 31, 2021 September 30, 2021 Assets under administration (“AUA”) (1) $ 1,114.3 $ 1,039.0 $ 1,199.8 $ 1,115.4 Assets in fee-based accounts (1) (2) $ 633.1 $ 586.0 $ 677.8 $ 627.1 Percent of AUA in fee-based accounts 56.8 % 56.4 % 56.5 % 56.2 % (1) Includes assets associated with firms affiliated with us through our Registered Investment Advisor and Custody Services (“RCS”) division of $115.6 billion as of December 31, 2022, $108.5 billion as of September 30, 2022, $101.6 billion as of December 31, 2021, and $92.7 billion as of September 30, 2021. Of these amounts, $96.6 billion as of December 31, 2022, $89.9 billion as of September 30, 2022, $85.5 billion as of December 31, 2021, and $77.2 billion as of September 30, 2021 were fee-based assets. Based on the nature of the services provided to such firms, revenues related to these assets are included in “Account and service fees.” (2) A portion of our “Assets in fee-based accounts” is invested in “managed programs” overseen by our Asset Management segment, specifically our Asset Management Services division of RJ&A (“AMS”). These assets are included in our financial assets under management as disclosed in the “Selected key metrics” section of our “Management’s Discussion and Analysis - Results of Operations - Asset Management.” PCG net new assets Three months ended $ in millions December 31, 2022 September 30, 2022 December 31, 2021 Domestic Private Client Group net new assets (1) $ 23,226 $ 20,184 $ 36,101 Domestic Private Client Group net new assets growth - annualized (2) 9.8 % 8.3 % 13.7 % (1) Domestic Private Client Group net new assets represents domestic Private Client Group client inflows, including dividends and interest, less domestic Private Client Group client outflows, including commissions, advisory fees and other fees. (2) The Domestic Private Client Group net new asset growth - annualized percentage is based on the beginning Domestic Private Client Group AUA balance for the indicated period. PCG AUA and PCG assets in fee-based accounts increased 7% and 8%, respectively, as of December 31, 2022 compared with September 30, 2022, primarily due to equity market appreciation and strong net inflows of client assets during the quarter. We expect that the increase in fee-based accounts, compared with the preceding beginning of the quarter level, will positively impact our asset management and related administrative fees for our fiscal second quarter of 2023. Compared with December 31, 2021, PCG AUA declined 7%, primarily due to declines in the equity market since such time, offset by the favorable impacts of our recruiting as well as our January 21, 2022 acquisition of Charles Stanley. PCG assets in fee-based accounts continued to be a significant percentage of overall PCG AUA due to many clients’ preference for fee-based alternatives versus transaction-based accounts and, as a result, a significant portion of our PCG revenues is more directly impacted by market movements. Fee-based accounts within our PCG segment are comprised of a wide array of products and programs that we offer our clients. The majority of assets in fee-based accounts within our PCG segment are invested in programs for which our financial advisors provide investment advisory services, either on a discretionary or non-discretionary basis. Administrative services for such accounts (e.g., record-keeping) are generally performed by our Asset Management segment and, as a result, a portion of the related revenue is shared with the Asset Management segment. We also offer our clients fee-based accounts that are invested in “managed programs” overseen by AMS, which is part of our Asset Management segment. Fee-billable assets invested in managed programs are included in both “Assets in fee-based accounts” in the preceding table and “Financial assets under management” in the Asset Management segment. Revenues related to managed programs are shared by our PCG and Asset Management segments. The Asset Management segment receives a higher portion of the revenues related to accounts invested in managed programs, as compared to the portion received for non-managed programs, as it is performing portfolio management services in addition to administrative services. The vast majority of the revenues we earn from fee-based accounts is recorded in “Asset management and related administrative fees” on our Condensed Consolidated Statements of Income and Comprehensive Income. Fees received from such accounts are based on the value of client assets in fee-based accounts and vary based on the specific account types in which the client invests and the level of assets in the client relationship. As fees for the majority of such accounts are billed based on balances as of the beginning of the quarter, revenues from fee-based accounts may not be immediately affected by changes in asset values, but rather the impacts are seen in the following quarter. 56 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Financial advisors December 31, 2022 September 30, 2022 December 31, 2021 September 30, 2021 Employees 3,631 3,638 3,447 3,461 Independent contractors 5,068 5,043 5,017 5,021 Total advisors 8,699 8,681 8,464 8,482 The number of financial advisors as of December 31, 2022 increased slightly compared to September 30, 2022, as the impacts of new recruits and trainees that were moved into production roles were partially offset by financial advisors who left the firm, including planned retirements where assets are generally retained at the firm pursuant to advisor succession plans. The recruiting pipeline remains solid across our affiliation options; however, the timing of financial advisors joining the firm may be impacted by market uncertainty. We expect to continue to experience transfers to our RCS division in fiscal 2023; however, consistent with our experience in fiscal 2022, we do not expect these financial advisor transfers to significantly impact our results of operations. Advisors in our RCS division are not included in our financial advisor metric although their client assets are included in PCG AUA. Clients’ domestic cash sweep balances As of $ in millions December 31, 2022 September 30, 2022 December 31, 2021 September 30, 2021 RJBDP: Bank segment $ 39,098 $ 38,705 $ 33,097 $ 31,410 Third-party banks 18,231 21,964 24,316 24,496 Subtotal RJBDP 57,329 60,669 57,413 55,906 Client Interest Program (“CIP”) 3,053 6,445 16,065 10,762 Total clients’ domestic cash sweep balances $ 60,382 $ 67,114 $ 73,478 $ 66,668 Three months ended December 31, 2022 2021 Average yield on RJBDP - third-party banks 2.72 % 0.28 % A significant portion of our domestic clients’ cash is included in the RJBDP, a multi-bank sweep program in which clients’ cash deposits in their accounts are swept into interest-bearing deposit accounts at either Raymond James Bank or TriState Capital Bank, which are included in our Bank segment, or various third-party banks. Our PCG segment earns servicing fees for the administrative services we provide related to our clients’ deposits that are swept to such banks as part of the RJBDP. These servicing fees are variable in nature and fluctuate based on client cash balances in the program, as well as the level of short-term interest rates and the interest paid to clients on balances in the RJBDP. Under our intersegment policies, the PCG segment receives the greater of a base servicing fee or a net yield equivalent to the average yield that the firm would otherwise receive from third-party banks in the RJBDP. The impact of this policy on our segment results in the current market environment is that the PCG segment revenues will reflect fee revenues derived from the yield from third-party banks in the program and the Bank segment RJBDP servicing costs reflect such market rate for the deposits. The fees that the PCG segment earns from the Bank segment, as well as the servicing costs incurred on the deposits in the Bank segment, are eliminated in consolidation. The “Average yield on RJBDP - third-party banks” in the preceding table is computed by dividing annualized RJBDP fees from third-party banks, which are net of the interest expense paid to clients by the third-party banks, by the average daily RJBDP balance at third-party banks. The average yield on RJBDP - third-party banks increased from the prior-year quarter as a result of the combined 300-basis point increase in the Fed’s short-term benchmark interest rate during our fiscal 2022, as well as the 75-basis point increase in November 2022 and, to a lesser extent, the 50-basis point increase in December 2022. These increases in short-term interest rates more than offset the decline in average RJBDP balances due to a continued decline in client cash balances. We expect our fiscal second quarter of 2023 results to be favorably impacted by the recent increases in short-term rates; however, RJBDP fees are expected to be negatively impacted by the continued decrease of RJBDP balances with third-party banks, as well as two fewer billable days in our fiscal second quarter of 2023 compared with our fiscal first quarter. 57 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Client cash balances declined $6.7 billion, or 10%, compared with September 30, 2022, including a $3.4 billion, or 53%, decrease in cash balances in the CIP, as a result of continued cash sorting activity given the higher short-term interest rate environment. We expect this trend to continue, as clients continue to move cash from lower-yielding bank deposits to higher-yielding investment products. PCG segment results can be impacted by not only changes in the level of client cash balances, but also by the allocation of client cash balances between RJBDP and our CIP, as the PCG segment may earn different amounts from each of these client cash destinations, depending on multiple factors. Quarter ended December 31, 2022 compared with the quarter ended December 31, 2021 Net revenues of $2.06 billion increased 12% and pre-tax income of $434 million increased 123%. Asset management and related administrative fees decreased $109 million, or 9%, primarily due to lower assets in fee-based accounts at the beginning of the current quarter compared with the prior-year quarter due to declines in the equity market, partially offset by incremental revenues arising in the current quarter from our January 21, 2022 acquisition of Charles Stanley. Brokerage revenues decreased $52 million, or 13%, primarily due to lower trailing revenues from mutual fund and annuity products primarily resulting from market-driven declines in asset values for products for which we receive trails, partially offset by incremental revenues arising from Charles Stanley. Account and service fees increased $333 million, or 145%, primarily due to higher RJBDP fees from both third-party banks and our Bank segment resulting from significantly higher short-term interest rates compared with the prior-year quarter. Client account and other fees also increased primarily as a result of incremental revenues arising from Charles Stanley. Mutual fund service fees decreased primarily due to market-driven declines in average mutual fund assets. Net interest income increased $57 million, or 190%, due to the increase in short-term interest rates applicable to our cash, segregated cash, and client margin account balances. Compensation-related expenses decreased $53 million, or 4%, primarily due to lower asset management and related administrative fees and brokerage revenues, partially offset by incremental expenses arising from Charles Stanley and an increase in compensation costs to support our growth. Non-compensation expenses increased $38 million, or 22%, driven by incremental expenses resulting from Charles Stanley, higher communications and information processing expenses, primarily due to ongoing enhancements of our technology platforms, and an increase in travel and event-related expenses compared with the relatively low levels in the prior-year quarter. 58 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis RESULTS OF OPERATIONS – CAPITAL MARKETS For an overview of our Capital Markets segment operations, as well as a description of the key factors impacting our Capital Markets results of operations, refer to the information presented in “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2022 Form 10-K. Operating results Three months ended December 31, $ in millions 2022 2021 % change Revenues: Brokerage revenues: Fixed income $ 100 $ 120 (17) % Equity 34 39 (13) % Total brokerage revenues 134 159 (16) % Investment banking: Merger & acquisition and advisory 102 271 (62) % Equity underwriting 15 97 (85) % Debt underwriting 16 44 (64) % Total investment banking 133 412 (68) % Interest income 23 5 360 % Affordable housing investments business revenues 24 35 (31) % All other 4 5 (20) % Total revenues 318 616 (48) % Interest expense (23) (2) 1,050 % Net revenues 295 614 (52) % Non-interest expenses: Compensation, commissions and benefits 213 331 (36) % Non-compensation expenses: Communications and information processing 24 22 9 % Occupancy and equipment 10 9 11 % Business development 15 8 88 % Professional fees 13 14 (7) % All other 36 29 24 % Total non-compensation expenses 98 82 20 % Total non-interest expenses 311 413 (25) % Pre-tax income/(loss) $ (16) $ 201 NM Quarter ended December 31, 2022 compared with the quarter ended December 31, 2021 Net revenues of $295 million decreased 52% and the pre-tax loss was $16 million compared with pre-tax income of $201 million in the prior-year quarter. Investment banking revenues decreased $279 million, or 68%, compared with a strong prior-year quarter as activity levels were negatively impacted in the current quarter by very different market conditions compared with the prior-year quarter, including a notable increase in macroeconomic uncertainties in the current period. Our investment banking pipeline remains healthy and, in part, reflects the investments we have made over the past several years; however, continued market uncertainty could continue to delay, or ultimately prevent, the closing of transactions, which could negatively impact our results. Brokerage revenues decreased $25 million, or 16%, primarily due to a decrease in fixed income brokerage revenues resulting from decreased activity from depository institution clients, partially offset by incremental revenues from SumRidge Partners, which was acquired on July 1, 2022. We expect our fixed income brokerage revenues to continue to be negatively impacted by challenging market conditions driven by higher interest rates which have resulted in a decline in cash balances at many of our depository institution clients which decreases their immediate demand for our products and services. 59 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Affordable housing investment business revenues decreased $11 million, or 31%, primarily due to gains on the sales of certain properties during the prior-year quarter which did not recur in the current quarter. Compensation-related expenses decreased $118 million, or 36%, due to lower revenues, partially offset by incremental compensation expenses due to the acquisition of SumRidge Partners, higher salaries, including due to inflationary and market compensation pressures, and higher share-based compensation amortization resulting from production related awards granted in prior periods. Non-compensation expenses increased $16 million, or 20%, primarily attributable to incremental expenses associated with SumRidge Partners and an increase in business development expenses resulting from increased travel and event-related expenses. RESULTS OF OPERATIONS – ASSET MANAGEMENT For an overview of our Asset Management segment operations as well as a description of the key factors impacting our Asset Management results of operations, refer to the information presented in “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2022 Form 10-K. Operating results Three months ended December 31, $ in millions 2022 2021 % change Revenues: Asset management and related administrative fees: Managed programs $ 134 $ 151 (11) % Administration and other 63 76 (17) % Total asset management and related administrative fees 197 227 (13) % Account and service fees 5 6 (17) % All other 5 3 67 % Net revenues 207 236 (12) % Non-interest expenses: Compensation, commissions and benefits 47 46 2 % Non-compensation expenses: Communications and information processing 14 12 17 % Investment sub-advisory fees 34 37 (8) % All other 32 34 (6) % Total non-compensation expenses 80 83 (4) % Total non-interest expenses 127 129 (2) % Pre-tax income $ 80 $ 107 (25) % Selected key metrics Managed programs Management fees recorded in our Asset Management segment are generally calculated as a percentage of the value of our fee-billable financial assets under management (“AUM”). These AUM include the portion of fee-based AUA in our PCG segment that is invested in programs overseen by our Asset Management segment (included in the “AMS” line of the following table), as well as retail accounts managed on behalf of third-party institutions, institutional accounts and mutual funds that we manage (collectively included in the “Raymond James Investment Management” line of the following table). Revenues related to fee-based AUA in our PCG segment are shared by the PCG and Asset Management segments, the amount of which depends on whether or not clients are invested in assets that are in managed programs overseen by our Asset Management segment and the administrative services provided (see our “Management’s Discussion and Analysis - Results of Operations - Private Client Group” for more information). Our AUM in AMS are impacted by market fluctuations and net inflows or outflows of assets, including transfers between fee-based accounts and transaction-based accounts within our PCG segment. 60 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Revenues earned by Raymond James Investment Management for retail accounts managed on behalf of third-party institutions, institutional accounts and our mutual funds are recorded entirely in the Asset Management segment. Our AUM in Raymond James Investment Management are impacted by market and investment performance and net inflows or outflows of assets. Fees for our managed programs are generally collected quarterly. Approximately 65% of these fees are based on balances as of the beginning of the quarter (primarily in AMS), approximately 15% are based on balances as of the end of the quarter, and approximately 20% are based on average daily balances throughout the quarter. Financial assets under management $ in billions December 31, 2022 September 30, 2022 December 31, 2021 September 30, 2021 AMS (1) $ 129.5 $ 119.8 $ 145.0 $ 134.4 Raymond James Investment Management 67.4 64.2 68.9 67.8 Subtotal financial assets under management 196.9 184.0 213.9 202.2 Less: Assets managed for affiliated entities (10.9) (10.2) (10.7) (10.3) Total financial assets under management $ 186.0 $ 173.8 $ 203.2 $ 191.9 (1) Represents the portion of our PCG segment fee-based AUA (as disclosed in “Assets in fee-based accounts” in the “Selected key metrics - PCG client asset balances” section of our “Management’s Discussion and Analysis - Results of Operations - Private Client Group”) that is invested in managed programs overseen by the Asset Management segment. Activity (including activity in assets managed for affiliated entities) Three months ended December 31, $ in billions 2022 2021 Financial assets under management at beginning of period $ 184.0 $ 202.2 Raymond James Investment Management - net inflows/(outflows) 0.5 (0.4) AMS - net inflows 1.0 3.5 Net market appreciation in asset values 11.4 8.6 Financial assets under management at end of period $ 196.9 $ 213.9 AMS See “Management’s Discussion and Analysis - Results of Operations - Private Client Group” for further information about our retail client assets, including those fee-based assets invested in programs managed by AMS. Raymond James Investment Management Assets managed by Raymond James Investment Management include assets managed by our subsidiaries: Eagle Asset Management, Scout Investments, Reams Asset Management (a division of Scout Investments), ClariVest Asset Management, Cougar Global Investments, and Chartwell Investment Partners (“Chartwell”), which was acquired on June 1, 2022 in connection with our acquisition of TriState Capital. The following table presents Raymond James Investment Management’s AUM by objective, excluding assets for which it does not exercise discretion, as well as the approximate average client fee rate earned on such assets. As of December 31, 2022 $ in billions AUM Average fee rate Equity $ 24.0 0.56 % Fixed income 35.6 0.20 % Balanced 7.8 0.33 % Total financial assets under management $ 67.4 0.34 % 61 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Non-discretionary asset-based programs The following table includes assets held in certain non-discretionary asset-based programs for which the Asset Management segment does not exercise discretion but provides administrative support (including for affiliated entities). The vast majority of these assets are also included in our PCG segment fee-based AUA (as disclosed in “Assets in fee-based accounts” in the “Selected key metrics - PCG client asset balances” section of our “Management’s Discussion and Analysis - Results of Operations - Private Client Group”). $ in billions December 31, 2022 September 30, 2022 December 31, 2021 September 30, 2021 Total assets $ 355.6 $ 329.2 $ 392.4 $ 365.3 The increase in assets as of December 31, 2022 compared with September 30, 2022 was largely due to equity market appreciation and continued growth in the PCG segment. Compared to December 31, 2021, PCG fee-based AUA declined 7%, primarily due to declines in the equity market since such time, partially offset by the favorable impact of our June 1, 2022 acquisition of Chartwell. Administrative fees associated with these programs are predominantly based on balances at the beginning of the quarter. Raymond James Trust The following table includes assets held in asset-based programs in Raymond James Trust, N.A. (including those managed for affiliated entities). $ in billions December 31, 2022 September 30, 2022 December 31, 2021 September 30, 2021 Total assets $ 7.8 $ 7.3 $ 8.8 $ 8.1 Quarter ended December 31, 2022 compared with the quarter ended December 31, 2021 Net revenues of $207 million decreased 12% and pre-tax income of $80 million decreased 25%. Asset management and related administrative fees decreased $30 million, or 13%, driven by a lower beginning balance of assets in non-discretionary asset-based programs and financial assets under management at AMS, as well as lower average financial assets under management at Raymond James Investment Management, in each case primarily due to market-driven depreciation in asset values. We expect the increase in financial assets under management and assets in non-discretionary asset-based programs as of December 31, 2022 compared with September 30, 2022, which occurred due to equity market appreciation and net inflows during the quarter, to positively affect our fiscal second quarter of 2023, as the majority of our asset management and related administrative fees are billed based on balances as of the beginning of the quarter. Compensation expenses increased $1 million, or 2%. Non-compensation expenses decreased $3 million, or 4%, primarily due to lower investment sub-advisory fees, resulting from the decrease in the beginning balance of assets under management in sub-advised programs. 62 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis RESULTS OF OPERATIONS – BANK For an overview of our Bank segment operations, as well as a description of the key factors impacting our Bank segment results of operations, refer to the information presented in “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2022 Form 10-K. Our Bank segment results include the results of TriState Capital Bank since the acquisition date of June 1, 2022. Operating results Three months ended December 31, $ in millions 2022 2021 % change Revenues: Interest income $ 676 $ 187 261 % Interest expense (185) (10) 1,750 % Net interest income 491 177 177 % All other 17 6 183 % Net revenues 508 183 178 % Non-interest expenses: Compensation and benefits 40 13 208 % Non-compensation expenses: Bank loan provision/(benefit) for credit losses 14 (11) NM RJBDP fees to PCG 268 50 436 % All other 50 29 72 % Total non-compensation expenses 332 68 388 % Total non-interest expenses 372 81 359 % Pre-tax income $ 136 $ 102 33 % Quarter ended December 31, 2022 compared with the quarter ended December 31, 2021 Net revenues of $508 million increased 178% and pre-tax income of $136 million increased 33%. Net interest income increased $314 million, or 177%, primarily due to the increase in short-term interest rates and higher average interest-earning assets at Raymond James Bank, as well as incremental net interest income from the June 1, 2022 acquisition of TriState Capital Bank. The increase in average interest-earning assets at Raymond James Bank was primarily driven by growth in average corporate loans, as well as securities-based loans and residential mortgage loans to PCG clients, and an increase in average available-for-sale securities. The net interest margin increased to 3.36% from 1.92% for the prior-year quarter. We anticipate that the Bank segment net interest income for our fiscal second quarter of 2023 will benefit from the Fed’s short-term interest rate increases enacted during our fiscal first quarter and in February 2023. Given that a significant portion of our interest-earning assets are sensitive to changes in market interest rates, we expect our net interest earnings to also be favorably impacted by any additional increases in short-term interest rates that may occur. The bank loan provision for credit losses was $14 million for the current quarter, compared with a benefit for credit losses of $11 million for the prior-year quarter. The current quarter provision primarily reflects the impact of a weaker macroeconomic outlook, primarily on the residential mortgage portfolio, and the impact of loan growth during the quarter. The prior-year quarter benefit was largely attributable to improvement in credit quality in the C&I bank loan portfolio and improvement in macroeconomic inputs to our CECL model at that time, which positively impacted most loan portfolios, partially offset by provisions for credit losses related to loan growth. Compensation expenses increased $27 million, or 208%, primarily due to incremental expenses of TriState Capital Bank. 63 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Non-compensation expenses, excluding the bank loan provision/(benefit) for credit losses, increased $239 million, or 303%, primarily due to an increase in RJBDP fees paid to PCG and incremental expenses of TriState Capital Bank. RJBDP fees to PCG increased $218 million, or 436%, due to an increase in the market-based servicing fee incurred by the Bank segment for the administrative services provided by the PCG segment for such deposit balances, as well as an increase in client cash balances swept to our Bank segment as part of the RJBDP. As described in “Management’s Discussion and Analysis - Results of Operations - Private Client Group”, our Bank segment incurs servicing fee expense, reflected as revenues in our PCG segment, for the administrative services provided related to our clients’ deposits that are swept to our Bank segment as part of the RJBDP. These servicing fees are variable in nature and fluctuate based on client cash balances in the program, as well as the level of short-term interest rates and the interest paid to clients on balances in the RJBDP. As the yield from third-party banks in the RJBDP program continues to rise, the rate the Bank segment incurs on RJBDP deposits will also increase as it reflects a market rate for such deposits. These Bank segment fees and the revenues earned by the PCG segment are eliminated in consolidation. RESULTS OF OPERATIONS – OTHER This segment includes our private equity investments, interest income on certain corporate cash balances, certain costs incurred in acquisition activities, and certain corporate overhead costs of RJF that are not allocated to other segments, including the interest costs on our public debt. For an overview of our Other segment operations, refer to the information presented in “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2022 Form 10-K. Operating results Three months ended December 31, $ in millions 2022 2021 % change Revenues: Interest income $ 30 $ 1 2,900 % Net gains on private equity investments 2 5 (60) % All other 1 2 (50) % Total revenues 33 8 313 % Interest expense (24) (23) 4 % Net revenues 9 (15) NM Non-interest expenses: Compensation and other 23 32 (28) % Insurance settlement received (32) — NM Total non-interest expenses (9) 32 NM Pre-tax income/(loss) $ 18 $ (47) NM Quarter ended December 31, 2022 compared with the quarter ended December 31, 2021 Pre-tax income was $18 million compared with a pre-tax loss of $47 million for the prior-year quarter. Net revenues increased $24 million primarily due to an increase in interest income earned as a result of higher short-term interest rates applicable to our corporate cash balances. Non-interest expenses decreased $41 million, primarily due to a $32 million insurance settlement received during the quarter related to a previously settled litigation matter, which was reflected as an offset to Other expenses, and to a lesser extent a decrease in compensation and other expenses. 64 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis STATEMENT OF FINANCIAL CONDITION ANALYSIS The assets on our Condensed Consolidated Statements of Financial Condition consisted primarily of cash and cash equivalents, assets segregated for regulatory purposes and restricted cash (primarily segregated for the benefit of clients), receivables including bank loans, financial instruments held either for trading purposes or as investments, goodwill and identifiable intangible assets, and other assets. A significant portion of our assets were liquid in nature, providing us with flexibility in financing our business. Total assets of $77.05 billion as of December 31, 2022 were $3.90 billion, or 5%, less than our total assets as of September 30, 2022. Assets segregated for regulatory purposes and restricted cash decreased $3.37 billion, primarily due to a decrease in client cash balances, which resulted in a decline in client cash held in our CIP and a corresponding decline in segregated assets. Collateralized agreements, other receivables, and brokerage client receivables also decreased compared with September 30, 2022. Partially offsetting these decreases was an increase in bank loans, net of $827 million, primarily related to increases in corporate and residential mortgage loans, partially offset by a decline in securities-based loans. As of December 31, 2022, our total liabilities of $67.22 billion were $4.30 billion, or 6%, less than our total liabilities as of September 30, 2022. Brokerage client payables decreased $3.72 billion, related to the aforementioned decrease in client cash balances as of December 31, 2022. Accrued compensation, commissions, and benefits decreased $506 million due to the payment of prior-year bonuses and collateralized financings decreased $272 million. These decreases were partially offset by an increase in bank deposits of $622 million. LIQUIDITY AND CAPITAL RESOURCES Liquidity and capital are essential to our business. The primary goal of our liquidity management activities is to ensure adequate funding to conduct our business over a range of economic and market environments. We seek to manage capital levels to support execution of our business strategy, provide financial strength to our subsidiaries, and maintain sustained access to the capital markets, while at the same time meeting our regulatory capital requirements and conservative internal management targets. Liquidity and capital resources are provided primarily through our business operations and financing activities. Financing activities could include bank borrowings, collateralized financing arrangements or additional capital raising activities under our “universal” shelf registration statement. We believe our existing assets, most of which are liquid in nature, together with funds generated from operations and available from committed and uncommitted financing facilities, provide adequate funds for continuing operations at current levels of activity in the short-term. We also believe that we will be able to continue to meet our long-term cash requirements due to our strong financial position and ability to access capital from financial markets. Liquidity and capital management Senior management establishes our liquidity and capital management frameworks. Our liquidity and capital management frameworks are overseen by the RJF Asset and Liability Committee, a senior management committee that develops and executes strategies and policies to manage our liquidity risk and interest rate risk, as well as provides oversight over the firm’s investments. The liquidity management framework includes senior management’s review of short- and long-term cash flow forecasts, review of capital expenditures, monitoring of the availability of alternative sources of financing, and daily monitoring of liquidity in our significant subsidiaries. Our decisions on the allocation of resources to our business units consider, among other factors, projected profitability, cash flow, risk, and future liquidity needs. Our treasury department assists in evaluating, monitoring and controlling the impact that our business activities have on our financial condition and liquidity, and also maintains our relationships with various lenders. The objective of our liquidity management framework is to support the successful execution of our business strategies while ensuring ongoing and sufficient liquidity. 65 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Our capital planning and capital risk management processes are governed by the Capital Planning Committee (“CPC”), a senior management committee that provides oversight on our capital planning and ensures that our strategic planning and risk management processes are integrated into the capital planning process. The CPC meets at least quarterly to review key metrics related to the firm’s capital, such as debt structure and capital ratios; to analyze potential and emerging risks to capital; to oversee our annual firmwide capital stress test; and to propose capital actions to the Board of Directors, such as declaring dividends, repurchasing securities, and raising capital. To ensure that we have sufficient capital to absorb unanticipated losses, the firm adheres to capital risk appetite statements and tolerances set in excess of regulatory minimums, which are established by the CPC and approved by the Board of Directors. We conduct enterprise-wide capital stress testing to ensure that we maintain adequate capital to adhere to our established tolerances under multiple scenarios, including a stressed scenario. Capital structure Common equity (i.e., common stock, additional paid-in capital, and retained earnings) is the primary component of our capital structure. Common equity allows for the absorption of losses on an ongoing basis and for the conservation of resources during stress periods, as it provides us with discretion on the amount and timing of dividends and other capital actions. Information about our common equity is included in the Condensed Consolidated Statements of Financial Condition, the Condensed Consolidated Statements of Changes in Shareholders’ Equity, and Note 16 of this Form 10-Q. Under regulatory capital rules applicable to us as a bank holding company, we are required to maintain minimum leverage ratios (defined as tier 1 capital divided by adjusted average assets), as well as minimum ratios of tier 1 capital, CET1, and total capital to risk-weighted assets. These capital ratios incorporate quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under the regulatory capital rules and are subject to qualitative judgments by the regulators about components, risk-weightings, and other factors. We calculate these ratios in order to assess compliance with both regulatory requirements and internal capital policies. In order to maintain our ability to take certain capital actions, including dividends and common equity repurchases, and to make bonus payments, we must hold a capital conservation buffer above our minimum risk-based capital requirements. See Note 20 for further information about our regulatory capital and related capital ratios. The following table presents the components of RJF’s regulatory capital used to calculate the aforementioned regulatory capital ratios. $ in millions December 31, 2022 September 30, 2022 Common equity tier 1 capital/Tier 1 capital Common stock and related additional paid-in capital $ 2,977 $ 2,989 Retained earnings 9,254 8,843 Treasury stock (1,604) (1,512) Accumulated other comprehensive loss (891) (982) Less: Goodwill and identifiable intangible assets, net of related deferred tax liabilities (1,809) (1,805) Other adjustments 801 847 Common equity tier 1 capital 8,728 8,380 Additional tier 1 capital (preferred equity of $120, net of $4 of other items) 116 100 Tier 1 capital 8,844 8,480 Tier 2 capital Tier 2 capital instruments plus related surplus 100 100 Qualifying allowances for credit losses 463 451 Tier 2 capital 563 551 Total capital $ 9,407 $ 9,031 66 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis The following table presents RJF’s risk-weighted assets by exposure type used to calculate the aforementioned regulatory capital ratios. $ in millions December 31, 2022 September 30, 2022 On-balance sheet assets: Corporate exposures $ 20,549 $ 20,147 Exposures to sovereign and government-sponsored entities (1) 1,977 2,002 Exposures to depository institutions, foreign banks, and credit unions 2,389 3,003 Exposures to public-sector entities 749 696 Residential mortgage exposures 3,948 3,732 Statutory multifamily mortgage exposures 70 71 High volatility commercial real estate exposures 119 128 Past due loans 87 110 Equity exposures 514 445 Securitization exposures 150 129 Other assets 7,125 7,325 Off-balance sheet: Standby letters of credit 65 62 Commitments with original maturity of one year or less 85 98 Commitments with original maturity greater than one year 2,547 2,437 Over-the-counter derivatives 234 305 Other off-balance sheet items 221 423 Market risk-weighted assets 2,799 3,063 Total standardized risk-weighted assets $ 43,628 $ 44,176 (1) RJF’s exposure is predominantly to the U.S. government and its agencies. Cash flows Cash and cash equivalents (excluding amounts segregated for regulatory purposes and restricted cash) was $6.18 billion at December 31, 2022, essentially unchanged from September 30, 2022, as investments in bank loans, the payment of prior-year bonuses, repayments of certain FHLB borrowings and common stock repurchases during the quarter were offset by the impacts of positive net income, a decline in receivables, and an increase in bank deposits due to an increase in client cash swept to our Bank segment through the RJBDP. Sources of liquidity Approximately $2.01 billion of our total December 31, 2022 cash and cash equivalents included cash held at the parent company, which included cash loaned to RJ&A. As of December 31, 2022, RJF had loaned $1.36 billion to RJ&A (such amount is included in the RJ&A cash balance in the following table), which RJ&A has invested on behalf of RJF in cash and cash equivalents or otherwise deployed in its normal business activities. The following table presents our holdings of cash and cash equivalents. $ in millions December 31, 2022 RJF $ 672 RJ&A 2,076 TriState Capital Bank 975 Raymond James Bank 783 Raymond James Ltd. (“RJ Ltd.”) 690 Raymond James Capital Services, LLC 226 Raymond James Financial Services, Inc. 137 Charles Stanley Group Limited 122 Raymond James Trust Company of New Hampshire 93 Raymond James Investment Management 89 Other subsidiaries 314 Total cash and cash equivalents $ 6,177 67 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis RJF maintained depository accounts at Raymond James Bank and TriState Capital Bank totaling $272 million as of December 31, 2022. The portion of this total that was available on demand without restrictions, which amounted to $232 million as of December 31, 2022, is reflected in the RJF cash balance and excluded from Raymond James Bank’s cash balance in the preceding table. A large portion of the cash and cash equivalents balances at our non-U.S. subsidiaries, including RJ Ltd., as of December 31, 2022 was held to meet regulatory requirements and was not available for use by the parent. In addition to the cash balances described, we have various other potential sources of cash available to the parent company from subsidiaries, as described in the following section. Liquidity available from subsidiaries Liquidity is principally available to RJF from RJ&A and Raymond James Bank. Certain of our broker-dealer subsidiaries are subject to the requirements of the Uniform Net Capital Rule (Rule 15c3-1) under the Securities and Exchange Act of 1934. As a member firm of the Financial Industry Regulatory Authority (“FINRA”), RJ&A is subject to FINRA’s capital requirements, which are substantially the same as Rule 15c3-1. Rule 15c3-1 provides for an “alternative net capital requirement,” which RJ&A has elected. Regulations require that minimum net capital, as defined, be equal to the greater of $1.5 million or 2% of aggregate debit items arising from client balances. In addition, covenants in RJ&A’s committed financing facilities require its net capital to be a minimum of 10% of aggregate debit items. At December 31, 2022, RJ&A significantly exceeded the minimum regulatory requirements, the covenants in its financing arrangements pertaining to net capital, as well as its internally-targeted net capital tolerances. FINRA may impose certain restrictions, such as restricting withdrawals of equity capital, if a member firm were to fall below a certain threshold or fail to meet minimum net capital requirements which may result in RJ&A limiting dividends it would otherwise remit to RJF. We evaluate regulatory requirements, loan covenants and certain internal tolerances when determining the amount of liquidity available to RJF from RJ&A. Raymond James Bank may pay dividends to RJF without prior approval of its regulator as long as the dividends do not exceed the sum of its current calendar year and the previous two calendar years’ retained net income, and it maintains its targeted regulatory capital ratios. Dividends may be limited to the extent that capital is needed to support balance sheet growth. Although we have liquidity available to us from our other subsidiaries, the available amounts may not be as significant as those previously described and, in certain instances, may be subject to regulatory requirements. Borrowings and financing arrangements Committed financing arrangements Our ability to borrow is dependent upon compliance with the conditions in our various loan agreements and, in the case of secured borrowings, collateral eligibility requirements. Our committed financing arrangements primarily consist of a tri-party repurchase agreement (i.e., securities sold under agreements to repurchase) and, in the case of our $500 million revolving credit facility agreement (the “Credit Facility”), an unsecured line of credit. The required market value of the collateral associated with the tri-party repurchase agreement ranges from 105% to 125% of the amount financed. 68 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis The following table presents our most significant committed financing arrangements with third-party lenders, which we generally utilize to finance a portion of our fixed income trading instruments held by RJ&A, and the outstanding balances related thereto. December 31, 2022 $ in millions RJ&A RJF Total Total number of arrangements Financing arrangement: Committed secured $ 100 $ — $ 100 1 Committed unsecured 200 300 500 1 Total committed financing arrangements $ 300 $ 300 $ 600 2 Outstanding borrowing amount: Committed secured $ — $ — $ — Committed unsecured — — — Total outstanding borrowing amount $ — $ — $ — Our committed unsecured financing arrangement in the preceding table represents our Credit Facility, which provides for maximum borrowings of up to $500 million, with a sublimit of $300 million for RJF. RJ&A may borrow up to $500 million under the Credit Facility, depending on the amount of outstanding borrowings by RJF. For additional details on our committed unsecured financing arrangement, see our discussion of the Credit Facility in Note 16 of the Notes to Consolidated Financial Statements of our 2022 Form 10-K. Uncommitted financing arrangements Our uncommitted financing arrangements are in the form of secured lines of credit, secured bilateral or tri-party repurchase agreements, or unsecured lines of credit. Our arrangements with third-party lenders are generally utilized to finance a portion of our fixed income securities held by RJ&A or for cash management purposes. Our uncommitted secured financing arrangements generally require us to post collateral in excess of the amount borrowed and are generally collateralized by RJ&A-owned securities or by securities that we have received as collateral under reverse repurchase agreements (i.e., securities purchased under agreements to resell). As of December 31, 2022, we had outstanding borrowings under one uncommitted secured borrowing arrangement out of a total of 12 uncommitted financing arrangements (eight uncommitted secured and four uncommitted unsecured). However, lenders are under no contractual obligation to lend to us under uncommitted credit facilities. The following table presents our borrowings on uncommitted financing arrangements, which were in the form of repurchase agreements in RJ&A and were included in “Collateralized financings” on our Condensed Consolidated Statements of Financial Condition. $ in millions December 31, 2022 Outstanding borrowing amount: Uncommitted secured $ 150 Uncommitted unsecured — Total outstanding borrowing amount $ 150 The average daily balance outstanding during the five most recent quarters, the maximum month-end balance outstanding during the quarter and the period-end balances for repurchase agreements and reverse repurchase agreements are detailed in the following table. Repurchase transactions Reverse repurchase transactions For the quarter ended: ($ in millions) Average daily balance outstanding Maximum month-end balance outstanding during the quarter End of period balance outstanding Average daily balance outstanding Maximum month-end balance outstanding during the quarter End of period balance outstanding December 31, 2022 $ 245 $ 257 $ 150 $ 288 $ 306 $ 156 September 30, 2022 $ 196 $ 294 $ 294 $ 249 $ 367 $ 367 June 30, 2022 $ 203 $ 276 $ 100 $ 238 $ 300 $ 168 March 31, 2022 $ 271 $ 334 $ 140 $ 211 $ 304 $ 221 December 31, 2021 $ 247 $ 258 $ 203 $ 306 $ 305 $ 204 69 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Other borrowings and collateralized financings We had $1.05 billion in FHLB borrowings outstanding at December 31, 2022, comprised of floating-rate and fixed-rate advances. See Note 13 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information regarding the maturities and interest rates on our FHLB borrowings. The interest rates on our floating-rate advances are generally based on a secured overnight financing rate (“SOFR”). We use interest rate swaps to manage the risk of increases in interest rates associated with our floating-rate FHLB advances by converting the balances subject to variable interest rates to a fixed interest rate. At December 31, 2022, we had pledged $8.36 billion of bank loans, net with the FHLB as security for the repayment of these borrowings and had an additional $5.17 billion in immediate credit available based on collateral pledged. As of December 31, 2022, with the pledge of additional collateral, we had additional credit availability from certain FHLB member banks. See Notes 6 and 13 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information regarding bank loans, net pledged with the FHLB and these borrowings. A portion of our fixed income transactions are cleared and executed through a third-party clearing organization, which provides financing for the purchase of trading instruments to support such transactions. The amount of financing is based on the amount of trading inventory financed, as well as any deposits held at the clearing organization. Amounts outstanding under this financing arrangement are collateralized by a portion of our trading inventory and accrue interest based on market rates. While we had borrowings outstanding as of December 31, 2022, the clearing organization is under no contractual obligation to lend to us under this arrangement. We are eligible to participate in the Federal Reserve’s discount window program; however, we do not view borrowings from the Federal Reserve as a primary source of funding. The credit available in this program is subject to periodic review, may be terminated or reduced at the discretion of the Federal Reserve, and is secured by certain pledged C&I loans. See Note 6 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information regarding bank loans, net pledged with the FRB. As part of the acquisition of TriState Capital, we assumed, as of the closing date, TriState Capital’s subordinated notes due 2030, with an aggregate principal amount of $98 million. See Note 13 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q and Note 16 of our 2022 Form 10-K for additional information regarding these borrowings. We may act as an intermediary between broker-dealers and other financial institutions whereby we borrow securities from one broker-dealer and then lend them to another. Where permitted, we have also loaned, to broker-dealers and other financial institutions, securities owned by clients or the firm. We account for each of these types of transactions as collateralized agreements and financings, with the outstanding balance of $44 million as of December 31, 2022 related to the securities loaned included in “Collateralized financings” on our Condensed Consolidated Statements of Financial Condition of this Form 10-Q. See Note 6 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q and Note 2 of our 2022 Form 10-K for more information on our collateralized agreements and financings. Senior notes payable At December 31, 2022, we had aggregate outstanding senior notes payable of $2.04 billion which, exclusive of any unaccreted premiums or discounts and debt issuance costs, was comprised of $500 million par 4.65% senior notes due 2030, $800 million par 4.95% senior notes due 2046, and $750 million par 3.75% senior notes due 2051. See Note 17 of the Notes to the Consolidated Financial Statements of our 2022 Form 10-K for additional information on senior notes payable. Credit ratings Our issuer, senior long-term debt, and preferred stock credit ratings as of the most current report are detailed in the following table. Credit Rating Rating Agency Fitch Ratings, Inc. Moody’s Standard & Poor’s Ratings Services Issuer and senior long term debt A- A3 BBB+ Preferred stock BB+ Baa3 (hyb) Not rated Outlook Stable Stable Positive Our current credit ratings depend upon a number of factors, including industry dynamics, operating and economic environment, operating results, operating margins, earnings trends and volatility, balance sheet composition, liquidity and liquidity 70 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis management, capital structure, overall risk management, business diversification and market share, and competitive position in the markets in which we operate. Deterioration in any of these factors could impact our credit ratings. Any rating downgrades could increase our costs in the event we were to obtain additional financing. Should our credit rating be downgraded prior to a public debt offering, it is probable that we would have to offer a higher rate of interest to bond holders. A downgrade to below investment grade may make a public debt offering difficult to execute on terms we would consider to be favorable. A downgrade below investment grade could result in the termination of certain derivative contracts and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing overnight collateralization on our derivative instruments in liability positions. A credit downgrade could damage our reputation and result in certain counterparties limiting their business with us, result in negative comments by analysts, potentially negatively impact investors’ and/or clients’ perception of us and cause a decline in our stock price. None of our borrowing arrangements contains a condition or event of default related to our credit ratings. However, a credit downgrade would result in the firm incurring a higher facility fee on the Credit Facility, in addition to triggering a higher interest rate applicable to any borrowings outstanding on that line as of and subsequent to such downgrade. Conversely, an improvement in RJF’s current credit rating could have a favorable impact on the facility fee, as well as the interest rate applicable to any borrowings on such line. Other sources and uses of liquidity We have company-owned life insurance policies which are utilized to fund certain non-qualified deferred compensation plans and other employee benefit plans. Certain of our non-qualified deferred compensation plans and other employee benefit plans are employee-directed while others are company-directed. Of the company-owned life insurance policies which fund these plans, certain policies could be used as a source of liquidity for the firm. Those policies against which we could readily borrow had a cash surrender value of $811 million as of December 31, 2022, comprised of $513 million related to employee-directed plans and $298 million related to company-directed plans, and we were able to borrow up to 90%, or $730 million, of the December 31, 2022 total without restriction. To effect any such borrowing, the underlying investments would be converted to money market investments, therefore requiring us to take market risk related to the employee-directed plans. There were no borrowings outstanding against any of these policies as of December 31, 2022. On May 12, 2021, we filed a “universal” shelf registration statement with the SEC pursuant to which we can issue debt, equity and other capital instruments if and when necessary or perceived by us to be opportune. Subject to certain conditions, this registration statement will be effective through May 12, 2024. As part of our ongoing operations, we also enter into contractual arrangements that may require future cash payments, including certificates of deposit, lease obligations and other contractual arrangements, such as for software and various services. See Notes 11 and 12 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for information regarding our lease obligations and certificates of deposit, respectively. We have entered into investment commitments, lending commitments and other commitments to extend credit for which we are unable to reasonably predict the timing of future payments. See Note 15 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information. REGULATORY Refer to the discussion of the regulatory environment in which we operate and the impact on our operations of certain rules and regulations in “Item 1 - Business - Regulation” of our 2022 Form 10-K. RJF and many of its subsidiaries are each subject to various regulatory capital requirements. As of December 31, 2022, all of our active regulated domestic and international subsidiaries had net capital in excess of minimum requirements. In addition, RJF, Raymond James Bank, and TriState Capital Bank were categorized as “well-capitalized” as of December 31, 2022. The maintenance of certain risk-based and other regulatory capital levels could influence various capital allocation decisions impacting one or more of our businesses. However, due to the current capital position of RJF and its regulated subsidiaries, we do not anticipate these capital requirements will have a negative impact on our future business activities. See Note 20 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information on regulatory capital requirements. 71 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis CRITICAL ACCOUNTING ESTIMATES The condensed consolidated financial statements are prepared in accordance with GAAP, which require us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses for the reporting period. Management has established detailed policies and control procedures intended to ensure the appropriateness of such estimates and assumptions and their consistent application from period to period. For a description of our significant accounting policies, see Note 2 of the Notes to Consolidated Financial Statements of our 2022 Form 10-K. Due to their nature, estimates involve judgment based upon available information. Actual results or amounts could differ from estimates and the difference could have a material impact on the consolidated financial statements. Therefore, understanding these critical accounting estimates is important in understanding our reported results of operations and financial position. We believe that of our accounting estimates and assumptions, those described in the following sections involve a high degree of judgment and complexity. Loss provisions Loss provisions for legal and regulatory matters The recorded amount of liabilities related to legal and regulatory matters is subject to significant management judgment. For a description of the significant estimates and judgments associated with establishing such accruals, see the “Contingent liabilities” section of Note 2 of the Notes to Consolidated Financial Statements of our 2022 Form 10-K. In addition, refer to Note 15 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for information regarding legal and regulatory matters contingencies as of December 31, 2022. Allowance for credit losses We evaluate certain of our financial assets, including bank loans, to estimate an allowance for credit losses based on expected credit losses over a financial asset’s lifetime. The remaining life of our financial assets is determined by considering contractual terms and expected prepayments, among other factors. We use multiple methodologies in estimating an allowance for credit losses and our approaches differ by type of financial asset and the risk characteristics within each financial asset type. Our estimates are based on ongoing evaluations of our financial assets, the related credit risk characteristics, and the overall economic and environmental conditions affecting the financial assets. Our process for determining the allowance for credit losses includes a complex analysis of several quantitative and qualitative factors requiring significant management judgment due to matters that are inherently uncertain. This uncertainty can produce volatility in our allowance for credit losses. In addition, the allowance for credit losses could be insufficient to cover actual losses. In such an event, any losses in excess of our allowance would result in a decrease in our net income, as well as a decrease in the level of regulatory capital. We generally estimate the allowance for credit losses on bank loans using credit risk models which incorporate relevant available information from internal and external sources relating to past events, current conditions, and reasonable and supportable economic forecasts. After testing the reasonableness of a variety of economic forecast scenarios, each model is run using a single forecast scenario selected for each model. Our forecasts incorporate assumptions related to macroeconomic indicators including, but not limited to, U.S. gross domestic product, equity market indices, unemployment rates, and commercial real estate and residential home price indices. To demonstrate the sensitivity of credit loss estimates on our bank loan portfolio to macroeconomic forecasts, we compared our modeled estimates under the base case economic scenario used to estimate the allowance for credit losses as of December 31, 2022, to what our estimate would have been under a downside case scenario and an upside scenario, without considering any offsetting effects in the qualitative component of our allowance for credit losses as of December 31, 2022. As of December 31, 2022, use of the downside case scenario would have resulted in an increase of approximately $170 million in the quantitative portion of our allowance for credit losses on bank loans, while the use of the upside case would have resulted in a reduction of approximately $35 million in the quantitative portion of our allowance for credit losses on bank loans at December 31, 2022. These hypothetical outcomes reflect the relative sensitivity of the modeled portion of our allowance estimate to macroeconomic forecasted scenarios but do not consider any potential impact qualitative adjustments could have on the allowance for credit losses in such environments. Qualitative adjustments could either increase or decrease modeled loss estimates calculated using an alternative economic scenario assumption. Further, such sensitivity calculations do not necessarily reflect the nature and extent of future changes in the related allowance for a number of reasons including: (1) management’s predictions of future economic trends and relationships among the scenarios may differ from actual events; and (2) management’s application of subjective measures to modeled results through the qualitative portion of the allowance for credit losses when appropriate. The 72 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis downside case scenario utilized in this hypothetical sensitivity analysis assumes a moderate recession. To the extent macroeconomic conditions worsen beyond those assumed in this downside case scenario, we could incur provisions for credit losses significantly in excess of those estimated in this analysis. See Note 2 of the Notes to Consolidated Financial Statements of our 2022 Form 10-K for information regarding our methodologies and assumptions used in estimating the allowance for credit losses. See Note 7 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for information regarding our allowance for credit losses related to bank loans as of December 31, 2022. RECENT ACCOUNTING DEVELOPMENTS In March 2022, the Financial Accounting Standards Board issued new guidance related to troubled debt restructurings and disclosures regarding write-offs of financing receivables (ASU 2022-02), amending guidance related to the measurement of credit losses on financial instruments (ASU 2016-13). The amendment eliminates the accounting guidance for troubled debt restructurings for creditors, but requires enhanced disclosures for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty, and requires disclosure of current-period gross write-offs by year of origination for financing receivables. This new guidance is effective for our fiscal year beginning on October 1, 2023 and will be applied on a prospective basis. Although permitted, we do not plan to early adopt. We do not expect the adoption of this new guidance to have a material impact on our financial position and results of operations. RISK MANAGEMENT Risks are an inherent part of our business and activities. Management of risk is critical to our fiscal soundness and profitability. Our risk management processes are multi-faceted and require communication, judgment, and knowledge of financial products and markets. We have a formal Enterprise Risk Management (“ERM”) program to assess and review aggregate risks across the firm. Our management takes an active role in the ERM process, which requires specific administrative and business functions to participate in the identification, assessment, monitoring, and control of various risks. The principal risks related to our business activities are market, credit, liquidity, operational, model, and compliance. Governance Our Board of Directors, including its Audit and Risk Committee, oversees the firm’s management and mitigation of risk, reinforcing a culture that encourages ethical conduct and risk management throughout the firm. Senior management communicates and reinforces this culture through three lines of risk management and a number of senior-level management committees. Our first line of risk management, which includes all of our businesses, owns its risks and is responsible for identifying, mitigating, and escalating risks arising from its day-to-day activities. The second line of risk management, which includes Compliance and Risk Management, advises our client-facing businesses and other first-line functions in identifying, assessing, and mitigating risk. The second line of risk management tests and monitors the effectiveness of controls, as deemed necessary, and escalates risks when appropriate to senior management and the Board of Directors. The third line of risk management, Internal Audit, independently reviews activities conducted by the previous lines of risk management to assess their management and mitigation of risk, providing additional assurance to the Board of Directors and senior management, with a view toward enhancing our oversight, management, and mitigation of risk. Our legal department provides legal advice and guidance to each of these three lines of risk management. Market risk Market risk is our risk of loss resulting from the impact of changes in market prices on our trading inventory, derivatives, and investment positions. We have exposure to market risk primarily through our broker-dealer trading operations and our banking operations. Through our broker-dealer subsidiaries, we trade debt obligations and equity securities and maintain trading inventories to ensure availability of securities to facilitate client transactions. Inventory levels may fluctuate daily as a result of client demand. We also hold investments within our available-for-sale securities portfolio, and from time-to-time may hold SBA loan securitizations not yet transferred. Our primary market risks relate to interest rates, equity prices, and foreign exchange rates. Interest rate risk results from changes in levels of interest rates, the volatility of interest rates, mortgage prepayment speeds, and credit spreads. Equity risk results from changes in prices of equity securities. Foreign exchange risk results from changes in spot prices, forward prices, and volatility of foreign exchange rates. See Note 2 of the Notes to Consolidated Financial Statements of our 2022 Form 10-K and Notes 3, 4, and 5 of the Notes to Condensed Consolidated 73 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Financial Statements of this Form 10-Q for fair value and other information regarding our trading inventories, available-for-sale securities, and derivative instruments. We regularly enter into underwriting commitments and, as a result, we may be subject to market risk on any unsold shares issued in the offerings to which we are committed. Risk exposure is controlled by limiting our participation, the transaction size, or through the syndication process. The Market Risk Management department is responsible for measuring, monitoring, and reporting market risks associated with the firm’s trading and derivative portfolios. While Market Risk Management maintains ongoing communication with the revenue-generating business units, it is independent of such units. Interest rate risk Trading activities We are exposed to interest rate risk as a result of our trading inventory (primarily comprised of fixed income instruments) in our Capital Markets segment. Changes in value of our trading inventory may result from fluctuations in interest rates, credit spreads, equity prices, macroeconomic factors, investor expectations or risk appetites, liquidity, as well as dynamic relationships among these factors. We actively manage interest rate risk arising from our fixed income trading inventory through the use of hedging strategies utilizing U.S. Treasuries, futures contracts, liquid spread products, and derivatives. Our primary method for controlling risks within trading inventories is through the use of dollar-based and exposure-based limits. A hierarchy of limits exists at multiple levels, including firm, business unit, desk (e.g., for equities, corporate bonds, municipal bonds), product sub-type (e.g., below-investment-grade positions) and, at times, at the individual position. For derivative positions, which are primarily comprised of interest rate swaps, we have established limits based on a number of factors, including interest rate, foreign exchange spot and forward rates, spread, ratio, basis, and volatility risk. Trading positions and derivatives are monitored against these limits through daily reports that are distributed to senior management. During volatile markets, we may temporarily reduce limits and/or choose to pare our trading inventories to reduce risk. We monitor Value-at-Risk (“VaR”) for all of our trading portfolios on a daily basis for risk management purposes and as a result of applying the Fed’s Market Risk Rule (“MRR”) for the purpose of calculating our capital ratios. The MRR, also known as the “Risk-Based Capital Guidelines: Market Risk” rule released by the Fed, the Office of the Comptroller of the Currency and the FDIC, requires us to calculate VaR for all of our trading portfolios, including fixed income, equity, derivatives, and foreign exchange instruments. VaR is an appropriate statistical technique for estimating potential losses in trading portfolios due to typical adverse market movements over a specified time horizon with a suitable confidence level. However, there are inherent limitations of utilizing VaR including: historical movements in markets may not accurately predict future market movements; VaR does not take into account the liquidity of individual positions; VaR does not estimate losses over longer time horizons; and extended periods of one-directional markets potentially distort risks within the portfolio. In addition, should markets become more volatile, actual trading losses may exceed VaR results presented on a single day and might accumulate over a longer time horizon. As a result, management complements VaR with sensitivity analysis and stress testing and employs additional controls such as a daily review of trading results, review of aged inventory, independent review of pricing, monitoring of concentrations, and review of issuer ratings. To calculate VaR, we use models which incorporate historical simulation. This approach assumes that historical changes in market conditions, such as in interest rates and equity prices, are representative of future changes. Simulation is based on daily market data for the previous twelve months. VaR is reported at a 99% confidence level for a one-day time horizon. Assuming that future market conditions change as they have in the past twelve months, we would expect to incur losses greater than those predicted by our one-day VaR estimates about once every 100 trading days, or about three times per year on average. For regulatory capital calculation purposes, we also report VaR and Stressed VaR numbers for a ten-day time horizon. The VaR model is independently reviewed by our Model Risk Management function. See “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Model risk” of our 2022 Form 10-K for further information. The modeling of the risk characteristics of trading positions involves a number of assumptions and approximations that management believes to be reasonable. However, there is no uniform industry methodology for estimating VaR, and different assumptions or approximations could produce materially different VaR estimates. As a result, VaR results are more reliable when used as indicators of risk levels and trends within a firm than as a basis for inferring differences in risk-taking across firms. 74 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis The following table sets forth the high, low, period-end and average daily one-day VaR for all of our trading portfolios, including fixed income and equity instruments, and for our derivatives for the periods and dates indicated. Three months ended December 31, 2022 Period-end VaR Three months ended December 31, $ in millions High Low December 31, 2022 September 30, 2022 $ in millions 2022 2021 Daily VaR $ 3 $ 2 $ 3 $ 3 Average daily VaR $ 2 $ 1 Average daily VaR was higher during the three months ended December 31, 2022 compared with the three months ended December 31, 2021 due to the impact increased market volatility in December 2022, as well as the addition of the SumRidge Partners trading inventory. The Fed’s MRR requires us to perform daily back-testing procedures for our VaR model, whereby we compare each day’s projected VaR to its regulatory-defined daily trading losses, which exclude fees, commissions, reserves, net interest income, and intraday trading. Regulatory-defined daily trading losses are used to evaluate the performance of our VaR model and are not comparable to our actual daily net revenues. Based on these daily “ex ante” versus “ex post” comparisons, we determine whether the number of times that regulatory-defined daily trading losses exceed VaR is consistent with our expectations at a 99% confidence level. During the three months ended December 31, 2022, our regulatory-defined daily losses in our trading portfolios did not exceed our predicted VaR. Separately, RJF provides additional market risk disclosures to comply with the MRR, including 10-day VaR and 10-day Stressed VaR, which are available on our website at https://www.raymondjames.com/investor-relations/financial-information/filings-and-reports within “Other Reports and Information.” Banking operations Our Bank segment maintains an interest-earning asset portfolio that is comprised of cash, SBL, C&I loans, commercial and residential real estate loans, REIT loans, and tax-exempt loans, as well as securities held in the available-for-sale securities portfolio. These interest-earning assets are primarily funded by client deposits. Based on the current asset portfolio, our banking operations are subject to interest rate risk. We analyze interest rate risk based on forecasted net interest income, which is the net amount of interest received and interest paid, and the net portfolio valuation, both across a range of interest rate scenarios. One of the objectives of the Asset and Liability Committee is to manage the sensitivity of net interest income to changes in market interest rates. This committee uses several measures to monitor and limit interest rate risk in our banking operations, including scenario analysis and economic value of equity. We utilize a hedging strategy using interest rate swaps in our banking operations as a result of our asset and liability management process. For further information regarding this hedging strategy, see Note 2 of the Notes to Consolidated Financial Statements of our 2022 Form 10-K and Notes 12 and 13 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q. To ensure that we remain within the tolerances established for net interest income, a sensitivity analysis of net interest income to interest rate conditions is estimated under a variety of scenarios. We use simulation models and estimation techniques to assess the sensitivity of net interest income to movements in interest rates. The model estimates the sensitivity by calculating interest income and interest expense in a dynamic balance sheet environment using current repricing, prepayment, and reinvestment of cash flow assumptions over a 12-month time horizon. Assumptions used in the model include interest rate movement, the slope of the yield curve, and balance sheet composition and growth. The model also considers interest rate-related risks such as pricing spreads, pricing of client cash accounts, and prepayments. Various interest rate scenarios are modeled in order to determine the effect those scenarios may have on net interest income. 75 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis The following table is an analysis of our banking operations’ estimated net interest income over a 12-month period based on instantaneous shifts in interest rates (expressed in basis points) using our previously described asset/liability model, which assumes a dynamic balance sheet and that interest rates do not decline below zero. While not presented, additional rate scenarios are performed, including interest rate ramps and yield curve shifts that may more realistically mimic the speed of potential interest rate movements. We also perform simulations on time horizons of up to five years to assess longer-term impacts to various interest rate scenarios. On a quarterly basis, we test expected model results to actual performance. Additionally, any changes made to key assumptions in the model are documented and approved by the Asset and Liability Committee. Instantaneous changes in rate (1) Net interest income ($ in millions) Projected change in net interest income +200 $2,533 16% +100 $2,353 8% 0 $2,176 —% -100 $1,981 (9)% -200 $1,823 (16)% (1) Our 0-basis point scenario was based on interest rates as of December 31, 2022 and did not include the impact of the Fed’s February 1, 2023 increase in its benchmark short-term rate. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Net interest analysis” of this Form 10-Q for a discussion of the impact changes in short-term interest rates could have on the consolidated firm’s operations. The following table shows the maturities of our bank loan portfolio at December 31, 2022, including contractual principal repayments. Maturities are generally determined based upon contractual terms; however, rollovers or extensions that are included for the purposes of measuring the allowance for credit losses are reflected in maturities in the following table. This table does not include any estimates of prepayments, which could shorten the average loan lives and cause the actual timing of the loan repayments to differ significantly from those shown in the table. Due in $ in millions One year or less > One year – five years > Five years - fifteen years > Fifteen years Total SBL $ 14,405 $ 354 $ 125 $ 1 $ 14,885 C&I loans 941 7,320 3,106 38 11,405 CRE loans 933 4,112 1,861 23 6,929 REIT loans 129 1,413 138 — 1,680 Residential mortgage loans 17 31 214 7,556 7,818 Tax-exempt loans 167 260 1,240 — 1,667 Total loans held for investment 16,592 13,490 6,684 7,618 44,384 Held for sale loans 1 — 33 56 90 Total loans held for sale and investment $ 16,593 $ 13,490 $ 6,717 $ 7,674 $ 44,474 The following table shows the distribution of the recorded investment of those bank loans that mature in more than one year between fixed and adjustable interest rate loans at December 31, 2022. Interest rate type $ in millions Fixed Adjustable Total SBL $ 5 $ 475 $ 480 C&I loans 779 9,685 10,464 CRE loans 341 5,655 5,996 REIT loans — 1,551 1,551 Residential mortgage loans 232 7,569 7,801 Tax-exempt loans 1,500 — 1,500 Total loans held for investment 2,857 24,935 27,792 Held for sale loans 2 87 89 Total loans held for sale and investment $ 2,859 $ 25,022 $ 27,881 76 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Contractual loan terms for SBL, C&I loans, CRE loans, REIT loans, and residential mortgage loans may include an interest rate floor, cap and/or fixed interest rates for a certain period of time, which would impact the timing of the interest rate reset for the respective loan. See the discussion within the “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Credit risk - Risk monitoring process” section of this Form 10-Q for additional information regarding our interest-only residential mortgage loan portfolio. In our available-for-sale securities portfolio, we hold primarily fixed-rate agency-backed MBS, agency-backed CMOs, and U.S. Treasuries, which are carried at fair value on our Condensed Consolidated Statements of Financial Condition, with changes in the fair value of the portfolio recorded through OCI on our Condensed Consolidated Statements of Income and Comprehensive Income. At December 31, 2022, our available-for-sale securities portfolio had a fair value of $9.79 billion with a weighted-average yield of 1.94%. The effective duration of our available-for-sale securities portfolio as of December 31, 2022 was approximately 3.74, where duration is defined as the approximate percentage change in price for a 100-basis point change in rates. See Note 4 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information on our available-for-sale securities portfolio. Equity price risk We are exposed to equity price risk as a result of our capital markets activities. Our broker-dealer activities are generally client-driven, and we carry equity securities as part of our trading inventory to facilitate such activities, although the amounts are not as significant as our fixed income trading inventory. We attempt to reduce the risk of loss inherent in our inventory of equity securities by monitoring those security positions each day and establishing position limits. Equity securities held in our trading inventory are generally included in VaR. In addition, we have a private equity portfolio, included in “Other investments” on our Condensed Consolidated Statements of Financial Condition, which is primarily comprised of investments in third-party funds. See Note 3 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information on this portfolio. Foreign exchange risk We are subject to foreign exchange risk due to our investments in foreign subsidiaries as well as transactions and resulting balances denominated in a currency other than the U.S. dollar. For example, our bank loan portfolio includes loans which are denominated in Canadian dollars, totaling $1.52 billion and $1.51 billion at December 31, 2022 and September 30, 2022, respectively, when converted to the U.S. dollar. A majority of such loans are held in a Canadian subsidiary of Raymond James Bank, which is discussed in the following sections. Investments in foreign subsidiaries Raymond James Bank has an investment in a Canadian subsidiary, resulting in foreign exchange risk. To mitigate its foreign exchange risk, Raymond James Bank utilizes short-term, forward foreign exchange contracts. These derivatives are primarily accounted for as net investment hedges in the condensed consolidated financial statements. See Note 2 of the Notes to Consolidated Financial Statements of our 2022 Form 10-K and Note 5 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information regarding these derivatives. At December 31, 2022, we had foreign exchange risk in our investment in RJ Ltd. of CAD $395 million and in our investment in Charles Stanley of £274 million, which were not hedged. All of our other investments in subsidiaries located in Europe are not hedged and we do not believe we had material foreign exchange risk either individually, or in the aggregate, pertaining to these subsidiaries as of December 31, 2022. Foreign exchange gains/losses related to our foreign investments are primarily reflected in OCI on our Condensed Consolidated Statements of Income and Comprehensive Income. See Note 16 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information regarding our components of OCI. 77 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Transactions and resulting balances denominated in a currency other than the U.S. dollar We are subject to foreign exchange risk due to our holdings of cash and certain other assets and liabilities resulting from transactions denominated in a currency other than the U.S. dollar. Any currency-related gains/losses arising from these foreign currency denominated balances are reflected in “Other” revenues in our Condensed Consolidated Statements of Income and Comprehensive Income. The foreign exchange risk associated with a portion of such transactions and balances denominated in foreign currency are mitigated utilizing short-term, forward foreign exchange contracts. Such derivatives are not designated hedges and therefore, the related gains/losses are included in “Other” revenues in our Condensed Consolidated Statements of Income and Comprehensive Income. See Note 5 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for information regarding our derivatives. Credit risk Credit risk is the risk of loss due to adverse changes in a borrower’s, issuer’s or counterparty’s ability to meet its financial obligations under contractual or agreed-upon terms. The nature and amount of credit risk depends on the type of transaction, the structure and duration of that transaction, and the parties involved. Credit risk is an integral component of the profit assessment of lending and other financing activities. See further discussion of our credit risk, including how we manage such risk, in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Credit risk” of our 2022 Form 10-K. Brokerage activities We are engaged in various trading and brokerage activities in which our counterparties primarily include broker-dealers, banks, exchanges, clearing organizations, and other financial institutions. We are exposed to risk that these counterparties may not fulfill their obligations. In addition, certain commitments, including underwritings, may create exposure to individual issuers and businesses. The risk of default depends on the creditworthiness of the counterparty and/or the issuer of the instrument. In addition, we may be subject to concentration risk if we hold large positions in or have large commitments to a single counterparty, borrower, or group of similar counterparties or borrowers (e.g., in the same industry). We seek to mitigate these risks by imposing and monitoring individual and aggregate position limits within each business segment for each counterparty, conducting regular credit reviews of financial counterparties, reviewing security, derivative and loan concentrations, holding and calculating the fair value of collateral on certain transactions and conducting business through clearing organizations, which may guarantee performance. See Note 2 of the Notes to Consolidated Financial Statements of our 2022 Form 10-K and Notes 5 and 6 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information about our credit risk mitigation related to derivatives and collateralized agreements. Our client activities involve the execution, settlement, and financing of various transactions on behalf of our clients. Client activities are transacted on either a cash or margin basis. Credit exposure results from client margin loans, which are monitored daily and are collateralized by the securities in the clients’ accounts. We monitor exposure to industry sectors and individual securities and perform analysis on a daily basis in connection with our margin lending activities. We adjust our margin requirements if we believe our risk exposure is not appropriate based on market conditions. In addition, when clients execute a purchase, we are at some risk that the client will default on their financial obligation associated with the trade. If this occurs, we may have to liquidate the position at a loss. See Note 2 of the Notes to the Consolidated Financial Statements of our 2022 Form 10-K for further information about our determination of the allowance for credit losses associated with certain of our brokerage lending activities. We offer loans to financial advisors for recruiting and retention purposes. We have credit risk and may incur a loss primarily in the event that such borrower is no longer affiliated with us. See Note 2 of the Notes to the Consolidated Financial Statements of our 2022 Form 10-K and Note 8 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information about our loans to financial advisors. Banking activities Our Bank segment has a substantial loan portfolio. Our strategy for credit risk management related to bank loans includes well-defined credit policies, uniform underwriting criteria, and ongoing risk monitoring and review processes for all credit exposures. The strategy also includes diversification across loan types, geographic location, industry and client level, regular credit examinations and management reviews of all corporate and tax-exempt loans as well as individual delinquent residential loans. The credit risk management process also includes annual independent reviews of the credit risk monitoring process that performs assessments of compliance with credit policies, risk ratings, and other critical credit information. We seek to identify potential problem loans early, record any necessary risk rating changes and charge-offs promptly, and maintain appropriate 78 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis reserve levels for expected losses. We utilize a thorough credit risk rating system to measure the credit quality of individual corporate and tax-exempt loans and related unfunded lending commitments. For our residential mortgage loans and substantially all of our SBL, we utilize the credit risk rating system used by bank regulators in measuring the credit quality of each homogeneous class of loans. In evaluating credit risk, we consider trends in loan performance, historical experience through various economic cycles, industry or client concentrations, the loan portfolio composition and macroeconomic factors (both current and forecasted). These factors have a potentially negative impact on loan performance and net charge-offs. While our bank loan portfolio is diversified, a significant downturn in the overall economy, deterioration in real estate values or a significant issue within any sector or sectors where we have a concentration will generally result in large provisions for credit losses and/or charge-offs. We determine the allowance required for specific loan pools based on relative risk characteristics of the loan portfolio. On an ongoing basis, we evaluate our methods for determining the allowance for each class of loans and make enhancements we consider appropriate. Our allowance for credit losses methodology is described in Note 2 of the Notes to the Consolidated Financial Statements of our 2022 Form 10-K. As our bank loan portfolio is segregated into six portfolio segments, likewise, the allowance for credit losses is segregated by these same segments. See “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Credit risk” of our 2022 Form 10-K for further information about the risk characteristics relevant to each portfolio segment. The level of charge-off activity is a factor that is considered in evaluating the potential severity of future credit losses. The following table presents net loan (charge-offs)/recoveries and the annualized percentage of net loan (charge-offs)/recoveries to the average outstanding loan balances by loan portfolio segment. Three months ended December 31, 2022 2021 $ in millions Net loan (charge-off)/recovery amount Annualized % of avg. outstanding loans Net loan (charge-off)/recovery amount Annualized % of avg. outstanding loans C&I loans $ (4) 0.14 % $ (2) 0.09 % CRE loans 2 0.12 % — — % Residential mortgage loans — — % 1 0.07 % Total loans held for sale and investment $ (2) 0.02 % $ (1) 0.02 % The level of nonperforming assets is another indicator of potential future credit losses. Nonperforming assets are comprised of both nonperforming loans and other real estate owned. Nonperforming loans include those loans which have been placed on nonaccrual status and certain accruing loans which are 90 days or more past due and in the process of collection. The following table presents the balance of nonperforming loans, nonperforming assets, and related key credit ratios. $ in millions December 31, 2022 September 30, 2022 Nonperforming loans (1) $ 61 $ 74 Nonperforming assets $ 61 $ 74 Nonperforming loans as a % of total loans held for sale and investment 0.14 % 0.17 % Allowance for credit losses as a % of nonperforming loans 669 % 535 % Nonperforming assets as a % of Bank segment total assets 0.11 % 0.13 % (1) Nonperforming loans at December 31, 2022 and September 30, 2022 included $39 million and $63 million of loans, respectively, which were current pursuant to their contractual terms. The nonperforming loan balances in the preceding table excluded $7 million as of both December 31, 2022 and September 30, 2022, of residential troubled debt restructurings which were returned to accrual status in accordance with our policy. Although our nonperforming assets as a percentage of our Bank segment’s assets remained low as of December 31, 2022, any prolonged period of market deterioration could result in an increase in our nonperforming assets, an increase in our allowance for credit losses and/or an increase in net charge-offs in future periods, although the extent would depend on future developments that are highly uncertain. See further explanation of our bank loan portfolio segments, allowance for credit losses, and the credit loss provision in Note 7 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q and “Management’s Discussion and Analysis - Results of Operations - Bank” of this Form 10-Q and Note 2 of the Notes to the Consolidated Financial Statements of our 2022 Form 10-K. 79 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Loan underwriting policies Our underwriting policies for the major types of bank loans are described in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Credit risk” of our 2022 Form 10-K. Risk monitoring process Another component of credit risk strategy for our bank loan portfolio is the ongoing risk monitoring and review processes, including our internal loan review process, as well as our rigorous processes to manage and limit credit losses arising from loan delinquencies. There are various other factors included in these processes, depending on the loan portfolio. There were no significant changes to those processes during the three months ended December 31, 2022. SBL and residential mortgage loan portfolios Substantially all collateral securing our SBL portfolio is monitored on a daily basis. Collateral adjustments, as triggered by our monitoring procedures, are made by the borrower as necessary to ensure our loans are adequately secured, resulting in minimizing our credit risk. Collateral calls have been minimal relative to our SBL portfolio with no losses incurred to date. We track and review many factors to monitor credit risk in our residential mortgage loan portfolio. The factors include, but are not limited to: loan performance trends, loan product parameters and qualification requirements, borrower credit scores, level of documentation, loan purpose, geographic concentrations, average loan size, risk rating, and LTV ratios. See Note 7 of the Notes to the Condensed Consolidated Financial Statements of this Form 10-Q for additional information about our residential mortgage loan portfolio. The following table presents a summary of delinquent residential mortgage loans, the vast majority of which are first mortgage loans, which are comprised of loans which are two or more payments past due as well as loans in the process of foreclosure. Amount of delinquent residential mortgage loans Delinquent residential mortgage loans as a percentage of outstanding residential mortgage loan balances $ in millions 30-89 days 90 days or more Total 30-89 days 90 days or more Total December 31, 2022 $ 5 $ 6 $ 11 0.06 % 0.08 % 0.14 % September 30, 2022 $ 6 $ 6 $ 12 0.08 % 0.08 % 0.16 % Our December 31, 2022 percentage compares favorably to the national average for over 30 day delinquencies of 1.98%, as most recently reported by the Fed. Credit risk is also managed by diversifying the residential mortgage portfolio. Most of the loans in our residential loan portfolio are to PCG clients across the U.S. The following table details the geographic concentrations (top five states) of our one-to-four family residential mortgage loans. December 31, 2022 Loans outstanding as a % of total residential mortgage loans held for sale and investment Loans outstanding as a % of total loans held for sale and investment CA 26% 5% FL 17% 3% TX 8% 1% NY 8% 1% CO 4% 1% The occurrence of a natural disaster or severe weather event in any of these states, for example wildfires in California and hurricanes in Florida, could result in additional credit loss provisions and/or charge-offs on our loans in such states and therefore negatively impact our net income and regulatory capital in any given period. 80 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Loans where borrowers may be subject to payment increases include adjustable rate mortgage loans with terms that initially require payment of interest only. Payments may increase significantly when the interest-only period ends and the loan principal begins to amortize. At December 31, 2022 and September 30, 2022, these loans totaled $2.63 billion and $2.55 billion, respectively, or approximately 34% and 35% of the residential mortgage portfolio, respectively. The weighted-average number of years before the remainder of the loans, which were still in their interest-only period at December 31, 2022, begins amortizing is six years. Corporate and tax-exempt loans Credit risk in our corporate and tax-exempt loan portfolios is monitored on an individual loan basis. The majority of our tax-exempt loan portfolio is comprised of loans to investment-grade borrowers. Credit risk is managed by diversifying the corporate bank loan portfolio. Our corporate bank loan portfolio does not contain a significant concentration in any single industry. The following table details the industry concentrations (top five categories) of our corporate bank loans. December 31, 2022 Loans outstanding as a % of total corporate bank loans held for sale and investment Loans outstanding as a % of total loans held for sale and investment Multi-family 11% 5% Industrial warehouse 8% 4% Loan fund 7% 3% Office real estate 6% 3% Consumer products and services 5% 2% Certain sectors continue to be impacted by supply chain disruptions and changes in consumer behavior. In addition, macroeconomic uncertainty has further exacerbated supply chain stresses and inflation concerns. Further, the Fed’s measures to control inflation, including through increases in short-term interest rates, have had an impact on consumer behavior and are likely to continue to do so in the near-term. These and related factors could negatively impact our borrowers, particularly those in consumer-facing or supply-dependent industries. In addition, we continue to monitor our exposure to office real estate where trends have changed following the COVID-19 pandemic. Liquidity risk See the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and capital resources” of this Form 10-Q for information regarding our liquidity and how we manage liquidity risk. Operational risk Operational risk generally refers to the risk of loss resulting from our operations, including, but not limited to, business disruptions, improper or unauthorized execution and processing of transactions, deficiencies in our technology or financial operating systems and inadequacies or breaches in our control processes, including cybersecurity incidents. See “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Operational risk” of our 2022 Form 10-K for a discussion of our operational risk and certain of our risk mitigation processes. Periods of severe market volatility can result in a significantly higher level of transactions on specific days, which may present operational challenges from time to time that may result in losses. These losses can result from, but are not limited to, trade errors, failed transaction settlements, late collateral calls to borrowers and counterparties, or interruptions to our system processing. We did not incur any significant losses related to such operational challenges during the three months ended December 31, 2022. As more fully described in the discussion of our business technology risks included in various risk factors presented in “Item 1A - Risk Factors” of our 2022 Form 10-K, despite our implementation of protective measures and endeavoring to modify them as circumstances warrant, our computer systems, software and networks may be vulnerable to human error, natural disasters, power loss, cyber-attacks and other information security breaches, and other events that could have an impact on the security and stability of our operations. 81 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Model risk Model risk refers to the possibility of unintended business outcomes arising from the design, implementation or use of models. See “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Model risk” of our 2022 Form 10-K for information regarding how we utilize models throughout the firm and how we manage model risk. Compliance risk Compliance risk is the risk of legal or regulatory sanctions, financial loss, or reputational damage that the firm may suffer from a failure to comply with applicable laws, external standards, or internal requirements. See “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Compliance risk” of our 2022 Form 10-K for information on our compliance risks, including how we manage such risks. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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.