RAYMOND JAMES FINANCIAL, INC.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
The number of shares outstanding of the registrant’s common stock as of November 16, 201718, 2021 was 144,400,529.206,161,694.
Portions of the definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held February 22, 201824, 2022 are incorporated by reference into Part III.
RAYMOND JAMES FINANCIAL, INC.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
PART I
ITEM 1. BUSINESS
Raymond James Financial, Inc. (“RJF” or the “Company”“firm”) is a leading diversified financial services company providing private client group, capital markets, asset management, banking and other services to individuals, corporations and municipalities. RJF’s broker-dealerThe firm, together with its subsidiaries, engageis engaged in various financial services businesses,activities, including providing investment management services to retail and institutional clients, merger & acquisition and advisory services, the underwriting, distribution, trading and brokerage of equity and debt securities, and the sale of mutual funds and other investment products. RJF and its subsidiariesThe firm also provide investment management services for retail and institutional clients,provides corporate and retail banking services, and trust services. The firm operates predominantly in the United States (“U.S.”) and, to a lesser extent, in Canada, the United Kingdom (“U.K.”), and other parts of Europe. As used herein, the terms “our,” “we,” or “us” refer to RJF and/or one or more of its subsidiaries.
Established in 1962 and public since 1983, RJF is listed on the New York Stock Exchange (the “NYSE”) under the symbol “RJF.” As a bank holding company (“BHC”) and financial holding company (“FHC”), RJF is subject to supervision, examination and regulation by the Board of Governors of the Federal Reserve System (the “Fed”(“the Fed”).
RJF’s principal subsidiaries are Raymond James & Associates, Inc. (“RJ&A”), Raymond James Financial Services, Inc. (“RJFS”), Raymond James Financial Services Advisors, Inc. (“RJFSA”), Raymond James Ltd. (“RJ Ltd.”), Eagle Asset Management, Inc. (“Eagle”), and Raymond James Bank, N.A. (“RJ Bank”). All of these subsidiaries are wholly owned by RJF. RJF and its subsidiaries are hereinafter collectively referred to as “the firm”, “our,” “we,” or “us.” Our operations are predominately conducted in the United States of America (“U.S.”) and Canada.
Among the keys to our historical and continued success, our emphasis on putting the client first is at the core of our corporate values. We also believe in maintaining a conservative, long-term focus in our decision making. We believe that this disciplined decision-making approach translates to a strong, stable financial services firm for clients, advisors, associates, and shareholders.
REPORTABLE SEGMENTS
We currently operate through four operating segments and our Other segment. The four operating segments arethe following five segments: Private Client Group (“PCG”),; Capital Markets,Markets; Asset Management,Management; Raymond James Bank; and RJ Bank. The Other segment captures private equity activities as well as certain corporate overhead costs of RJF.Other.
The following graph below depicts the relative net revenue contribution of each of our operatingbusiness segments for the fiscal year ended September 30, 2017:2021.
*Chart above The preceding chart does not include intersegment eliminations or the Other segment.
Private Client Group
We provide financial planning, investment advisory and securities transaction services to clients through financial advisors. Total client assets under administration (“AUA”) in our PCG segment as of September 30, 2021 were $1.12 trillion, of which $627.1 billion related to fee-based accounts (“fee-based AUA”). We had 8,482 financial advisors affiliated with us as of September 30, 2021.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Affiliation
PRIVATE CLIENT GROUP
We provide financial planning and securities transaction services through branch office systems. Financial advisors haveoffer multiple affiliation options, which we refer to as AdvisorChoice. Our two primary affiliation options forFinancial advisors primarily affiliate with us directly as either employees or independent contractors, or as employees of the third-party firms to which we provide services through our RIA and Custody Services (“RCS”) division.
Employee financial advisors are the employee option and the independent contractor option.
We recruit experienced financial advisors from a wide variety of competitors. As a part of their agreement to join us, we may make loans to financial advisors and to certain other key revenue producers, primarily for transitional cost assistance and retention purposes.
Total assets under administration in the PCG segment as of September 30, 2017 amount to $659.5 billion. We have 7,346 financial advisors affiliated with us as of September 30, 2017.
Employee Financial Advisors
Employee financial advisors work in a traditional branch setting supported by local management and administrative staff. They provide services predominatelypredominantly to individualretail clients. TheseCompensation for these financial advisors are our employees, and their compensation primarily includes commission paymentsa payout on revenues they generate and participationsuch advisors also participate in the firm’s employee benefit plans.
Independent Contractor Financial Advisorscontractor financial advisors
Our financial advisors who are independent contractors are responsible for all of their direct costs and, accordingly, are paidreceive a largerhigher payout percentage of commissions and feeson the revenues they generate than employee financial advisors. Our independent contractor financial advisor option is designed to help our advisors build their businesses with as much or as little of our support as they determine they need. With specific approval, and on a limited basis, they are permitted to conduct on a limited basis, certain other approved business activities, such as offering insurance products, independent registered investment advisory services, and accounting and tax services.
IrrespectiveRIA and Custody Services
Through our domestic RCS division, we offer third-party RIAs and broker-dealers a range of products and services including custodial services, trade execution, research and other support and services (including access to clients’ account information and the services of the affiliation choice,Asset Management segment) for which we receive fees, which may be either transactional or based on assets under administration.Firms affiliated with us through RCS retain the fees they charge to their clients and are responsible for all of their direct costs.Financial advisors associated with firms in RCS are not included in our financial advisorsadvisor counts, although their client assets, which totaled $92.7 billion as of September 30, 2021, are included in our AUA.
Products and services
We offer a broad range of investmentsthird-party and proprietary investment products and services including both third partyto meet our clients’ various investment and proprietary products, and a variety of financial planning services.needs. Revenues from this segment are typically driven by total client assets under administration,AUA and are generally either recurring fee-basedasset-based or transactional in nature. Recurring revenues include asset-based fees, trailing commissions from mutual funds and variable annuities/insurance products, mutual fund and annuity service fees, fees earned on funds in our multi-bank sweep program, and interest. The proportion of our securities commissions and fee revenues originating from the employee versus the independent contractor affiliation models is relatively balanced.
Securities commissions and fee revenues by affiliation, as well as the portion ofPCG segment net revenues that was recurring versus transactional in nature, for the fiscal year ended September 30, 2017,2021 are presented below:in the following graph.
* Included in “Brokerage revenues” on our Consolidated Statements of Income and Comprehensive Income.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
ThroughWe provide the following products and services through this segment:
We provide investment•Investment services for which we charge sales commissions or asset-based fees based on established schedules.
We offer investment advisory services. Fee revenues•Portfolio management services for such services arewhich we charge either a fee computed as either a percentage of the assets in the clientclient’s account or a flat periodic fee charged to the client for investment advice.fee.
We provide insurance•Insurance and annuity products.
We offer•Mutual funds.
•Support to third-party product partners, including sales and marketing support, distribution and accounting and administrative services.
•Administrative services to banks to which we sweep a portion of our clients’ cash deposits as part of the Raymond James Bank Deposit Program (“RJBDP”), our multi-bank sweep program. Fees received from third-party banks for these services are variable in nature and fluctuate based on client cash balances in the program, as well as the level of short-term interest rates relative to interest paid to clients by the third-party banks on balances in the RJBDP. PCG also earns servicing fees from Raymond James Bank, which are based on the number of professionally managed load and no-load mutual funds.accounts that are swept to Raymond James Bank as part of the RJBDP. These fees are eliminated in consolidation.
We provide margin•Margin loans to clients that are collateralized by the securities purchased or by other securities owned by the client. Interest is charged to clients on the amount borrowed based on current interest rates.
We provide custodial, trading, research and other back office support and services (including access to clients’ account information and the services of the Asset Management segment) to the independent contractor registered investment advisors who are affiliated with us.
We conduct securities•Securities borrowing and lending activities with other broker-dealers, financial institutions and other counterparties. The net revenues of this business generally consist of the interest spreads generated on these activities.
We provide diversification•Diversification strategies and alternative investment products to qualified clients of our affiliated financial advisors. We provide strategies and products for portfolio investment allocation opportunities.
CAPITAL MARKETSCapital Markets
Our capital marketsCapital Markets segment conducts investment banking, institutional sales, securities trading, equity research, investment banking and the syndication and management of investments thatin low-income housing funds, the majority of which qualify for tax credits (referred to as our “tax credit funds”). Within our management structure, we distinguish between activities that support business), and equity and fixed income products and services. We primarily conduct these activities in the U.S., Canada, and Europe.research.
The graph below depicts the portions of this segment’sCapital Markets segment net revenues that were derived from equity securities and products, fixed income securities and products, and our tax credit funds activities for the fiscal year ended September 30, 2017:2021 are presented in the following graph.
* Included in “Investment banking” on our Consolidated Statements of Income and Comprehensive Income.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
We provide the following products and services through this segment:segment.
Equity Capital MarketsInvestment banking
We earn institutional sales commissions on the sale of equity products. Sales volume is influenced by a combination of general market activity and the Capital Markets group’s ability to identify and promote attractive investment opportunities for our institutional clients. Commission amounts on equity transactions are based on trade size and the amount of business conducted annually with each institution.
We provide various investment banking services including public and private equity financing for corporate clients and merger•Merger & acquisition and advisory services. Our investment banking activities include- We provide a comprehensive range of strategic and financial advisory services tailoredassignments, including with respect to our clients’ business life cyclesmergers and backed by our strategic industry focus.
Our global research department supports our institutionalacquisitions, divestitures and retail sales efforts and publishes research onrestructurings, across a wide varietynumber of companies. This research primarily focuses onindustries throughout the U.S., EuropeanCanada and Canadian companies in specific industries,Europe.
•Equity underwriting - We provide public and private equity financing services, including agricultural, consumer, energy, clean energy, energythe underwriting of common and preferred stock and other equity securities, to corporate clients throughout the U.S., Canada and Europe across a number of industries.
•Debt underwriting - Our services financial services,include public finance and debt underwriting activities where we serve as a placement agent or underwriter to various issuers, including private and public corporate entities, state and local government agencies (and their political subdivisions), and non-profit entities including healthcare industrial, mining and natural resources, forest products, real estate, technology, and communication and transportation. Proprietary industry studies and company-specific research reports are made available to both institutional and individual clients.higher education institutions.
Brokerage
•Fixed Income
income - We earn sales commissionsrevenues from institutional clients who purchase and sell both taxable and tax-exempt fixed income products, primarily municipal, corporate, government agency and mortgage-backed bonds, and whole loans. The commissions that we charge on fixed income products are based on trade size and the characteristics of the specific security involved.
We carry inventories of taxable and tax-exemptdebt securities to facilitate institutional sales activities. Our fixed income traders purchase and sell corporate, municipal, government, government agency, and mortgage-backed bonds, asset-backed securities, preferred stock, and certificates of deposit from and to our clients or other dealers.client transactions.
Our fixed income investment banking services include public finance and debt underwriting activities where we serve as a financial advisor, placement agent or underwriter to various issuers, including state and local government agencies (and their political subdivisions), housing agencies, and non-profit entities including health care and higher education institutions. When underwriting new issue securities, we may agree to purchase the issue through a negotiated sale or submission of a competitive bid.
In our over-the-counter market activities, weWe also enter into interest rate swaps and futures contracts eitherderivatives to facilitate client transactions or to actively manage risk exposures that arise from our client activity, including a portion of our trading inventory. In addition, we conduct a “matched book” derivatives business where we may enter into interest rate derivative transactions with clients. In this matched book business, for every derivative transaction we enter into with a client, we enter into an offsetting derivative transaction with a credit support provider that is a third partythird-party financial institution.
Through•Equity - We earn brokerage revenues on the sale of equity products to institutional clients. Client activity is influenced by a combination of general market activity and our fixed income public finance operations, we enter into forward commitmentsability to purchase Government National Mortgage Association (“GNMA”) or Federal National Mortgage Association (“FNMA”) mortgage-backed securities (“MBS”). Such MBSidentify attractive investment opportunities for our institutional clients. Revenues on equity transactions are issuedgenerally based on behalftrade size and the amount of various statebusiness conducted annually with each institution.
Our global research department supports our institutional and local housing finance agencies (“HFA”) clientsretail sales efforts and consistpublishes research on a wide variety of the mortgages originated through their lending programs.companies. This research primarily focuses on U.S. and Canadian companies across a multitude of industries. Research reports are made available to both institutional and retail clients.
Tax Credit Fundscredit funds
In our syndication of tax credit investments, one of our subsidiaries actsWe act as the general partner or managing member in partnerships and limited liability companies that invest in real estate project entities, the majority of which qualify for tax credits under Section 42 of the Internal Revenue Code.Code and/or provide a mechanism for banks and other institutions to meet their Community Reinvestment Act (“CRA”) obligations throughout the U.S. We earn fees for the origination and sale of these investment products as well as for the oversight and management of the investments, including over the statutory tax credit compliance period.period when applicable.
ASSET MANAGEMENTAsset Management
Our Asset Management segment provides investment advisory andearns asset management and related administrative fees for providing asset management, portfolio management and related administrative services to individualretail and institutional investors, and also sponsorsclients. This segment oversees a familyportion of mutual funds. We also provide services toour fee-based AUA for our PCG clients through our asset management servicesAsset Management Services division (“AMS”) and through Raymond James Trust, N.A. (“RJ Trust”). This segment also provides asset management services through Carillon Tower Advisers and affiliates (collectively, “Carillon Tower Advisers”) for certain retail accounts managed on behalf of third-party institutions, institutional accounts and proprietary mutual funds that we manage.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
We earnManagement fees in this segment are generally calculated as a percentage of the value of our fee-billable financial assets under management (“AUM”) in both AMS, which includes the portion of fee-based AUA in PCG that is overseen by AMS, and Carillon Tower Advisers, where investment advisory and related administrative fees on both managed and non-discretionary asset-based accounts. In managed programs, decisions are made by in-house or third-party portfolio managers or investment committees about how to investcommittees. The fee rates applied are dependent upon various factors, including the distinctive services provided and the level
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
of assets within each client relationship. The fee rates applied in accordance with such programs’ objectives. In non-discretionary asset-based programs, we provideCarillon Tower Advisers may also vary based on the account objective (i.e., equity, fixed income, or balanced). Our AUM are impacted by market fluctuations and net inflows or outflows of assets, including transfers between fee-based accounts and traditional transaction-based accounts within our PCG segment. Fees are generally collected quarterly and are based on balances as of the beginning of the quarter (particularly in AMS) or the end of the quarter, or based on average daily balances throughout the quarter.
Our Asset Management segment also earns administrative fees on certain fee-based assets within PCG that are not overseen by our Asset Management segment, but for which the segment provides administrative support which may include trade execution, record-keeping(e.g., record-keeping).
Our AUM and periodic investor reporting. We generally earn higher fees for managed programs than for non-discretionary asset-based programs, since we provide additional services to managed programs. As of September 30, 2017, there were $96.4 billion in financial assets held in managed programs and $157.0 billion in financial assets held in non-discretionary asset-based programs.
The graph below depicts financial assets under management in our managed programsCarillon Tower Advisers AUM by objective as of September 30, 2017:2021 are presented in the following graphs.
RJ BANK
RJRaymond James Bank is a Florida state-chartered bank and Fed member bank that provides various types of loans, including corporate loans (commercial and industrial (“C&I”), commercial real estate (“CRE”) and CRE construction), securities-basedreal estate investment trust (“SBL”REIT”)), tax-exempt loans, residential loans, securities-based loans (“SBL”) and residentialother loans. RJRaymond James Bank is active in corporate loan syndications and participations. RJRaymond James Bank also provides Federal Deposit Insurance Corporation (“FDIC”) insured-insured deposit accounts, including to clients of our broker-dealer subsidiaries and to the general public. RJsubsidiaries. Raymond James Bank generates net interest revenueincome principally through the interest income earned on loans and an investment portfolio of securities, which is offset by the interest expense it pays on client deposits and on its borrowings.
RJ Bank operates primarily from a branch location adjacent to RJF’sAs of September 30, 2021, corporate office complex in St. Petersburg, Florida. Access to RJ Bank’s products and services is available through the offices of our affiliated broker-dealers as well as through electronic banking services. RJ Bank’s assets include C&I loans, commercial and residential real estate loans, tax-exempt loans, as well as loans fully collateralized by marketable securities. Corporate and tax-exempt loans representrepresented approximately 67%38% of RJRaymond James Bank’s loan portfolio,total assets, and 87% of which 90% aresuch loans were U.S. and Canadian syndicated loans. Residential mortgage loans are originated or purchased and held for investment or sold in the secondary market. RJRaymond James Bank’s investment portfolio is primarily comprised primarily of agency MBSmortgage-backed securities (“MBS”) and agency collateralized mortgage obligations (“CMOs”) and is classified as available-for-sale. RJRaymond James Bank’s liabilities primarily consist of cash deposits that are cash balances swept from the investment accounts of PCG clients.clients through the RJBDP.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
RJ Bank hadThe following graph details the composition of Raymond James Bank’s total assets as of $20.61 billion at September 30, 2017, which were comprised of the following:2021.
Other
OTHER
Our Other segment includes our private equity activities as well asinvestments, interest income on certain corporate cash balances, certain acquisition-related expenses, and certain corporate overhead costs of RJF, such asincluding the interest costcosts on our senior notes payable,public debt and any losses on extinguishment of such debt. The Other segment also includes the acquisition and integration costs associated with certain acquisitions (See Note 3reduction in workforce expenses, primarily the result of the Noteselimination of certain positions, that occurred in our fiscal fourth quarter of 2020 in response to Consolidated Financial Statements in this Annual Report on Form 10-K (“Form 10-K”) for additional information on our acquisitions).the economic environment at that time.
Our private equity activities includeportfolio includes various direct and third partyinvestments, as well as investments in third-party private equity investmentsfunds and various legacy private equity funds which we sponsor.
EMPLOYEES AND INDEPENDENT CONTRACTORSHUMAN CAPITAL
Our employees“associates” (which include our employee financial advisors and all of our other employees) and our independent contractors (collectively “associates”contractor financial advisors (which we call our “independent advisors”) are vital to our success in the financial services industry. As a human capital-intensive business, our ability to attract, develop and retain exceptional and diverse associates and independent advisors is critical, not only in the current competitive labor market, but also to our long-term success. It is important to us to maintain a strong commitment to diversity and inclusion. To compete effectively, we must offer attractive compensation and health and wellness programs, as well as provide formal and informal opportunities for associates and advisors to develop their capabilities and reach their full potential. We also endeavor to foster and maintain our unique and long-standing values-based culture.
As of September 30, 2017,2021, we had over 12,700approximately 15,000 associates (including 3,461 employee financial advisors) and 5,021 independent advisors. Our associates are spread across four countries in North America and Europe. However, the vast majority of our associates are located in the U.S. Of our global associates, 42% self-identify as women, and among our U.S.-based employees 24% self-identify as ethnically diverse.
Culture
We strive to attract individuals who are people-focused and over 4,300 affiliatedshare our values. Our culture is people-focused and rooted in the values established at the firm’s foundation. Our pledge to clients, to our advisors, and to all our other associates is that:
•We put clients first,
•We act with integrity,
•We think long term, and
•We value independence.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Our values are memorialized in a presentation we refer to as our culture “blueprint” that is communicated to all associates. One way in which we measure the health of our culture is our overall “engagement” score, which is the percentage of employees that respond to an annual associate insight survey with a positive response to several satisfaction metrics, including that they are proud to work at Raymond James. In 2021, our overall employee engagement score amongst survey respondents was 88% favorable, with a strong survey response rate of 73%.
Diversity and inclusion
We are committed to maintaining a diverse workforce, and an inclusive work environment is a natural extension of our culture. We are committed to ensuring that all our associates feel welcomed, valued, respected and heard, so that they can fully contribute their unique talents for the benefit of their careers, our clients, our firm and our communities. Our diversity strategy is centered on three pillars: the workplace, the workforce, and the community. In our recruiting efforts, we seek to identify a diverse group of candidates for each role we seek to fill. To that end, we have built strong relationships with a variety of industry associations that represent diverse professionals, as well as with diversity groups at the colleges and universities where we recruit. We have firmwide and business unit-specific diversity and inclusion networks, which are open to all professionals at the firm and are designed to promote and advance inclusion, understanding and belonging. These networks also host various events and conferences to educate and provide avenues for all associates and independent advisors to gain understanding and capability to have an inclusive work environment, and offer mentorship opportunities to our associates. In 2021, we launched the Pride Financial Advisor Network, which provides support and resources for LGBTQ+ advisors through educational programs, interactive networking and business development opportunities. We also invest in community-supporting organizations that are dedicated to improving the lives of diverse individuals. Our firmwide diversity and inclusion advisory council stewards the firm’s efforts and provides guidance on priorities. This council is composed of associate representatives from all areas of our business and across geographic locations. In all of our diversity efforts, we strive to create opportunities for allies of diverse communities to participate, contribute and grow. We believe that to truly achieve all of the benefits of having a diverse and inclusive workforce, all associates and advisors need to be engaged in these discussions.
Recruitment, talent development, and retention
We seek to build a workforce that provides outstanding client service and helps clients achieve their financial goals. We have competitive programs dedicated to selecting new talent and enhancing the skills of our associates. Among other opportunities, we offer selected college students summer internships, which may lead to permanent roles, and we offer pipeline programs which accelerate the progression from entry level positions for recent graduates across many areas of the firm. We are also committed to supporting associates in reaching their professional goals. We conduct a formal annual goal setting and performance review process for each employee. We also offer associates the opportunity to participate in a variety of professional development programs. Our extensive program catalog includes courses designed to expand our associates’ industry, product, technical, professional, business development, and regulatory knowledge and provide development opportunities. The firm also provides leadership development programs that prepare our leaders for challenges they will face in new roles or with expanded responsibilities. To provide associates equal opportunity to compete for new positions, we require that all roles, with the exception of certain revenue-generating positions and certain senior-level roles, be posted on our internal online career platform. We conduct ongoing and robust succession planning for roles that are within two levels of our Executive Committee and we strive to ensure we have a diverse group of candidates for such roles. We discuss the results with executive leadership and the Board of Directors several times per year.
An important driver of our success is the continuous recruitment and retention of financial advisors. Our ability to attract high quality advisors is based on our values-based culture, our commitment to service, and the unique ways in which we provide services to our financial advisors. Individuals who want to become financial advisors can gain relevant branch experience through our Wealth Management Associate Program or move to our Advisor Mastery Program and begin building their client base. We have a department dedicated to providing practice education and management resources to our financial advisors. We also offer these advisors the opportunity to participate in conferences and workshops, and we offer resources and coaching at all levels to help them grow their businesses. These include separate national conferences for our employee and independent contractor financial advisors.advisor channels, each of which is attended by thousands of advisors each year.
We seek to retain our associates by using their feedback to create and continually enhance programs that support their needs. We use firmwide short and targeted surveys in which we routinely ask our associates about their experiences at the firm. We also monitor and evaluate various turnover and attrition metrics. Our overarching commitment to the attraction, development, and retention of our associates results in a relatively low annualized voluntary turnover rate. Importantly, our financial advisor regrettable attrition rate for the fiscal year ending September 30, 2021, was only approximately 1%.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Compensation
We have designed a compensation structure, including an array of benefit plans and programs, that is intended to be attractive to current and prospective associates, while also reinforcing our core values and mitigating excessive risk taking. Our competitive pay packages include base salary, incentive bonus, and equity compensation programs. Additionally, the firm makes annual contributions to support the retirement goals of each associate through our Employee Stock Ownership Plan and our Profit Sharing Plan, in addition to a matching contribution program for the 401(k) retirement savings plan. We also offer associates the opportunity to participate in an Employee Stock Purchase Plan that enables them to acquire our common stock at a discount, further increasing their ability to participate in the growth and success of the firm. As an additional retention tool, we may grant equity awards in connection with initial employment or under various retention programs for individuals who are responsible for contributing to our management, growth, and/or profitability. For certain employees who meet compensation, production, or other criteria, we also offer various non-qualified deferred compensation plans that provide a return to the participant, as well as a retention tool to the firm.
We strive to ensure that our programs are designed to promote equitable rewards for all associates. We have enhanced our compensation practices with the goal of achieving pay equity at all levels of the organization for female and ethnically diverse associates. Every year, we conduct pay equity studies in the U.S., U.K., and Canada and make adjustments in situations if there is a pay equity gap.
The physical, emotional, and financial wellbeing of our associates is a high priority of the firm. To that end, programs including healthcare insurance, health and flexible savings accounts, paid time off, family leave, flexible work schedules, tuition assistance, counseling services, as well as on-site services at our headquarters location of a health clinic and fitness center, are available to associates. We responded to the coronavirus (“COVID-19”) pandemic by putting the health and safety of our associates first in all of our decisions. Since March 2020, remote work has been the primary work environment for the vast majority of our associates and advisors. For the small population of those who have worked in the office during the pandemic, we have established protocols designed to mitigate the risk of community spread of the virus. We also implemented changes to some of our benefit plans to support those of our associates who were most severely affected by COVID-19. These changes included an expansion of our paid time off policy for those infected or giving care to someone infected by COVID-19, offering flexible work hours for caregivers of children or elders during times when schools were closed or only open for virtual schooling and child/adult care facilities were shut down, offering new programs to assist those in need of mental health services, and implementing extended roll-over opportunities for flexible spending accounts.
OPERATIONS AND INFORMATION PROCESSING
We have operations personnel at various locations throughout the U.S. who are responsible for processing securities transactions, custody of client securities, support of client accounts, the receipt, identification and delivery of funds and securities, and compliance with regulatory and legal requirements for most of our U.S. securities brokerage operations. RJ Ltd. operations personnel have similar responsibilities at our Canadian brokerage operations located in Vancouver, British Columbia.
The information technology department develops and supports the integrated solutions that provide a differentiatedcustomized platform for our businesses. ThisThese include a platform isfor financial advisors designed to allow our financial advisorsthem to spend more time with their clients and enhance and grow their businesses.
businesses; systems that support institutional and retail sales and trading activity from initiation to settlement and custody; and thorough security protocols to protect firm and client information. In the area of information security, we have developed and implemented a framework of principles, policies and technology to protect both our own information as well asand that of our clients. We apply numerous safeguards to maintain the confidentiality, integrity and availability of both client and Companyfirm information.
Our business continuity program has been developed to provide reasonable assurance that we will continue to operate in the event of disruptions at our critical facilities. Ourfacilities or other business departmentsdisruptions. We have developed operational plans for such disruptions, and we have a staff which devotes its full timedevoted significant resources to monitoring and facilitatingmaintaining those plans. Our business continuity plan continues to be enhanced and
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
tested to allow for continuous operations in the event of weather-related or other interruptions at our corporate headquarters in Florida, or one of our operations processing or data center sites (located in Florida, Colorado, Tennessee or Michigan.Michigan), and our branch and office locations throughout the U.S., Canada and Europe.
In response to the COVID-19 pandemic, we activated and successfully executed on our business continuity protocols and continue to monitor the COVID-19 pandemic under such protocols. We have alsoendeavored to protect the health and well-being of our associates and our clients while ensuring the continuity of business operations for our clients. As a result, a substantial portion of our associates continue to work remotely. The firm continues to monitor conditions and has developed a business continuity planphased approach to reopening our offices in compliance with all applicable laws, regulations, and Centers for eachDisease Control and Prevention (“CDC”) guidelines. We have reopened our offices in a limited capacity and have been operating under strict public
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
health and safety protocols in such locations. We are planning for a full return to office in the second quarter of our PCG retail branches infiscal 2022, which will include more work location flexibility for our associates; however, disruptions caused by variants may impact the event anytiming of the implementation of these branches is impacted by severe weather.plans.
COMPETITION
The financial services industry is an intensely competitive business.competitive. We compete with many other financial services firms, including a number of larger securities firms, most of which are affiliated with major financial services companies, insurance companies, banking institutions and other organizations. We also compete with companies that offer web-based financial services and discount brokerage services to individual clients, usually with lower levels of service, to individual clients.and, more recently, financial technology companies (“fintechs”). We compete principally on the basis of the quality of our associates, services, product selection, performance records, location and reputation in local markets.
Our ability to compete effectively in these businesses is substantially dependent on our continuing ability to develop or attract, retain and motivate qualified associates, including successful financial advisors, investment bankers, trading professionals, portfolio managers and other revenue producingrevenue-producing or specialized personnel.
REGULATION
RJF is a bank holding company subject to the Bank Holding Company Act that has made an election to be a financial holding company. As a financial holding company, RJF is subject to regulation, oversight, and supervision, including periodic examination, by the Fed. RJ Bank is a national bank regulated, supervised and examined by the Office of the Comptroller of the Currency (“OCC”) and the Consumer Financial Protection Bureau (“CFPB”). Our trust company subsidiary also is regulated, supervised and examined by the OCC. The Fed and the FDIC also regulate and may examine RJ Bank and the trust company. Collectively, the rules and regulations of the Fed, the OCC, the FDIC and the CFPB cover all aspects of the banking business, including, for example, lending practices, the receipt of deposits, capital structure, transactions with affiliates, conduct and qualifications of personnel and, as discussed further below, capital requirements. This regulatory, supervisory and oversight framework is subject to significant changes that can affect the operating costs and permissible businesses of RJF, RJ Bank and the trust company. As a part of their supervisory functions, the Fed, the OCC, the FDIC, and the CFPB also have the power to bring enforcement actions for violations of law and, in the case of the Fed, the OCC and the FDIC, for unsafe or unsound practices. Our broker-dealer subsidiaries, which are also registered investment advisors, are subject to regulation and oversight by various regulatory and self-regulatory authorities discussed under “Other regulations applicable to our operations” below.
The following discussion summarizes the principal elements of the regulatory and supervisory framework applicable to RJF.us as a participant in the financial services industry. The framework includes extensive regulation under U.S. federal and state laws, as well as the applicable laws of the jurisdictions outside the U.S. in which we do business. While this framework is intended to protect our clients, the integrity of the financial markets, our depositors and the Federal Deposit Insurance Fund, andit is not intended to protect our creditors or shareholders. These rules and regulations limit our ability to engage in certain activities, as well as our ability to submit funds tofund RJF from our regulated subsidiaries, which include RJRaymond James Bank, our broker-dealer subsidiaries and our broker-dealertrust subsidiaries. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions that are referenced. A change in applicable statutes or regulations or in regulatory or supervisory policy may have a material effect on our business.
Rules and regulations resulting from the Dodd-Frank Act
In July 2010, the U.S. government enacted sweeping changesWe continue to the supervision and regulation of the financial industry through the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”). The Dodd-Frank Act required U.S. federal banking and other regulatory agencies to conduct hundreds of rulemakings, studies and reports. These regulatory agencies include: the Commodity Futures Trading Commission; the Securities and Exchange Commission (the “SEC”); the Fed; the OCC; the FDIC; the CFPB; and the Financial Stability Oversight Council. Certain elements of the Dodd-Frank Act became effective immediately; however, the details of some provisions are subject to implementing regulations. Furthermore, some provisions of the Dodd-Frank Act are still subject to further rulemaking proceedings and studies and will take effect over the next several years.
As a result of the Dodd-Frank Act and other regulatory reforms, we are experiencingexperience a period of unprecedented changenotable changes in financial regulation and supervision. TheseWe continue to monitor the likelihood of changes in taxation and regulations due to changes in the political environment. Changes in both corporate and individual taxation, as well as business regulations, could have a significant impact on how we conduct our business. Many regulatory or supervisory policies remain in a statebusiness, financial condition, results of fluxoperations and may be subject to amendmentcash flows in the near future. As a result,future; however, we cannot specificallypredict the exact changes or quantify the impact that such regulatory or supervisory requirements will have on our business and operationstheir potential impacts (see Item“Item 1A “Risk
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Factors,” within- Risk Factors” of this reportForm 10-K for further discussion of the potential future impact on our operations). Below, we highlight certain
Banking supervision and regulation
RJF is a BHC under the Bank Holding Company Act of 1956, as amended (the “BHC Act”), that has made an election to be a FHC and is subject to regulation, oversight and consolidated supervision, including periodic examination, by the Fed. Under the system of “functional regulation” established under the BHC Act, the primary regulators of our U.S. non-bank subsidiaries directly regulate the activities of those subsidiaries, with the Fed exercising a supervisory role. Such “functionally regulated” subsidiaries include our broker-dealers registered with the Securities and Exchange Commission (“SEC”), such as Raymond James & Associates, Inc. (“RJ&A”) and Raymond James Financial Services, Inc. (“RJFS”), and investment advisors registered with the SEC with respect to their investment advisory activities, among other subsidiaries.
Our depository institution, Raymond James Bank, is an FDIC-insured depository institution that converted on June 1, 2021 from a national bank supervised by the Office of the moreComptroller of the Currency (“OCC”) to a Florida-chartered state member bank of the Fed, supervised jointly by the Florida Office of Financial Regulation (“OFR”) and the Fed. Raymond James Bank is also subject to supervision by the FDIC and the Consumer Financial Protection Bureau (“CFPB”). We also have two non-depository trust company subsidiaries: RJ Trust, which is regulated, supervised, and examined by the OCC, and Raymond James Trust Company of New Hampshire (“RJTCNH”) which is regulated, supervised, and examined by the New Hampshire Banking Department (“NHBD”). RJTCNH was organized during fiscal 2021 and provides Individual Retirement Account (“IRA”) custodial services and trust services for our PCG clients.
Collectively, the rules and regulations of the Fed, the OFR, the FDIC, the CFPB, the OCC and the NHBD cover all aspects of our banking and trust businesses, including, for example, lending practices, the receipt of deposits, capital structure, transactions with affiliates, conduct and qualifications of personnel and, as discussed further in the following sections, capital requirements. This regulatory, supervisory and oversight framework is subject to significant changes brought aboutthat can affect the operating costs and permissible businesses of RJF and our subsidiaries. As a part of their supervisory functions, the Fed, the
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OFR, the FDIC the CFPB, the OCC and the NHBD also have the power to bring enforcement actions for violations of law and, in the case of the Fed, the OFR, the FDIC, the OCC, and the NHBD for unsafe or unsound practices.
Basel III and U.S. capital rules
We are subject to the Fed’s capital rules which establish an integrated regulatory capital framework and implement, in the U.S., the Basel III capital framework developed by the Basel Committee on Banking Supervision and certain Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) and other capital provisions, and set the prompt corrective action framework to reflect the regulatory capital minimums (the “U.S. Basel III Rules”). The U.S. Basel III Rules: (i) establish minimum requirements for both the quantity and quality of regulatory capital; (ii) set forth a capital conservation buffer; and (iii) define the calculation of risk-weighted assets. The capital requirements could restrict our ability to grow, including during favorable market conditions, and to return capital to shareholders, or require us to raise additional capital. As a result, our business, results of operations, financial condition and future prospects could be adversely affected. See “Item 1A - Risk Factors” of this Form 10-K for more information.
Failure to meet minimum capital requirements can trigger discretionary, and in certain cases, mandatory actions by regulators that could have a direct material effect on the financial results of RJF and Raymond James Bank. In addition, failure to maintain the capital conservation buffer would result in constraints on distributions, including limitations on dividend payments and stock repurchases, and certain discretionary bonus payments based on the amount of the shortfall and eligible retained income. Under the capital adequacy rules, RJF and Raymond James Bank must meet specific capital ratio requirements that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under the rules. The capital amounts and classification for RJF and Raymond James Bank are also subject to the qualitative judgments of U.S. regulators based on components of capital, risk-weightings of assets, off-balance sheet transactions and other factors.
Under applicable capital rules, RJF would need to obtain prior approval from the Fed if its repurchases or redemptions of equity securities over a twelve-month period would reduce its net worth by ten percent or more and an exemption were not available. Guidance from the Fed also provides that RJF would need to inform the Fed in advance of repurchasing common stock in certain prescribed situations, such as if it were experiencing, or at risk of experiencing, financial weaknesses or considering expansion, either through acquisitions or other new activities, or if the repurchase would result in a net reduction in common equity over a quarter. Further, Fed guidance indicates that, pursuant to the Fed’s general supervisory and enforcement authority, Fed supervisory staff should prevent a BHC from repurchasing its common stock if such action would be inconsistent with the BHC’s prospective capital needs and safe and sound operation.
See Note 24 of the Notes to Consolidated Financial Statements of this Form 10-K for further information.
Source of strength
The Fed requires that BHCs, such as RJF, serve as a resultsource of financial strength for any of its subsidiary depository institutions. The term “source of financial strength” is defined as the ability of a company to provide financial assistance to its insured depository institution subsidiaries in the event of financial distress at such subsidiaries. Under this requirement, RJF could be required to provide financial assistance to Raymond James Bank in the future should it experience financial distress.
Transactions between affiliates
Transactions between (i) Raymond James Bank, RJ Trust, or their subsidiaries on the one hand and (ii) RJF or its other subsidiaries or affiliates on the other hand are subject to compliance with Sections 23A and 23B of the Federal Reserve Act and Regulation W issued by the Fed, which generally limit the types and amounts of such transactions that may take place and generally require those transactions to be on market terms. These laws and regulations generally do not apply to transactions between Raymond James Bank or RJ Trust and their respective subsidiaries.
The Volcker Rule, a provision of the Dodd-Frank Act, generally prohibits certain transactions and related measures.imposes a market terms requirement on certain other transactions between (i) RJF or its affiliates on the one hand and (ii) covered funds for which RJF or its affiliates serve as the investment manager, investment advisor, commodity trading advisor or sponsor, or other covered funds organized and offered by RJF or its affiliates on the other hand. See “The Volcker Rule” in the following section.
FDIC Assessment RatesDeposit insurance
Since RJRaymond James Bank is subject to the Federal Deposit Insurance Act because it provides deposits covered by FDIC insurance, generally up to $250,000 per account ownership type, RJ Bank is subject to the Federal Deposit Insurance Act. In February 2011, pursuant to the Dodd-Frank Act, the FDIC issued a final rule changing its assessment base.type. For banks with greater than $10 billion in assets, which includes
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Raymond James Bank, the FDIC’s new rule changed thecurrent assessment rate calculation which relies on a scorecard designed to measure financial performance and ability to withstand stress, in addition to measuring the FDIC’s exposure should the bank fail.
CFPB OversightPrompt corrective action
In July 2011,The U.S. Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) requires the CFPB beganU.S. federal bank regulatory agencies to take “prompt corrective action” with respect to depository institutions that do not meet specified capital requirements. FDICIA establishes five capital categories for FDIC-insured banks, such as Raymond James Bank: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.
An institution may be downgraded to, or deemed to be in, a capital category that is lower than the category indicated by its capital ratios if the institution is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters. FDICIA imposes progressively more restrictive constraints on operations, management and was given rulemaking authority forcapital distributions, as the capital category of an institution declines. Failure to meet the capital requirements could also require a wide rangedepository institution to raise capital. Ultimately, critically undercapitalized institutions are subject to the appointment of consumer protection laws applicablea receiver or conservator.
Although the prompt corrective action regulations do not apply to all banks and was provided broad powersBHCs, such as RJF, the Fed is authorized to supervise and enforce federal consumer protection laws. The CFPB has supervisory and enforcement powers under several consumer protection laws, including the: (i) Equal Credit Opportunity Act; (ii) Truth in Lending Act; (iii) Real Estate Settlement Procedures Act; (iv) Fair Credit Reporting Act; (v) Fair Debt Collection Act; (vi) Consumer Financial Privacy provisionstake appropriate action at the BHC level, based upon the undercapitalized status of the Gramm-Leach-Bliley Act and unfair, deceptive or abusive acts or practices under section 1031 ofBHC’s depository institution subsidiaries. In certain instances related to an undercapitalized depository institution subsidiary, the Dodd-Frank Act. Beginning with fiscal year 2014, the CFPB assumed supervisory authority over RJ Bank for its compliance with the various federal consumer protection laws. The CFPB has authority to promulgate regulations, issue orders, draft policy statements, conduct examinations, and bring enforcement actions. The creation of the CFPB has led to enhanced enforcement of consumer protection laws. To the extent that, as a result of such heightened scrutiny and oversight, we become the subject of any enforcement activity, we mayBHC would be required to pay fines, incur penalties, or engage in certain remediation efforts.
Stress Tests
In October 2012,guarantee the Fed, FDIC and OCC jointly issued final rules requiring certain bank holding companies, state member banks, and savings and loan companies with total assets between $10 billion and $50 billion to conduct annual company-prepared stress tests, report the results to their primary regulator and the Fed (RJF’s primary regulator), and publish a summaryperformance of the results. Stress tests mustundercapitalized subsidiary’s capital restoration plan and might be conducted using certain scenarios (baseline, adverse, and severely adverse) prescribed byliable for civil money damages for failure to fulfill its commitments on that guarantee. Furthermore, in the Fed. A summaryevent of certainthe bankruptcy of our stress test results (RJF and RJ Bank) is available on our website at www.raymondjames.com/investor-relations/financial-report under “Other Reports and Information - 2017 Annual Dodd-Frank Act Stress Test Disclosure” (the information on our website is not incorporated by reference intothe BHC, this report).guarantee would take priority over the BHC’s general unsecured creditors. As of September 30, 2021, Raymond James Bank was categorized as well-capitalized.
The Volcker Rule
RJF is subject to the Volcker Rule, a provision of the Dodd-Frank Act which generally prohibits subject to exceptions, insured depository institutions, bank holding companiesBHCs and their subsidiaries and affiliates (together, “banking entities”) from engaging in proprietary trading and limits investmentsor acquiring or retaining an ownership interest in, andsponsoring, or having certain relationships with hedge funds and private equity funds, (“covered funds”). Banking entities must establish a Volcker Rule-specific compliance program. subject to certain exceptions.
We have adopted a program, which is designed to be effective in ensuring compliance with the Volcker Rule; however, in connection with their examinations, regulators will assess the sufficiency and adequacy of our program.
We maintain a number ofproprietary private equity investments some of whichthat meet the definition of covered funds under the Volcker Rule. The conformance period for compliance with the rule with respect to investments in covered funds was July 2017; however, banking entities were able to apply for an extension to provide up to an additional five years to conform investments in certain illiquid funds. The majority of our covered fund investments meet the criteria to be considered an illiquid fund under the Volcker Rule and we received approval from the Fed to continue to hold such investments until July 2022. The extension ofWe have executed the conformance deadline provides us with additional time to realize the value of these investments in due course and to execute appropriate strategies to comply with the Volcker Rule at such time. Our current focus is on the divestiturefor many of our existing portfolio.covered fund investments and plan to either divest or restructure the remainder of our covered fund investments on or prior to the July 2022 deadline such that any holdings will be in compliance with the Volcker Rule after the extension expires in July 2022.
Basel III and U.S. Capital RulesCompensation practices
Both RJF, as a bank holding company, and RJ BankOur compensation practices are subject to capital requirements thatoversight by the Fed. Compensation regulation in the financial industry continues to evolve, and we expect these regulations to change over a number of years. The U.S. federal bank regulatory agencies have increased dueprovided guidance designed to regulatory actionsensure incentive compensation policies do not encourage imprudent risk-taking and are consistent with safety and soundness. The Dodd-Frank Act requires the U.S. financial regulators to adopt rules on incentive-based payment arrangements. The U.S. financial regulators proposed revised rules in recent years. In July 2013,2016, which have not yet been finalized.
Community Reinvestment Act (“CRA”) regulations
Raymond James Bank is subject to the CRA, which is intended to encourage banks to help meet the credit needs of their communities, including low and moderate income neighborhoods, consistent with safe and sound bank operations. Under the CRA, the Fed, the FDIC and/or the OCC are required to periodically examine and assign to each bank a public CRA rating. If any insured depository institution subsidiary of a FHC fails to maintain at least a “satisfactory” rating under the CRA, the FHC would be subject to restrictions on certain new activities and acquisitions.
On July 20, 2021, the Fed, the FDIC and the FDIC released final U.S. rules implementingOCC issued a joint statement in which they committed to working together to jointly modernize the Basel III capital framework developed by the Basel Committee on Banking Supervision and certain Dodd-Frank Act and other capital provisions and updated the prompt corrective action frameworkCRA regulations. Until such new regulations are implemented, Raymond James Bank will continue to reflect the new regulatory capital minimums (the “U.S. Basel III Rules”). The U.S. Basel III Rules: (i) increase the quantity and quality of regulatory capital; (ii) establish a capital conservation buffer; and (iii) make changes to the calculation of risk-weighted assets. The U.S. Basel III Rules became effective for RJF on January 1, 2015, subject to applicable
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operate under the Fed’s CRA regulations currently in effect. At this time, it is uncertain what impact, if any, the impending CRA regulations will have on Raymond James Bank and other depositories with respect to their CRA activities.
phase-in periods. The rules governing the capital conservation buffer became effective
Other restrictions
FHCs, such as RJF, generally can engage in a broader range of financial and related activities than are otherwise permissible for both RJF and RJ BankBHCs as of January 1, 2016. See Note 21 of the Notes to the Consolidated Financial Statements in this Form 10-K for information regarding RJF and RJ Bank regulatory capital levels and ratios, including information regarding the capital conservation buffer. The increased capital requirements could restrict our abilities to grow during favorable market conditions and to return capital to shareholders, or require us to raise additional capital. As a result, our business, results of operations, financial condition and prospects could be adversely affected. See Item 1A, “Risk Factors,” within this report for more information.
Failurelong as they continue to meet minimum capitalthe eligibility requirements can trigger discretionary,for FHCs. Among other things, the broader range of permissible activities for FHCs includes underwriting, dealing and making markets in securities and making investments in non-FHCs or merchant banking activities. We are required to obtain Fed approval before engaging in certain cases, mandatory actions by regulators that could have a direct material effect on the financial results of RJF and RJ Bank. Under capital adequacy guidelines, RJF and RJ Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification for RJF and RJ Bank are also subject to the qualitative judgments of U.S. regulators based on components of capital, risk-weightings of assets, off-balance sheet transactions,banking and other factors. Quantitative measures established by federal banking regulations to ensure capital adequacy require that RJF, as a financial holding company,activities both within and RJ Bank maintain minimum amounts and ratios of: (i) Common Equity Tier 1 (or “CET1”), Tier 1 and Total capital to risk-weighted assets; (ii) Tier 1 capital to average assets; and (iii) capital conservation buffers. See Note 21 of the Notes to the Consolidated Financial Statements in this Form 10-K, for further information.
Money Market Reform
In July 2014, the SEC adopted amendments to the rules that govern money market mutual funds. The amendments make structural and operational reforms to address risks of excessive withdrawals over relatively short time frames by investors from money market funds, while preserving the benefits of the funds. We do not sponsor any money market funds. We utilize such funds in limited circumstances for our own investment purposes as well as to offer our clients money market funds that are sponsored by third parties as one of several cash sweep alternatives.
Municipal Advisor Regulation
In 2013 as required under the Dodd-Frank Act, the SEC issued its final rule regarding the new category of regulated financial activity: “municipal advisors” (the “MA Rule”). The MA Rule, which became effective in 2014: (i) imposes a fiduciary duty on municipal advisors when advising municipal entities; (ii) may result in the need for new written representations by issuers; and (iii) may limit the manner in which we, in our capacity as an underwriter or in our other professional roles, interact with municipal issuers. In addition to the SEC rule, the Municipal Securities Rulemaking Board (“MSRB”) has developed a number of implementing rules and interpretive guidance relating to municipal advisors, and we have implemented policies and procedures reasonably designed to comply with such rules and guidance.
While over these past few years, broker-dealer and municipal advisor interaction with municipal entities has become an area of greater rulemaking and regulatory exam and enforcement interest, we do not expect a materially adverse impact on our public finance results of operations, which are included in our Capital Markets segment.
Fiduciary Duty Standard
Pursuant to the Dodd-Frank Act, the SEC was charged with considering whether broker-dealers should be subject to a standard of care similar to the fiduciary standard applicable to registered investment advisors. The SEC has stated that it will consider a heightened standard of care; however, to date, it has not yet proposed any rules. In April 2016,outside the U.S. Department of Labor (the “DOL”) issued its final regulation (the “DOL Rule”) expanding the definition of who is deemed an “investment advice fiduciary” under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), as a result of giving investment advice to a “plan,” “plan participant” or “beneficiary,” as well as under the Internal Revenue Code for individual retirement arrangements (“IRAs”) and non-ERISA plans (collectively, “qualified plans”). As a result of adopting a new definition of “fiduciary” under ERISA, the final rule extends fiduciary status to many investment professionals that had not been considered fiduciaries under previous law. A fiduciary is subject to strict duties to act solely in the interests of plan participants and beneficiaries and is personally liable to the ERISA plan for breaches in its discharge of its duties.
The DOL Rule also contains exemptions, includingFed, however, has the Best Interest Contract exemption (the “BIC Exemption”) and Principal Transactions in Certain Assets exemption (the “Principal Transactions Exemption”), designedauthority to enable investment professionals that become fiduciarieslimit an FHC’s ability to continue to operate under existing business modelsconduct activities that would otherwise be prohibited, subject to compliance with new conditions. In order to rely on these exemptions, we are required to: (i) act under defined impartial conduct standards that are inpermissible, and will likely do so if the best interest of our client; (ii) adopt certain anti-conflict policies and procedures; (iii) provide disclosure of certain information relating to fees, compensation and defined “material conflicts of interest;” (iv) provide a written acknowledgment of fiduciary status;
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and (v) for IRAs and non-ERISA plans, enter into an enforceable contract with our client that contains extensive warranties andFHC does not allow exculpatory provisions waiving the client’s rights and remedies, including the right to participate in a class action in court. The DOL Rule became effective as of June 2016, subject to a phase-insatisfactorily meet certain requirements of the fiduciary definition in June 2017, and also subjectFed. For example, if an FHC or any of its U.S. depository institution subsidiaries ceases to a further transition period until January 1, 2018 applying to bothmaintain its status as “well-capitalized” or “well-managed,” the BIC Exemption and Principal Transactions Exemption. In August 2017, the DOL recommended that the transition period be extended until July 1, 2019.
We have undertaken a comprehensive plan to comply with the DOL Rule. As qualified accounts, particularly IRA accounts, comprise a significant portion of our business, we expect that compliance with the DOL Rule and reliance on the BIC Exemption and the Principal Transactions Exemption will require us to continue to incur increased levels of legal, compliance and information technology costs. As discussed above, weFed may also face enhanced legal risks. We anticipate that amendments to the scope of the DOL Rule impose corrective capital and/or the adoption of any new rule by the SEC will require us to review and possibly modify our compliance plan and approach, which may also lead to additional costs. In addition, state laws that impose a fiduciary duty also may require monitoring,managerial requirements, as well as require that we undertake additional compliance measures.
Incentive-Based Compensation Arrangements
Pursuant tolimitations or conditions. If the Dodd-Frank Act, six federal agencies are charged with jointly prescribing regulations or guidelines related todeficiencies persist, the prohibition of incentive-based compensation arrangements that encourage inappropriate risks at certain financial institutions. The agencies have released a proposed rule that would prohibit certain forms of incentive-based compensation arrangements for financial institutions with greater than $1 billion in total assets (the “Incentive-Based Compensation Proposal”). Much of the Incentive-Based Compensation Proposal would apply to financial institutions categorized as either “Level 1” institutions (assets of $250 billion or more) or “Level 2” institutions (assets of $50 billion to $250 billion), while “Level 3” institutions (assets of $1 billion to $50 billion) would be subject to less extensive obligations. All covered financial institutions wouldFHC may be required to amongdivest its U.S. depository institution subsidiaries or to cease engaging in activities other requirements: (i) annually documentthan the structurebusiness of their incentive-based compensation arrangements; (ii) retain records of such annual documentation for at least seven years;banking and (iii) comply with general prohibitions on incentive-based compensation arrangements that could encourage inappropriate risk-taking. Should the Incentive-Based Compensation Proposal be adopted, we would be subject to the rule’s requirements as a “Level 3” financial institution, which would require us to incur additional legalcertain closely related activities.
Broker-dealer and compliance costs, as well as subject us to increased legal risks.securities regulation
Other regulations applicable to our operations
The SEC is the federal agency charged with administration of the federal securities laws in the United States.U.S. Our U.S. broker-dealer subsidiaries are subject to SEC regulations relating to their business operations, including sales and trading practices, public offerings, publication of research reports, use and safekeeping of client funds and securities, capital structure, record-keeping, privacy requirements, and the conduct of directors, officers and employees. Financial services firms are also subject to regulation by state securities commissions in those states in which they conduct business. Our primary U.S. broker-dealers, RJ&A and RJFS, are currently registered as broker-dealers in all 50 states.
Financial services firms are also subject to regulation by various foreign governments, securities exchanges, central banks and regulatory bodies, particularly in those countries where they have established offices. Outside of the U.S., we have additional offices primarily in Canada and Europe and are subject to regulations in those areas. Much of the regulation of broker-dealers in the U.S. and Canada, however, has been delegated to self-regulatory organizations (“SROs”), such as the Financial Industry Regulatory Authority (“FINRA”), the Investment Industry Regulatory Organization of Canada (“IIROC”), and securities exchanges. These SROs adopt and amend rules for regulating the industry, subject to the approval of government agencies. These SROs also conduct periodic examinations of member broker-dealers.
The SEC, SROs and state securities regulators may conduct administrative proceedings that can result in censure, fine, suspension or expulsion of a broker-dealer, its officers, employees or other associated persons. Such administrative proceedings, whether or not resulting in adverse findings, can require substantial expenditures and may adversely impact the reputation of a broker-dealer.
Our U.S. broker-dealer subsidiaries are subject to the Securities Investor Protection Act (“SIPA”) and are required by federal law to be members of the Securities Investors Protection Corporation (“SIPC”). The SIPC was established under SIPA, and oversees the liquidation of broker-dealers during liquidation or financial distress. The SIPC fund provides protection for cash and securities held in client accounts up to $500,000 per client, with a limitation of $250,000 on claims for cash balances.
U.S. broker-dealer capital
Our broker-dealer subsidiaries are subject to certain of the SEC’s financial stability rules, including the: (i) net capital rule; (ii) customer protection rule; (iii) record-keeping rules; and (iv) notification rules. Broker-dealers are required to maintain the minimum net capital deemed necessary to meet their continuing commitments to customers and others, and are required to keep their assets in relatively liquid form. These rules also limit the ability of broker-dealers to transfer capital to parent companies and other affiliates. The SEC has adopted amendmentsSee Note 24 of the Notes to its financial stability rules, manyConsolidated Financial Statements of which became effective as of October 2013 and are applicablethis Form 10-K for further information pertaining to our broker-dealer subsidiaries, including changes to the: (i)regulatory minimum net capital rule; (ii) customer protection rule; (iii) record-keeping rules; and (iv) notification rules.requirements.
Financial services firms areStandard of care
Pursuant to the Dodd-Frank Act, the SEC was charged with considering whether broker-dealers should be subject to regulation by various foreign governments, securities exchanges, central banks and regulatory bodies, particularly in those countries where they have established offices. Outsidea standard of the United States, we have additional offices primarily in Canada and Europe and are subject to regulations in those areas. Much of the regulation of broker-dealers in the United States and Canada, however, has been delegated to self-regulatory organizations (“SROs”), the Financial Industry Regulatory Authority (“FINRA”), the Investment Industry Regulatory Organization of Canada (“IIROC”) and securities exchanges. These SROs adopt and amend rules for regulating the industry, subjectcare similar to the approvalfiduciary standard applicable to registered investment advisors. In June 2019, the SEC adopted a package of government agencies. These SROs also conduct periodic examinations of member broker-dealers.
The SEC, SROsrule-makings and state securities commissions may conduct administrative proceedings that can result in censure, fine, suspension or expulsion of a broker-dealer, its officers or employees. Such administrative proceedings, whether or not resulting in adverse findings, can require substantial expenditures and may adversely impact the reputation of a broker-dealer.
Our U.S. broker-dealer subsidiaries are subjectinterpretations related to the Securities Investor Protection Act (“SIPA”)provision of advice by broker-dealers and are required by federal law to be members of the Securities Investors Protection Corporation (“SIPC”). The SIPC was established under SIPA, and oversees theinvestment advisers, including
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liquidationRegulation Best Interest and Form CRS. Among other things, Regulation Best Interest requires a broker-dealer to act in the best interest of a retail client when making a recommendation to that client of any securities transaction or investment strategy involving securities. Form CRS requires that broker-dealers during liquidation or financial distress. The SIPC fund provides protection for cash and securities held in client accounts up to $500,000 per client,investment advisers provide retail investors with a limitationbrief summary document containing simple, easy-to-understand information about the nature of $250,000 on claims for cash balances.
the relationship between the parties. Our investment advisory operations, including the mutual funds that we sponsor, are also subject to extensive regulationimplementation of these regulations resulted in the United States. Our U.S. asset managers are registered as investment advisors with the SEC under the Investment Advisers Actour review and modification of 1940 as amended (the “Investment Advisers Act”), and are also required to make notice filings in certain states. Virtually all aspects of our asset management business are subjectpolicies and procedures and associated supervisory and compliance controls, as well as the implementation of additional client disclosures, which included us providing related education and training to various federal and state laws and regulations. Thesefinancial advisors.
Various states have also proposed, or adopted, laws and regulations are primarily intendedseeking to benefitimpose new standards of conduct on broker-dealers that may differ from the asset management clients.
RJ BankSEC’s new regulations, which may lead to additional implementation costs. The Department of Labor (“DOL”) has also reinstated the historical “five-part test” for determining who is also subjectan investment advice “fiduciary” when dealing with certain retirement plans and accounts and proposed a new exemption to allow investment advice fiduciaries to receive transaction-based compensation and engage in certain principal trades. In addition, the Community Reinvestment Act (the “CRA”). The CRADOL is intendedexpected to encourage banksamend the rule that determines whether an investment professional is a fiduciary to help meet the credit needs of their communities, including low and moderate income neighborhoods, consistent with safe and sound bank operations. Under the CRA, the Fed, the FDIC and the OCC are required to periodically examine and assign to each bank a public CRA rating. Members of the public may submit comments on a bank’s performanceclients’ retirement accounts under the CRA;Employee Retirement Income Security Act and Internal Revenue Code. Imposing such comments will form parta new standard of the bank’s performance evaluation. The results of the evaluation, together with the bank’s CRA rating,care on additional client relationships could result in incremental costs for our business and we are also taken into consideration when evaluating mergers, acquisitions, and applications to open a branch or facility. RJ Bank could face additional requirements and limitations should it fail to adequately meet the criteria stipulated under the CRA.how these regulatory changes may further impact our business.
Other non-U.S. regulation
Raymond James Ltd. (“RJ Ltd.”) is currently registered as an investment dealer in all provinces and territories in Canada. The financial services industry in Canada is subject to comprehensive regulation under both federal and provincial laws. Securities commissions have been established in all provinces and territorial jurisdictions, which are charged with the administration of securities laws. Investment dealers in Canada are also subject to regulation by SROs, which areIIROC, a SRO under the oversight of the securities commissions that make up the Canadian Securities Administrators. IIROC is responsible for the enforcement of, and conformity with, securities legislation for their members and havehas been granted the powers to prescribe their own rules of conduct and financial requirements of members.members, including RJ Ltd. is regulated by each of the securities commissions in the jurisdictions of registration, as well as by the SROs and IIROC. IIROC also requires that RJ Ltd. be a member of the Canadian Investors Protection Fund, (the “CIPF”), whose primary role is investor protection. The CIPFThis fund provides protection for securities and cash held in client accounts up to $11 million Canadian currencydollars (“CDN”CAD”) per client, with separateadditional coverage of CDN $1CAD 1 million for certain types of accounts. See Note 21
Certain of our subsidiaries are registered in, and operate from, the Notes to Consolidated Financial Statements in this Form 10-K for further information on SEC, FINRAU.K. which has a highly developed and IIROC regulations pertaining to broker-dealercomprehensive regulatory minimum net capital requirements.
In Europe, the Markets in Financial Instruments Regulation and a revisionregime. Certain of the Markets in Financial Instruments Directive (together, “MiFID II”), will take effect on January 3, 2018, and will introduce comprehensive and new trading and market infrastructure reformsthese subsidiaries operate in the European Union, including new trading venues, enhancementsretail sector, providing investment and financial planning services to pre-high-net-worth individuals, while others provide brokerage and post-trading transparency,investment banking services to institutional clients. These subsidiaries are authorized and additional investor protection requirements, among others. Althoughregulated by the fullU.K. conduct regulator, the Financial Conduct Authority (“FCA”), and have limited permissions to carry out business in certain other E.U. countries as part of treaty arrangements. We do not expect the U.K.’s withdrawal from the E.U. (“Brexit”) to materially impact of these changes remains unclear, we have made changes to our Europeanbusiness.
Investment management regulation
Our investment advisory operations, including systemsthe mutual funds that we sponsor, are also subject to extensive regulation in the U.S. The majority of our asset managers are registered as investment advisers with the SEC under the Investment Advisers Act of 1940 as amended, and controls,are also required to make notice filings in ordercertain states. Virtually all aspects of our asset management business are subject to be in compliance with MiFID II.various federal and state laws and regulations. These laws and regulations are primarily intended for the benefit of our clients.
Anti-money laundering, economic sanctions, and anti-bribery and corruption regulation
The U.S. Bank Secrecy Act and USA PATRIOT Act of 2001
The Bank Secrecy Act and(“BSA”), as amended by the USA PATRIOT Act of 2001 (“PatriotPATRIOT Act”), the Customer Due Diligence Rule, and requirements administered by the OfficeAnti-Money Laundering Act of Foreign Assets Control2020 (“OFAC”AMLA”) require financial institutions, among other things, to implement a risk-based program reasonably designed to prevent money, contain anti-money laundering and to combat the financing of terrorism, including through suspicious activity and currency transaction reporting, compliance, record-keeping and due diligence on customers. The Patriot Act also contains financial transparency laws and enhanced information collection tools and enforcement mechanisms formandates the U.S. government, including: due diligence and record-keeping requirements for private banking and correspondent accounts;implementation of various regulations applicable to all financial institutions, including standards for verifying customerclient identification at account opening;opening, and rulesobligations to produce certain records upon request of a regulator or law enforcementmonitor client transactions and report suspicious activities. Through these and other provisions, the BSA, the PATRIOT Act, and AMLA seek to promote cooperation among financial institutions, regulators, and law enforcement in identifyingthe identification of parties that may be involved in terrorism, money laundering or other suspicious activities. Anti-money laundering laws outside the U.S. contain some similar provisions.
The U.S. Treasury’s Office of Foreign Assets Control administers economic and other crimes. Failure to meet the requirements of the Bank Secrecy Act, the Patriot Act, or OFAC can lead to supervisory actions including fines.trade sanctions programs and enforces sanctions regulations with which all U.S. persons must comply. The European Union (“E.U.”) as well as various countries have
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
also adopted economic sanctions programs targeted at countries, entities and individuals that are involved in terrorism, hostilities, embezzlement or human rights violations.
In addition, various countries have adopted laws and regulations, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, related to corrupt and illegal payments to, and hiring practices with regard to, government officials and others. The scope of the types of payments or other benefits covered by these laws is very broad and is subject to significant uncertainties that may be clarified only in the context of further regulatory guidance or enforcement proceedings.
RJF and its affiliates have implemented and maintain internal policies, procedures, and controls to meet the compliance obligations imposed by such U.S. and non-U.S. laws and regulations concerning anti-money laundering, economic sanctions, and anti-bribery and corruption. Failure to continue to meet the requirements of these regulations could result in supervisory action, including fines.
Privacy and data protection
U.S. federal law establishes minimum federal standards for financial privacy by, among other provisions, requiring financial institutions to adopt and disclose privacy policies with respect to consumer information and setting forth certain limitations on disclosure to third parties of consumer information. U.S. state laws and regulations adopted under U.S. federal law impose obligations on RJF and its subsidiaries for protecting the confidentiality, integrity and availability of client information, and require notice of data breaches to certain U.S. regulators and to clients. The SEC’s Regulation S-ID mandates the development and implementation of a written Identity Theft Prevention Program that is designed to detect, prevent, and mitigate identity theft. The California Consumer Privacy Act, which became effective on January 1, 2020, imposes privacy compliance obligations with regard to the personal information of California residents, including requiring companies to provide certain specific disclosures to California consumers, and provides for a number of specific rights for California residents.
Similarly, the General Data Protection Regulation (“GDPR”) imposes additional requirements for companies that collect or store personal data of E.U. residents, including residents of the U.K. since GDPR was adopted into U.K. law following the U.K.’s departure from the E.U. GDPR’s legal requirements extend to all foreign companies that solicit and process personal data of E.U. and U.K. residents, imposing a strict data protection compliance regime that includes new consumer rights actions that must be responded to by organizations. Canadian data privacy laws contain many provisions similar to U.S. financial privacy laws and are currently undergoing legislative reform at a federal and provincial level. We have implemented policies, processes, and training with regard to communicating to our clients and business partners required information relating to financial privacy and data security. We continue to monitor regulatory developments on both a domestic and international level to assess requirements and potential impacts on our global business operations.
The multitude of data privacy laws and regulations adds complexity and cost to managing compliance and data management capabilities and can result in potential litigation, regulatory fines and reputational harm. Data privacy requirements compel companies to track personal information use and provide greater transparency on data practices to consumers. In addition, technology advances in the areas of artificial intelligence, mobile applications, and remote connectivity solutions have increased the collection and processing of personal information as well as the risks associated with unauthorized disclosure and access to personal information.
Legislative and regulatory changes in connection with COVID-19
The COVID-19 pandemic resulted in governments around the world implementing numerous measures to help control the spread of the virus, including, among others, quarantines, travel restrictions and business curtailments. In addition, governments globally intervened with fiscal policy to mitigate the impact of the pandemic, including the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act in the U.S., which aimed to provide economic relief to businesses and individuals. In addition to the CARES Act enacted in March 2020, the U.S. government enacted the Consolidated Appropriations Act, 2021 in December 2020. The December 2020 stimulus bill provides additional emergency COVID-19 relief, as well as extends certain provisions of the CARES Act. In March 2021, the U.S. government enacted the American Rescue Plan Act of 2021, which provides further economic relief resulting from to the COVID-19 pandemic.
Under the CARES Act, financial institutions were permitted to temporarily suspend any determination of a loan modification as a result of the effects of COVID-19 as being a troubled debt restructuring (“TDR”), including impairment for accounting purposes. The Consolidated Appropriations Act, 2021 extends such relief until the earlier of: (1) 60 days after the date on which the national emergency concerning COVID-19 terminates; or (2) January 1, 2022. We elected to apply the extension for relief under the Consolidated Appropriations Act, 2021 to certain loan modifications that primarily relate to short-term payment
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
deferral and have not classified such modifications as TDRs. See “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Credit risk” for further information.
The CARES Act further provides a number of consumer finance protections. The act provides a range of forbearance rights with respect to any federally backed residential or multi-family mortgage loan and generally limits the ability of a lender or servicer to institute foreclosure or similar proceedings. These provisions are consistent with supervisory guidance previously issued by federal banking agencies, which also stated that they would not criticize financial institutions for working with customers affected by the outbreak in a safe and sound manner. We have modified our processes to ensure full compliance and have continued, as appropriate, to support affected businesses and individuals during this time. Many state and local authorities have also taken, or are considering taking, legislative, executive, or other action to respond to the economic disruptions caused by the spread of COVID-19, including with respect to foreclosure and repossession moratoriums.
On November 4, 2021, the federal Occupational Safety and Health Administration (“OSHA”) issued an Emergency Temporary Standard (“ETS”) mandating that all employers with more than 100 employees ensure their workers are either fully vaccinated against COVID-19 or produce, on a weekly basis, a negative COVID test, and imposing substantial penalties for noncompliance. The ETS provides for compliance dates of December 5, 2021 and January 4, 2022. On November 12, 2021, the Fifth Circuit Court of Appeals extended its stay of the rule’s enforcement pending further judicial review and ordered that OSHA take no steps to implement or enforce the mandate until further court order. OSHA has announced that it suspended activities related to the implementation and enforcement of the ETS pending future developments in the litigation. We will continue to monitor federal, state and local legislative and regulatory developments and endeavor to comply with all applicable final rules.
The Company’s legislative and regulatory environment may continue to change in response to the COVID-19 pandemic, as new or modified laws, regulations and guidance may continue to be promulgated at very short notice.
Alternative reference rate transition
Central banks and regulators have convened working groups to transition away from the London Interbank Offered Rate (“LIBOR”) to replacement interest rate benchmarks. On March 5, 2021, the FCA, which regulates LIBOR, announced it will cease publication of the most commonly used U.S. dollar LIBOR tenors after June 30, 2023, though the less commonly used tenors will cease publication after December 31, 2021. U.S. federal banking agencies have issued guidance strongly encouraging institutions to cease entering into contracts that reference LIBOR as soon as practicable, and no later than December 31, 2021. Central banks and regulators in the U.S. and other jurisdictions are working to implement the transition to suitable replacements for LIBOR. To facilitate an orderly transition away from LIBOR, we established an enterprise-wide team to assess and implement necessary changes to our contracts pursuant to the Alternative Reference Rates Committee’s recommendations. This team has identified the inventory of existing contracts that will be impacted by the discontinuance of LIBOR and is working to transition those contracts accordingly. Our enterprise-wide team has also directed updates to systems, processes, documentation, and models, with additional updates expected through 2023, as we continue our transition. In conjunction with our corporate communications department, we created a plan to advise our financial advisors and clients of the change for certain impacted products. We have selected replacement rates for our LIBOR-based products based on peer benchmarking and industry research and have created a product strategy for offering non-LIBOR based products in advance of the December 31, 2021 deadline. Under that strategy, we began offering Secured Overnight Financing Rate (“SOFR”)-linked derivatives and plan to offer SOFR-based SBL beginning December 2021. We have identified a plan to respond to the impacts of the alternative reference rate transition, and have taken action, or plan to take action, timely.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
INFORMATION ABOUT OUR EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of the registrant (which includes officers of certain significant subsidiaries) are as follows:
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Jennifer C. Ackart | 53 | Senior Vice President since August 2009 and Controller since February 1995 |
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Bella Loykhter Allaire | 64 | Executive Vice President - Technology and Operations - Raymond James & Associates, Inc. since June 2011; Managing Director and Chief Information Officer - UBS Wealth Management Americas, November 2006 - January 2011 |
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Paul D. Allison | 6165 | Chairman, President and CEO - Raymond James Ltd. since January 2009; Co-President and Co-CEO - Raymond James Ltd., August 2008 - January 2009 |
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James E. Bunn | 4448 | Co-PresidentPresident - Global Equities and Investment Banking - Raymond James & Associates, Inc. since October 2017;December 2018 and Head of Investment Banking - Raymond James & Associates, Inc. since January 2014; Co-Head of Technology ServicesCo-President - Global Equities and Investment Banking - Raymond James & Associates, Inc., May 2009October 2017 - December 2013
2018 |
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John C. Carson, Jr. | 6165 | President since April 2012; President - Morgan Keegan & Company, LLC, formerly known as Morgan Keegan & Company, Inc., since July 2013; Chief Executive Officer and Executive Managing Director - Morgan Keegan & Company, Inc., March 2008 - July 2013 |
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George Catanese | 5862 | Senior Vice President since October 2005 and Chief Risk Officer since February 2006 |
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Scott A. Curtis | 5559 | President - Private Client Group since June 2018; President - Raymond James Financial Services, Inc. since January 2012; Senior2012 |
Jeffrey A. Dowdle | 57 | Chief Operating Officer and Head of Asset Management Group since October 2019; Chief Administrative Officer, August 2018 - October 2019; President - Asset Management Group, May 2016 - October 2019; Executive Vice President - Asset Management Group, February 2014 - May 2016 |
Tashtego S. Elwyn | 50 | Chief Executive Officer and President - Raymond James & Associates, Inc. since June 2018; President - Private Client Group - Raymond James & Associates, Inc., July 2005January 2012 - December 2011June 2018 |
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Jeffrey A. Dowdle | 53 | President - Asset Management Group since May 2016; Executive Vice President - Asset Management Group, February 2014 - May 2016; President - Asset Management Services - Raymond James & Associates, Inc., January 2005 - February 2014; Senior Vice President - Raymond James & Associates, Inc., January 2005 - February 2014 |
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Tashtego S. Elwyn | 46 | President - Private Client Group - Raymond James & Associates, Inc. since January 2012; Regional Director - Raymond James & Associates, Inc., October 2006 - December 2011 |
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Thomas A. James | 7579 | Chairman Emeritus since February 2017; Executive Chairman, May 2010 - February 2017 |
Bella Loykhter Allaire | 68 | |
Jeffrey P. Julien | 61 | Executive Vice President - FinanceTechnology and Operations - Raymond James & Associates, Inc. since August 2009, Chief Financial Officer since April 1987 and Treasurer since February 2011; Director and/or officer of several RJF subsidiariesJune 2011 |
Jodi L. Perry | 50 | President - Independent Contractor Division - Raymond James Financial Services, Inc. since June 2018; Senior Vice President, National Director - ICD - Raymond James Financial Services, Inc., May 2018 - June 2018; Senior Vice President, ICD Regional Director - Raymond James Financial Services, Inc., June 2012 - May 2018 |
Steven M. Raney | 5256 | Chairman - Raymond James Bank, since November 2020; President and CEO - Raymond James Bank N.A. since January 2006 |
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Paul C. Reilly | 6367 | Chairman since February 2017 and Chief Executive Officer since May 2010; Director since January 2006; President, May 2009 - April 20102006 |
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Jonathan N. Santelli | 4650 | Executive Vice President, General Counsel and Secretary since May 2016; Senior Vice President and Deputy General Counsel - First Republic Bank, October 2013 to April 2016; Managing Director and Associate General Counsel - Preferred and Small Business Banking - Bank of America, December 2011 - August 2013; Managing Director and Associate General Counsel - Private Wealth Management - Bank of America, October 2009 - November 20112016 |
Paul M. Shoukry | 38 | |
Jeffrey E. Trocin | 58 | Co-President - Global EquitiesChief Financial Officer since January 2020 and Investment Banking - Raymond James & Associates, Inc.Treasurer since October 2017; President - Global Equities and Investment Banking - Raymond James & Associates, Inc., July 2013 - October 2017; ExecutiveFebruary 2018; Senior Vice President - Equity Capital MarketsFinance and Investor Relations, January 2017 - Raymond James & Associates, Inc., February 2001 - July 2013 |
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Dennis W. Zank | 63 | Chief Operating Officer since January 2012; Chief Executive Officer - Raymond James & Associates, Inc. since January 2012;December 2019; Senior Vice President - Raymond James & Associates, Inc., December 2002Treasury, January 2017 - February 2018; Vice President - Finance and Investor Relations, July 2012 - December 20112016 |
Except where otherwise indicated, the executive officer has held his or her current position for more than five years.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
OTHERADDITIONAL INFORMATION
Our Internet address is www.raymondjames.com. We make available on our website, free of charge and in printer-friendly format including “.pdf” file extensions, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our reports and other information that we electronically file with the SEC are also available free of charge on the SEC’s website at www.sec.gov.
Factors affecting “forward-looking statements”FACTORS AFFECTING “FORWARD-LOOKING STATEMENTS”
Certain statements made in this Annual Report on Form 10-K 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), anticipated timing and benefits of our acquisitions and our level of success in integrating acquired businesses, industry or market conditions, demand for and pricing of our products, acquisitions and divestitures, anticipated results of litigation, and regulatory developments, impacts of the COVID-19 pandemic, effects of accounting pronouncements, orand general economic conditions. In addition, words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “projects,” “forecasts,” and future or conditional verbs such as “will,” “may,” “could,” “should,” and “would,” as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements. Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from those expressed in the forward-looking statements. We caution investors not to rely unduly on any forward-looking statements and urge you to carefully consider the risks described in Item“Item 1A “Risk Factors,” in- Risk Factors” of this report. 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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
ItemITEM 1A. RISK FACTORS
Our operations and financial results are subject to various risks and uncertainties, including those described below,in the following sections, which could adversely affect our business, financial condition, results of operations, liquidity and the trading price of our common stock. The list of risk factors provided belowin the following sections is not exhaustive; there may be other factors not discussed below or in this Form 10-K that adversely impact our results of operations, harm our reputation or inhibit our ability to generate new business prospects. The following sections should be read in conjunction with “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and accompanying notes in “Item 8 - Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. In particular, see “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and capital resources” for additional information on liquidity and how we manage our liquidity risk and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management” for additional information on our exposure and how we monitor and manage our market, credit, operational, compliance and certain other risks.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
The worldwide COVID-19 pandemic may negatively impact our business, financial condition, and results of operations.
The worldwide COVID-19 pandemic and related measures intended to control the spread of the virus have had a significant impact on global economic conditions and may negatively impact certain aspects of our business and results of operations in the future. Although certain economic conditions improved throughout fiscal 2021, the pandemic continues to evolve, as recently experienced with the rapid spread of the Delta variant, and certain of the impacts of the pandemic may continue to affect our results in the future, including: near-zero short-term interest rates resulting in lower net interest income and RJBDP fees from third-party program banks; volatility in our brokerage revenues and investment banking revenues due to market uncertainty caused by the pandemic; and increased credit risk, particularly with regard to industries most vulnerable to the pandemic (e.g., airline, restaurant, gaming, entertainment/leisure and energy), which may result in an elevated bank loan loss provision and charge-offs. In addition, should market conditions deteriorate, or if there is a decline in equity markets similar to that experienced during our fiscal 2020 second quarter, the value of our clients’ assets and certain of our investments would also be negatively affected.
We may also continue to experience business disruptions as a result of the continued spread of COVID-19 and its variants, resulting from restrictions on our employees’ ability to travel, as well as temporary partial or full closures of our facilities and the facilities of our clients, suppliers, or other vendors. We often recruit skilled professionals by visiting their offices or having them visit our offices. Although we have reinstated the majority of our in-person recruiting, renewed travel restrictions or other disruptions that prevent us from meeting with professional prospects may adversely impact our ability to recruit such professional prospects. Further, the increased availability of remote working arrangements in response to the pandemic has intensified and may continue to intensify competition for prospective new associates and impair our ability to retain current associates. Recently promulgated OSHA rules related to required vaccines or alternative testing protocols for unvaccinated associates may also have negative effects on our current associates, including additional administrative burdens and concerns related to perceived health and safety risks, and may result in an increase in employee complaints as well as difficulty attracting and retaining associates. While we maintain contingency plans for events such as pandemic outbreaks, the further spread of COVID-19, or a similar contagious disease could also impair the effectiveness of our executive officers or other associates who are necessary to conduct our business. In addition, the continued spread of COVID-19 could harm the operations of third-party service providers who perform critical services for our business. In some cases, the COVID-19 pandemic has accelerated the transition from traditional to digital financial services and heightened customer expectations in this area, and this transition may require us to invest greater resources in technological improvements.
If COVID-19 or another highly infectious or contagious disease, continues to spread or the response to contain it is unsuccessful, we may experience adverse effects on our business, financial condition, liquidity, and results of operations. A prolonged period of economic deterioration could ultimately result in impairment of our goodwill and identifiable intangible assets. In addition, if financial markets deteriorate as a result of the current or a future pandemic, our access to capital and other sources of funding may become constrained, which may require us to restructure debt or obtain additional financing on terms that may be onerous or highly dilutive.
The extent of any of the previously-described effects on our business will depend on future developments which are highly uncertain and cannot be predicted, including the duration of the COVID-19 pandemic and the possible further impacts on the global economy.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Damage to our reputation could damage our businesses.
Maintaining our reputation is critical to attracting and maintaining clients, investors, and associates. If we fail to address, or appear to fail to address, issues that may give rise to reputational risk, we could significantly harm our business prospects. These issues may include, but are not limited to, any of the risks discussed in this Item 1A, including appropriately dealing with potential conflicts of interest, legal and regulatory requirements, ethical issues, money laundering, cybersecurity and privacy, record-keeping, and sales and trading practices, and associate misconduct. In addition, the failure to either sell securities we have underwritten at anticipated price levels or to properly identify and communicate the proper identification of the legal, reputational, credit, liquidity, and market risks inherent in our products.the products and services we offer could also give rise to reputational risk. Failure to maintain appropriate service and quality standards or a failure or perceived failure to treat clients fairly can result in client dissatisfaction, litigation and heightened regulatory scrutiny, all of which can lead to lost revenue, higher operating costs and reputational harm. Negative publicity about us, whether or not true, may also harm our future business prospects.reputation. Further, failures at other large financial institutions or other market participants, regardless of whether they relate to our activities, could lead to a general loss of customer confidence in financial institutions that could negatively affect us, including harming the market perception of the financial system in general.
We are affected by domestic and international macroeconomic conditions that impact the global financial markets.
We are engaged in various financial services businesses. As such, we are affected by domestic and international macroeconomic and political conditions, includingas well as economic output levels, interest and inflation rates, employment levels, prices of commodities, including oil and gas, consumer confidence levels and changes in consumer spending, international trade policy, and fiscal and monetary policy. For example, Fed policies determine, in large part, the cost of funds for lending and investing and the return earned on those loans and investments. The market impact from such policies can also can decrease materially the value of certain of our financial assets, most notably debt securities.securities, as well as our cash flows, such as those associated with client cash balances. Changes in Fed policies are beyondtax law and regulation, or any market uncertainty caused by a change in the political environment, may negatively affect our control and, consequently, the impact of these changes on our activities and results of our operations are difficult to predict.business. Macroeconomic conditions may also may directly and indirectly impact a number of factors in the global financial markets that may be detrimental to our operating results, including trading levels, investing, and origination activityresults.
If we were to experience a period of sustained downturn in the securities markets, security valuations, the absolute and relative level and volatility of interest and currency rates, real estate values, the actual and perceived quality of issuers and borrowers, and the supply of and demand for loans and deposits.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
At times over the last several years we have experienced operating cycles during weak and uncertain U.S. and global economic conditions, including low economic output levels, artificially maintained levels of historically low interest rates, relatively high unemployment rates, and significant uncertainty with respect to domestic and international fiscal and monetary policy. These conditions led to changes in the global financial markets that from time to time negatively impacted our net revenue and profitability. While global financial markets have improved, uncertainty remains. A period of sustained downturns and/or volatility in the securities markets, a return to very low levels of short-term interest rates, credit market dislocations, reductions in the value of real estate, increases in mortgage and other loan delinquencies, or other negative market factors, could significantly impairincluding from the continuing impact of the COVID-19 pandemic, our revenues could be adversely impacted. Market uncertainty could also cause clients to move their investments to lower margin products, or withdraw them, which could have an adverse impact on our profitability. We could also experience a material reduction in trading volume and profitability. Additionally,lower asset prices in times of market uncertainty, which would result in lower brokerage revenues, including losses on firm inventory, as well as losses on certain of our market-making activities depend oninvestments. Conversely, periods of severe market volatility to provide trading opportunities for our clients and decreasesmay result in volatility may reduce these opportunities or adversely affect the resultsa significantly higher level of these activities. We could experience a decline in commission revenue from lower trading volumes, a decline in fees from reduced portfolio values of securities managed on behalf of our clients, a reduction in revenue from capital markets and advisory transactions due to reduced activity, increased credit provisions and charge-offs, losses sustained from our customers’ and market participants’ failure to fulfill their settlement obligations, reduced net interest earnings, and other activity which may cause operational challenges that may result in losses. These can include, but are not limited to, trade errors, failed transaction settlements, late collateral calls to borrowers and counterparties, or interruptions to our system processing.Periods of reduced revenue and other losses could be accompanied by periods oflead to reduced profitability because certain of our expenses, including but not limited to, our interest expense on debt, rent, facilities and salary expenses, are fixed, and our ability to reduce them over short time periods is limited.
U.S. markets may also be impacted by political and civil unrest occurring in other parts of the world. Concerns aboutOur businesses and revenues derived from non-U.S. operations may also be subject to risk of loss from currency fluctuations, social or political instability, less established regulatory regimes, changes in governmental or central bank policies, downgrades in the European Union (“EU”)credit ratings of sovereign countries, expropriation, nationalization, confiscation of assets and unfavorable legislative, economic and political developments. For example, continued uncertainties loom over the future of the U.K.’s relationship with the E.U., including Britain’s June 2016 referendumfuture trading arrangements between the U.K. and the E.U., following the expiration of the transition period on December 31, 2020. During the transition period of Brexit, we took steps to exitmake certain changes to our European operations in an effort to ensure that, where possible, we can continue to provide cross-border services in E.U. member states without the EU (“Brexit”),need for separate regulatory authorizations in each member state. There is also continued uncertainty regarding the outcome of the E.U.’s financial support programs and the stability of the EU’sE.U.’s sovereign debt, has caused uncertainty and disruption for financial markets globally. Continued uncertainties loom over the outcome of the EU’s financial support programs.debt. It is possible that other EUE.U. member states may experience financial troubles in the future, or may choose to follow Britain’sthe U.K.’s lead and leave the EU.E.U. Any negative impact on economic conditions and global markets from these developments could adversely affect our business, financial condition and liquidity.
U.S. state and local governments also continue to struggle with budget pressures and ongoing concerns regarding municipal issuer credit quality. If these trends continue or worsen, investor concerns could potentially reduce the number and size of transactions in which we participate and, in turn, reduce investment banking revenues. In addition, such factors could adversely affect the value of the municipal securities we hold in our trading securities portfolio.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
RJ Bank is affected primarily by economic conditions in North America. Market conditions in the United States and Canada can be assessed through the following metrics: the level and volatility of interest rates; unemployment and under-employment rates; real estate prices; consumer confidence levels and changes in consumer spending; and the number of personal bankruptcies, among others. Deterioration of market conditions can diminish loan demand, lead to an increase in mortgage and other loan delinquencies, affect loan repayment performance and result in higher reserves and net charge-offs, which can adversely affect our earnings.
Lack of liquidity or access to capital could impair our business and financial condition.
We must maintain appropriate liquidity levels. Our inability to maintain adequate liquidity and readily availableor to easily access to the credit and capital markets could have a significant negative effect on our financial condition. If liquidity from our brokerage or banking operations is inadequate or unavailable, we may be required to scale back or curtail our operations, includingsuch as limiting our efforts to recruitrecruiting of additional financial advisors, limiting lending, selling assets at unfavorable prices, and cutting or eliminating dividend payments. Our liquidity could be negatively affected byby: the inability of our subsidiaries to generate cash to distribute to the parent company in the form of dividends from earnings, regulatory changes to theearnings; liquidity or capital requirements applicable to our subsidiaries that may prevent us from upstreamingdistributing cash to the parent company,company; limited or no accessibility to credit markets for secured and unsecured borrowings by our subsidiaries,subsidiaries; diminished access to the capital markets for RJF,RJF; and other commitments or restrictions on capital as a result of adverse legal settlements, judgments, or regulatory sanctions. Furthermore, as a bank holding company, we may become subject to prohibitions or limitations on our ability to pay dividends to our shareholders and/or repurchase our stock. The OCC, the Fed, the FDIC, and the SEC (through FINRA)Certain of our regulators have the authority, and under certain circumstances, the duty, to prohibit or to limit dividend payments by regulated subsidiaries to their parent.parent company.
The availability of financing, including access to the credit and capital markets, depends on various factors, such as conditions in the debt and equity markets, the general availability of credit, the volume of securities trading activity, the overall availability of credit to the financial services sector, and our credit ratings. Our cost of capital and the availability of funding may be adversely affected by illiquid credit markets and wider credit spreads. Additionally, lenders may from time to time curtail, or even cease to provide, funding to borrowers as a result of future concerns over the strength of specific counterparties, as well as the stability of markets generally. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” in this report for additional information on liquidity and how we manage our liquidity risk.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
We are exposed to credit risk.
We are generally exposed to the risk that third parties that owe us money, securities or other assets will fail to meet their performance obligations to us due to numerous causes, including bankruptcy, lack of liquidity, or operational failure, among others. This risk was and may further be exacerbated by the effects of the COVID-19 pandemic, particularly in certain sectors. We actively buy and sell securities from and to clients and counterparties in the normal course of our broker-dealers’ market makingtrading and underwriting businesses,activities, which exposes us to credit risk. Although generally collateralized by the underlying security to the transaction, we still face risk associated with changes in the market value of collateral through settlement date. We also hold certain securities, loans and derivatives inas part of our trading accounts.operations. Deterioration in the actual or perceived credit quality of the underlying issuers of securities or loans or the non-performance of issuers and counterparties to certain derivative contractsderivatives could result in trading losses.
We borrow securities from, and lend securities to, other broker-dealers and may also enter into agreements to repurchase and/or resell securities as part of investing andour financing activities. A sharp change in the security market values of the securities utilized in these transactions may result in losses if counterparties to these transactions fail to honor their commitments.
We manage the risk associated with these transactions by establishing and monitoring credit limits, as well as by monitoringevaluating collateral and transaction levels daily.on a recurring basis. Significant deterioration in the credit quality of one of our counterparties could lead to widespread concerns about the credit quality of other counterparties in the same industry, thereby exacerbating our credit risk exposure.
Werisk. In addition, we permit our clients to purchase securities on margin. During periods of steep declines in securities prices, the value of the collateral securing client margin loans may fall below the amount of the purchaser’s indebtedness.loan. If clients are unable to provide additional collateral for these margin loans, we may incur losses on those margin transactions. This may cause us to incur additional expenses defending or pursuing claims or litigation related to counterparty or client defaults.
We deposit our cash in depository institutions as a means of maintaining the liquidity necessary to meet our operating needs, and we also facilitate the deposit of cash awaiting investment in depository institutions on behalf of our clients. A failure of a depository institution to return these deposits could severely impact our operating liquidity, result in significant reputational damage, and adversely impact our financial performance.
We also incur credit risk by lending to businesses and individuals, including through the offering of loans, including C&I loans, commercial andCRE loans, REIT loans, residential mortgage loans, tax-exempt loans, home equity lines of credit, and marginSBL and other loans collateralized by securities.loans. We also incur credit risk through certain of our investments. Our credit risk and credit losses can increase if our loans or investments are concentrated among borrowers or issuers engaged in the same or similar activities, industries, or geographies, or to borrowers or issuers who as a group may be uniquely or disproportionately affected by economic or market conditions. The deterioration of an individually large exposure, for example due to natural disasters, health emergencies or pandemics, acts of terrorism, severe weather events or other adverse economic events, could lead to additional loan loss provisions and/or charges-offs, or credit impairment of our investments, and subsequently have a material impact on our net income and regulatory capital.
conditions, such as those most impacted by the COVID-19 pandemic. Declines in the real estate market or sustained economic downturns may cause us to write down the value of some of theexperience credit losses or charge-offs related to our loans, in RJ Bank’s portfolio,sell loans at unattractive prices or foreclose on certain real estate properties or write down the value of some of our securities.properties. Credit quality generally may also be affected by adverse changes in the financial performance or condition of our debtors or deterioration in the strength of the U.S. economy. The deterioration of an individually large exposure, for example due to natural disasters, health emergencies
See Item 7, “Management’s Discussion22
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
or pandemics, acts of terrorism, severe weather events or other adverse economic events, could lead to additional credit loss provisions and/or charges-offs, and Analysis of Financial Conditionsubsequently have a material impact on our net income and Results of Operations - Risk Management,” in this report for additional information regarding our exposure to and approaches to managing credit risk.regulatory capital.
We are exposed to market risk, including interest rate risk.
We are, directly and indirectly, affected by changes in market conditions. Market risk generally represents the risk that values of assets and liabilities or revenues will be adversely affected by changes in market conditions. For example, interest rate changes could adverselyconditions, which directly and indirectly affect our net interest spread, the difference between the yield we earn on our assets and the interest rate we pay for deposits and other sources of funding, which in turn impacts our net interest income and earnings. Interest rate changes could affect the interest earned on assets differently than interest paid on liabilities. In our brokerage operations, a rising interest rate environment generally results in our earning a larger net interest spread. Conversely, in those operations, a falling interest rate environment generally results in our earning a smaller net interest spread. If we are unable to effectively manage our interest rate risk, changes in interest rates could have a material adverse effect on our profitability.
us. Market risk is inherent in the financial instruments associated with our operations and activities, including loans, deposits, securities, short-term borrowings, long-term debt, trading account assets and liabilities, derivatives and private equity investments. Market
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
conditions that change from time to time, thereby exposing us to market risk, include fluctuations in interest rates, equity prices, foreign exchange rates, and price deterioration or changes in value due to changes in market perception or actual credit quality of an issuer.
Market risk is inherent in financial instruments associated with our operations and activities, including loans, deposits, securities, short-term borrowings, long-term debt, trading assets and liabilities, derivatives and private equity investments. For example, interest rate changes could adversely affect the value of our fixed income trading inventories held to facilitate client transactions, as well as our net interest spread, which is the difference between the yield we earn on our interest-earning assets and the interest rate we pay for deposits and other sources of funding, in turn impacting our net interest income and earnings. Interest rate changes could affect the interest earned on assets differently than interest paid on liabilities.
A rising interest rate environment generally results in our earning a larger net interest spread and an increase in servicing fees received on cash swept to third-party program banks as part of the RJBDP. Conversely, in those operations, a falling interest rate environment generally results in our earning a smaller net interest spread and lower RJBDP fees from third-party program banks. Moreover, while there is no indication currently that the Fed plans to reduce its targeted Fed funds rate to a negative rate, if such a policy were to be adopted, the cost to hold both firm and client deposits would have an adverse impact on our profitability. If we are unable to effectively manage our interest rate risk, changes in interest rates could have a material adverse effect on our profitability.
Our private equity investments are carried at fair value with unrealized gains and losses reflected in earnings. The value of our private equity portfolio can fluctuate and earnings from our investments can be volatile and difficult to predict. When, and if, we recognize gains can depend on a number of factors, including general economic conditions, the prospects of the companies in which we invest and whether these companies become subject to a monetization event.
In addition, disruptions in the liquidity or transparency of the financial markets may result in our inability to sell, syndicate or realize the value of security positions, thereby leading to increased concentrations. The inability to reduce our positions in specific securities may not only increase the market and credit risks associated with such positions, but also increase the level of risk-weighted assets on our balance sheet, thereby increasing our capital requirements, which could have an adverse effect on our business results, financial condition and liquidity.
Our private equity investments
Significant volatility in our domestic clients’ cash balances could negatively impact our net revenues and/or our ability to fund Raymond James Bank’s growth and may impact our regulatory ratios.
The majority of Raymond James Bank’s deposits are carrieddriven by the RJBDP. The RJBDP is a source of relatively low-cost, stable deposits for Raymond James Bank and we rely heavily on the RJBDP to fund Raymond James Bank’s asset growth. A significant reduction in PCG clients’ cash balances, a change in the allocation of that cash between Raymond James Bank and third-party banks within the RJBDP, or a transfer of cash away from the firm could significantly impact Raymond James Bank’s ability to continue growing interest-earning assets and/or require Raymond James Bank to use higher-cost deposit sources to grow interest-earning assets.
The RJBDP also generates fees from third-party banks related to the deposits they receive through their participation in the RJBDP. If PCG clients’ cash balances remain elevated or increase further and third-party bank demand or capacity for RJBDP deposits do not improve or decline from current levels our RJBDP fees from third-party banks could continue to be adversely affected. In addition, our inability to deploy client cash to third-party banks through RJBDP would require us to retain more cash at fair value with unrealized gains and losses reflectedRaymond James Bank or in earnings. The valueour Client Interest Program (“CIP”), both of which may cause a significant increase in our assets. Such an increase in our assets may negatively impact certain of our private equity portfolios can fluctuate and earnings from our investments can be volatile and difficult to predict. When, and if, we recognize gains can depend on a number of factors, including general economic conditions, the prospects of the companies in which we invest, when these companies go public, the size of our position relative to the public float and whether we are subject to any resale restrictions. Further, our investments could incur significant mark-to-market losses, especially if they have been written up in prior periods because of higher market prices.regulatory ratios.
See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management,” in this report for additional information regarding our exposure to and approaches to managing market risk.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Our business depends on fees generated from the distribution of financial products, fees earned from the management of client accounts, and advisoryasset management fees.
A large portion of our revenues are derived from fees generated from the distribution of financial products, such as mutual funds and variable annuities.annuities, and the various services we perform related to such products. Changes in the structure or amount of the fees paid by the sponsors of these products could directly affect our revenues, business and financial condition. In addition, if these products experience losses or increased investor redemptions, we may receive lower fee revenuefees from the investment managementdistribution and distributionother services we provide on behalf of the mutual fundsfund and annuities. annuity companies.
The investmentasset management fees we are paid are dependent upon the value of client assets in fee-based accounts in our PCG segment, as well as AUM in our Asset Management segment. The value of our fee-based assets and AUM is impacted by market fluctuations and inflows or outflows of assets. As our PCG clients increasingly show a preference for fee-based accounts over traditional transaction-based accounts, a larger portion of our client assets are more directly impacted by market movements. Therefore, in periods of declining market values, the values of fee-based accounts and AUM may resultantly decline, which would negatively impact our revenues. In addition, below-market investment performance by our funds, portfolio managers or financial advisors could result in reputational damage that might cause outflows or make it more difficult to attract new investors into our asset management products and thus, further impact our business and financial condition.
Our asset management fees may also decline over time due to factors such as increased competition and the renegotiation of contracts. In addition, the market environment in recent years has resulted in a shift to passive investment products, which generate lower fees than actively managed products. A continued trend toward passive investments or changes in market values or in the fee structure of asset management accounts would negatively affect our revenues, business and financial condition. Asset management fees often are primarily comprised of base management and incentive fees. Management fees are primarily based on assets under management (“AUM”). AUM balances are impacted by net inflows/outflows of client assets and market values. Below-market investment performance by our funds and portfolio managers could result in a loss of managed accounts and could result in reputational damage that might make it more difficult to attract new investors and thus further impact our business and financial condition. If we were to experience the loss of managed accounts, our fee revenue would decline. In addition, in periods of declining market values, our values of AUM may resultantly decline, which would negatively impact our fee revenues.
Our underwriting, market-making, trading, and other business activities place our capital at risk.
We may incur losses and be subject to reputational harm to the extent that, for any reason, we are unable to sell securities we have underwritten at the anticipated price levels. As an underwriter, we also are subject to heightened standards regarding liability for material misstatements or omissions in prospectuses and other offering documents relating to offerings in which we are involved. As a market maker, we may own positions in specific securities, and these undiversified holdings concentrate the risk of market fluctuations and may result in greater losses than would be the case if our holdings were more diversified. In addition, despite risk mitigation policies, we may incur losses as a result of positions we hold in connection with our market making or underwriting activities.
From time to time and as part of our underwriting processes, we may carry significant positions in securities of a single issuer or issuers engaged in a specific industry. Sudden changes in the value of these positions, despite our risk mitigation policies, could impact our financial results.
As a market maker, we take ownership of positions in specific securities, and these undiversified holdings concentrate the risk of market fluctuations and may result in greater losses than would be the case if our holdings were more diversified. Despite risk mitigation policies, we may incur losses as a result of positions we hold in connection with these activities.
We have made and, to the limited extent permitted by applicable regulations, may continue to make principal investments in private equity funds and other illiquid investments; however, our current focus is on the divestiture of our existing portfolio.investments. We may be unable to realize our investment objectives if we cannot sell or otherwise dispose of our interests at attractive prices or complete a desirable exit strategy. In particular, these risks could arise from changes in the financial condition or prospects of the portfolio companies in which investments are made, changes in economic conditions or changes in laws, regulations, fiscal policies or political conditions. It could take a substantial period of time to identify attractive investment opportunities and then to realize the cash value of such investments. Even if a private equity investment proves to be profitable, it may be several years or longer before any profits can be realized in cash.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Any cyber-attack or other security breach of our technology systems, or those of our clients or other third-party vendors we rely on, could subject us to significant liability and harm our reputation.
Our operations rely heavily on the secure processing, storage and transmission of sensitive and confidential financial, personal and other information in our computer systems and networks. There have been several highly publicized cases involving financial services companies reporting the unauthorized disclosure of client or other confidential information in recent years, as well as cyber-attacks involving the theft, dissemination and destruction of corporate information or other assets, in some cases as a result of failure to follow procedures by employees or contractors or as a result of actions by third parties. There have also been several highly publicized cases where hackers have requested “ransom” payments in exchange for not disclosing customer information or for restoring access to information or systems. Like other financial services firms, we are regularly the target of attempted cyber-attacks, includingexperience malicious cyber activity directed at our computer systems, software, networks and its users on a daily basis. This malicious activity includes attempts at unauthorized access, mishandling or misuseimplantation of information, computer viruses or malware, and denial-of-service attacks,attacks. We also experience large volumes of phishing orand other forms of social engineering attempted for the purpose of perpetrating fraud against the firm, our associates, or our clients. Additionally, like many large enterprises, since mid-March 2020, we have shifted the majority of our associates to remote work arrangements in response to the COVID-19 pandemic, and other events,expect that
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
many of our associates will continue to work remotely to some extent following the pandemic. This change in our operating model has enabled us to successfully continue business operations, but also introduces potential new vulnerabilities to cyber threats. We also face increased cybersecurity risk as we deploy additional mobile and wecloud technologies. We seek to continuously monitor for and nimbly react to any and all such malicious cyber activity, and we develop our systems to protect our technology infrastructure and data from misuse, misappropriation or corruption. Senior management of our Information Technology department gives a quarterly update on cybersecurity to the Audit and Risk Committee of our Board of Directors and an annual update to our full Board of Directors.
Cyber-attacks can originate from a variety of sources, including third parties affiliated with foreign governments, organized crime or terrorist organizations. Third parties may also attempt to place individuals within our firm, or induce employees, clients or other users of our systems, to disclose sensitive information or provide access to our data, and these types of risks may be difficult to detect or prevent. Although cyber securitycybersecurity incidents among financial services firms are on the rise, we have not experienced any material losses relating to cyber-attacks or other information security breaches. However, the techniques used in these attacks are increasingly sophisticated, change frequently and are often not recognized until launched. Although we seek to maintain a robust suite of authentication and layered information security controls, including our cyber threat analytics, data encryption and tokenization technologies, anti-malware defenses and vulnerability management program,programs, any one or combination of these controls could fail to detect, mitigate or remediate these risks in a timely manner. 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, equipment failure, natural disasters, power loss, spam attacks, unauthorized access, supply chain attacks, distributed denial of service attacks, computer viruses and other malicious code, and other events that could result in significant liability and damage to our reputation, and have an ongoing impact on the security and stability of our operations.
We also rely on numerous third partythird-party service providers to conduct other aspects of our business operations, and we face similar risks relating to them. While we regularly conduct security assessments on these third partythird-party vendors, we cannot be certain that their information security protocols are sufficient to withstand a cyber-attack or other security breach. We also cannot be certain that we will receive timely notification of such cyber-attacks or other security breaches. In addition, in order to access our products and services, our customersclients may use computers and other devices that are beyond our security control systems.
Notwithstanding the precautions we take, if a cyber-attack or other information security breach were to occur, this could jeopardize the information we confidentially maintain, or otherwise cause interruptions in our operations or those of our clients and counterparties, exposing us to liability. As attempted attacks continue to evolve in scope and sophistication, we may be required to expend substantial additional resources to modify or enhance our protective measures, to investigate and remediate vulnerabilities or other exposures or to communicate about cyber-attacks to our customers.clients. Though we have insurance against some cyber-risks and attacks, we may be subject to litigation and financial losses that exceed our policy limits or are not covered under any of our current insurance policies. A technological breakdown could also interfere with our ability to comply with financial reporting and other regulatory requirements, exposing us to potential disciplinary action by regulators. Further, successful cyber-attacks at other large financial institutions or other market participants, whether or not we are affected, could lead to a general loss of customer confidence in financial institutions that could negatively affect us, including harming the market perception of the effectiveness of our security measures or the financial system in general, which could result in reduced use of our financial products and services.
Further, in light of the high volume of transactions we process, the large number of our clients, partners and counterparties, and the increasing sophistication of malicious actors, and our remote work environment, a cyber-attack could occur and persist for an extended period of time without detection. We expect that any investigation of a cyber-attack would take substantial amounts of time, and that there may be extensive delays before we obtain full and reliable information. During such time we would not necessarily know the extent of the harm or how best to remediate it, and certain errors or actions could be repeated or compounded before they are discovered and remediated, all of which would further increase the costs and consequences of such an attack.
We may also be subject to liability under various data protection laws. In providing services to clients, we manage, utilize and store sensitive or confidential client or employee data, including personal data. As a result, we are subject to numerous laws and regulations designed to protect this information, such as U.S. federal, state and international laws governing the protection of personally identifiable information. These laws and regulations are increasing in complexity and number. If any person, including any of our associates, negligently disregards or intentionally breaches our established controls with respect to client or employee data, or otherwise mismanages or misappropriates such data, we could be subject to significant monetary damages, regulatory enforcement actions, fines and/or criminal prosecution. In addition, unauthorized disclosure of sensitive or confidential client or employee data, whether through system failure, employee negligence, fraud or misappropriation, could damage our reputation and cause us to lose clients and related revenue. Potential liability in the event of a security breach of
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
client data could be significant. Depending on the circumstances giving rise to the breach, this liability may not be subject to a contractual limit or an exclusion of consequential or indirect damages.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
See Item 7, “Management’s DiscussionA continued interruption to our telecommunications or data processing systems, or the failure to effectively update the technology we utilize, could be materially adverse to our business.
Our businesses rely extensively on data processing and Analysiscommunications systems. In addition to better serving clients, the effective use of Financial Conditiontechnology increases efficiency and Resultsenables us to reduce costs. Adapting or developing our technology systems to meet new regulatory requirements, client needs, and competitive demands is critical for our business. Introduction of Operations - Risk Management”new technology presents challenges on a regular basis. There are significant technical and financial costs and risks in this report for additionalthe development of new or enhanced applications, including the risk that we might be unable to effectively use new technologies or adapt our applications to emerging industry standards.
Our continued success depends, in part, upon our ability to: (i) successfully maintain and upgrade the capability of our technology systems on a regular basis; (ii) maintain the quality of the information regardingcontained in our exposuredata processing and communications systems; (iii) address the needs of our clients by using technology to provide products and approaches for managing these typesservices that satisfy their demands; and (iv) retain skilled information technology employees. Failure of operational risks.our technology systems, which could result from events beyond our control, including a systems malfunction or cyber-attack, failure by a third-party service provider, or an inability to effectively upgrade those systems or implement new technology-driven products or services, could result in financial losses, liability to clients, violations of applicable privacy and other applicable laws and regulatory sanctions.
The soundness of other financial institutions and intermediaries affects us.
We face the risk of operational failure, termination or capacity constraints of any of the clearing agents, exchanges, clearing houses or other financial intermediaries that we use to facilitate our securities and derivative transactions. As a result of regulatory changes and the consolidation over the years among clearing agents, exchanges and clearing houses, our exposure to certain financial intermediaries has increased and could affect our ability to find adequate and cost-effective alternatives should the need arise. Any failure, termination or constraint of these intermediaries could adversely affect our ability to execute transactions, service our clients and manage our exposure to risk.
Our ability to engage in routine trading and funding transactions could be adversely affected adversely by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelatedinterdependent as a result of trading, clearing, funding, counterparty or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds and other institutional clients. Defaults by, or even rumors or questions about the financial condition of, one or more financial services institutions, or the financial services industry generally, have historically led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due us. Losses arising in connection with counterparty defaults may have a material adverse effect on our results of operations.
Our risk management and conflicts of interest policies and procedures may leave us exposed to unidentified or unanticipated risk.
We seek to manage, monitor and control our market, credit, operational, liquidity and legal and regulatory compliance risk through operational and compliance reporting systems, internal controls, management review processes and other mechanisms; however, there can be no assurance that our procedures will be effective. Our banking and trading processes seek to balance our ability to profit from banking and trading positions with our exposure to potential losses. While we use limits and other risk mitigation techniques, those techniques and the judgments that accompany their application cannot always anticipate unforeseen economic and financial outcomes or the specifics and timing of such outcomes. Our risk management methods may not predict future risk exposures effectively. In addition, some of our risk management methods are based on an evaluation of information regarding markets, clients and other matters that are based on assumptions that may no longer be accurate or may have limited predictive value. A failure to manage our growth adequately, including growth in the products or services we offer, or to manage our risk effectively, could materially and adversely affect our business and financial condition.
Financial services firms are subject to numerous actual or perceived conflicts of interest, which are under growing scrutinyroutinely examined by U.S. federal and state regulators and SROs such as FINRA.FINRA and are often used as the basis for claims for legal liability by plaintiffs in actions against us. Our risk management processes include addressing potential conflicts of interest that arise in our business. Management of potential conflicts of interest has become increasingly complex as we expand our business activities. A perceived or actual
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
failure to address conflicts of interest adequately could affect our reputation, the willingness of clients to transact business with us or give rise to litigation or regulatory actions. Therefore, there can be no assurance that conflicts of interest will not arise in the future that could cause result in material harm to our business and financial condition.
For more information on how we monitor and manage market and certain other risks, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management,” in this report.
We continue to experience pricing pressures in areas of our business which may impair our future revenue and profitability.
We continue to experience pricing pressures on trading margins and commissions in fixed income and equity trading. In the fixed income market,markets, regulatory requirements have resulted in greater price transparency, leading to price competition and decreased trading margins. In the equity market,markets, we experience pricing pressure from institutional clients to reduce commissions, partially due to the industry trend toward the separate payment for research and this pressure hasexecution services. Our trading margins have been augmentedfurther compressed by the use of electronic and direct market access trading,shift from high- to low-touch execution services over time, which has created additional competitive downward pressure on trading margins.pressure. We believe that price competition and pricing pressures in these and other areas will continue as institutional investors continue to reduce the amounts they are willing to pay, including by reducing the number of brokerage firms they use, and some of our competitors seek to obtain market share by reducing fees, commissions or margins.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
We face intense competition.competition and may not be able to keep pace with technological change.
We are engaged in intensely competitive businesses. We compete on the basis of a number of factors, including the quality of our financial advisors and associates, our products and services, pricing (such as execution pricing and fee levels), technology solutions, and location and reputation in relevant markets. Over time, there has been substantial consolidation and convergence among companies in the financial services industry, which has significantly increased the capital base and geographic reach of our competitors. See the section entitled “Competition” of Item“Item 1 - Business - Competition” of this reportForm 10-K for additional information about our competitors.
We compete directly with other national full service broker-dealers, investment banking firms, and commercial banks, and investment advisors, and to a lesser extent, with discount brokers and dealers and investment advisors. In addition, wedealers. We face competition from more recent entrants into the market, including fintechs, and increased use of alternative sales channels by other firms. Technology has lowered barriers to entry and made it possible for fintechs to compete with larger financial institutions in providing electronic, internet-based, and mobile phone-based financial solutions. This competition has grown significantly over recent years and is expected to intensify. In addition, commercial firms and other non-traditional competitors have applied for banking licenses or have entered into partnerships with banks to provide banking services. We also compete indirectly for investment assets with insurance companies, real estate firms and hedge funds, among others. This competition could cause our business to suffer.
To remain competitive, ourOur future success also depends in part on our ability to develop, maintain, and enhance our products and services, including factors such as customer experience, and the pricing and range of our offerings. The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The inabilityIf we are not able to develop new products and services, or enhance existing offerings, effectively implement new technology-driven products and services, or successfully market these products and services to our customers, our business, financial condition or results of operations may be adversely affected. Furthermore, both financial institutions and their non-banking competitors face the risk that payments processing and other services could be significantly disrupted by technologies, such as cryptocurrencies, that require no intermediation. New technologies have a material adverse effect onrequired, and could require us in the future, to spend more to modify or adapt our profitability. In addition, we may incur substantial expendituresproducts to keep pace with the constant changesattract and enhancements being made in technology.retain clients and customers or to match products and services offered by our competitors, including technology companies.
Our ability to attract and retain senior professionals, qualified financial advisors and other associates is critical to the continued success of our business.
Our ability to developrecruit, serve and retain our clients depends on the reputation, judgment, leadership, business generation capabilities and client service skills of our seniorclient-serving professionals, and the members of our executive committees,team, as well as employees who support revenue-generating professionals and financial advisors.their clients. To compete effectively we must attract, retaindevelop, and motivateretain qualified professionals, including successful financial advisors, investment bankers, trading professionals, portfolio managers and other revenue producingrevenue-producing or specialized personnel. Competitive pressures we experience could have an adverse effect on our business, results of operations, financial condition and liquidity.
Turnover in the financial services industry is high. The cost of recruiting and retaining skilled professionals in the financial services industry has escalated considerably.been considerable in recent years, but has intensified further during the recovery from the COVID-19 pandemic. Financial industry employers are increasingly offering guaranteed contracts, upfront payments, increased compensation and increased compensation.opportunities to work remotely on a permanent basis. These can be important factors in a current employee’sassociate’s decision to leave us as well as in a prospective employee’sassociate’s decision to join us. As competition for skilled
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
professionals in the industry remains intense, we may have to devote significant resources to attractingattract and retainingretain qualified personnel. To the extent we have compensation targets, we may not be able to retain our employees,associates, which could result in increased recruiting expense or result in our recruiting additional employeesassociates at compensation levels that are not within our target range. In particular, our financial results may be adversely affected by the costs we incur in connection with any upfront loans or other incentives we may offer to newly recruited financial advisors and other key personnel. If we were to lose the services of any of our investment bankers, senior equity research, sales and trading professionals, asset managers, or executive officers to a competitor or otherwise, we may not be able to retain valuable relationships and some of our clients could choose to use the services of a competitor instead of our services. If we are unable to retain our senior professionals or recruit additional professionals, our reputation, business, results of operations and financial condition will be adversely affected. Further, new business initiatives and efforts to expand existing businesses generally require that we incur compensation and benefits expense before generating additional revenues.
Moreover, companies in our industry whose employees accept positions with competitors frequently claim that those competitors have engaged in unfair hiring practices. We have been subject to several such claims and may be subject to additional claims in the future as we seek to hire qualified personnel, some of whom may work for our competitors. Some of these claims may result in material litigation. We could incur substantial costs in defending against these claims, regardless of their merits. Such claims could also discourage potential employeesassociates who work for our competitors from joining us. Recently, a large broker-dealer competitor announced its withdrawal fromWe participate in the Protocol for Broker Recruiting (“Protocol”), a voluntary agreement among over 1,700many firms in the industry that governs, among other things, the client information that financial advisors may take with them when they affiliate with a new firm. The ability to bring such customer data to a new broker-dealer generally means that the clients of the financial advisor is better ableare more likely to move client account balanceschoose to his or heropen accounts at the advisor’s new firm. ItParticipation is voluntary and it is possible that othercertain of our competitors will similarly withdraw from the Protocol. If the broker-dealers from whom we recruit new financial advisors prevent, or significantly limit, the transfer of client data, our recruiting efforts may be adversely affected and we could continue to experience a higher number of claims against us relating to our recruiting efforts.
A downgrade in our credit ratings could have a material adverse effect on our operations, earnings and financial condition.
If our credit ratings were downgraded, or if rating agencies indicate that a downgrade may occur, our business, financial position, and results of operations could be adversely affected, perceptions of our financial strength could be damaged, and as a result, adversely affect our client relationships. Such a change in our credit ratings could also adversely affect our liquidity and competitive position, increase our borrowing costs, limit our access to the capital markets, trigger obligations under certain financial agreements, or decrease
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
the number of investors, clients and counterparties willing or permitted to do business with or lend to us, thereby curtailing our business operations and reducing profitability.
We may not be able to obtain additional outside financing to fund our operations on favorable terms, or at all. The impact of a credit rating downgrade to a level below investment grade would result in our breaching provisions in certain of our derivative instruments, and may result in a request for immediate payment and/or ongoing overnight collateralization on our derivative instruments in liability positions. A credit rating downgrade would also result in RJFthe firm incurring a higher commitmentfacility fee on any unused balance on its $300$500 million unsecured revolving credit facility agreement (the “Credit Facility”), in addition to triggering a higher interest rate applicable to any borrowings outstanding on the line as of and subsequent to such downgrade (see “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” of this Form 10-K and Note 1416 of the Notes to Consolidated Financial Statements inof this Form 10-K for information on this revolving credit facility)the Credit Facility).
Business growth, including through acquisitions, could increase costs and regulatory and integration risks.
We continue to grow, including through acquisitions.acquisitions and through our recruiting efforts. Integrating acquired businesses, providing a platform for new businesses and partnering with other firms involve risks and present financial, managerial and operational challenges. While cultural fit is a requirement for both our recruiting and acquisition efforts, there can be no assurance that recruited talent and/or acquisition targets will ultimately assimilate into our firm in a manner which results in the expected financial benefits. We may incur significant expense in connection with expanding our existing businesses, recruiting financial advisors or making strategic acquisitions or investments. Our overall profitability would be negatively affected if investments and expenses associated with such growth are not matched or exceeded by the revenuesearnings derived from such investments or growth. Assumptions which underlie the basis of our acquisition decisions, such as the retention of key personnel, future revenue growth of an acquired business, cost efficiencies to be realized, or the value created through the application of specialized expertise we plan to bring to the acquired business, may not be fully realized post-acquisition, resulting in an adverse impact on the value of our investment and potential dilution of the value of our shares.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Expansion may also create a need for additional compliance, documentation, risk management and internal control procedures, and often involves hiring additional personnel to address these procedures. To the extent such procedures are not adequate or not adhered to with respect to our expanded business or any new business, we could be exposed to a material loss or regulatory sanction.
Moreover, to the extent we pursue acquisitions, weor enter into acquisition commitments, a number of factors may be unable to completeprevent us from completing such acquisitions on acceptable terms. For example, regulators such as the Fed or the FDIC could fail to approve a proposed transaction or such approvals could result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction. The shareholders of a publicly-traded target company could fail to approve the transaction. Closing conditions in the transaction agreement could fail to be satisfied, or there could be an unexpected delay in closing. Other developments that may affect future results of an acquired company may occur, including changes in asset quality and credit risk, changes in interest rates and capital markets, inflation, and/or changes in customer borrowing, repayment, investment and deposit practices. Finally, an event, change, or other circumstance could occur that gives rise to the termination of the transaction agreement.
We may be unable to integrate anyan acquired business into our existing business successfully. Difficulties wesuccessfully, or such integration may encounter in integrating an acquiredbe materially delayed or become more costly or difficult than expected. Further, either company’s clients, suppliers, employees or other business partners may react negatively to the transaction. Such developments could have an adverse effect on our business, financial condition, and results of operations. In addition, we may need to raise capital or borrow funds in order to finance an acquisition, which could result in dilution or increased leverage. We may not be able to obtain such financing on favorable terms or perhaps at all. Further, we may issue our shares as a component of some or all of the purchase consideration for an acquisition, which may result in dilution.
A continued interruption to our telecommunications or data processing systems, or the failure to effectively update the technology we utilize, could be materially adverse to our business.
Our businesses rely extensively on data processingSecurities class action lawsuits and communications systems. In addition to better serving clients, the effective use of technology increases efficiency and enables us to reduce costs. Adapting or developing our technology systems to meet new regulatory requirements, client needs, and competitive demands is critical for our business. Introduction of new technology presents challenges on a regular basis. Therederivative lawsuits are significant technical and financial costs and risks in the development of new or enhanced applications, including the riskoften brought against public companies that we might be unable to effectively use new technologies or adapt our applications to emerging industry standards.
Our continued success depends, in part, upon our ability to: (i) successfully maintain and upgrade the capability of our technology systems; (ii) address the needs of our clients by using technology to provide products and services that satisfy their demands; and (iii) retain skilled information technology employees. Failure of our technology systems, which could result from events beyond our control, or an inability to effectively upgrade those systems or implement new technology-driven products or services,have entered into merger agreements. Even if such lawsuits are without merit, defending against these claims could result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on our liquidity and financial losses, liability to clients, violations of applicable privacy and other applicable laws and regulatory sanctions. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management,” in this report for additional information regarding our exposure to and approaches for managing these types of operational risks.condition.
Associate misconduct, which is difficult to detect and deter, could harm us by impairing our ability to attract and retain clients and subject us to significant legal liability and reputational harm.
There have been a number of highly-publicized cases involving fraud or other misconduct by associates in the financial services industry. There is a risk that our associates could engage in misconduct that adversely affects our business. For example, our investment banking business often requires that we deal with confidential matters of great significance to our clients. Our associates interact with clients, customers and counterparties on an ongoing basis. All associates are expected to exhibit the behaviors and ethics that are reflected in our framework of principles, policies and technology to protect both our own information as well as that of our clients. If our associates were to improperly use or disclose confidential information provided by our clients, we could be subject to future regulatory sanctions and suffer serious harm to our reputation, financial position, current client relationships and ability to attract future clients. We are also subject to a number of obligations and standards arising from our asset management business and our authority over theour assets managed by our asset management business.under management. In addition, our financial advisors may act in a fiduciary capacity, providing financial planning, investment advice and discretionary asset management. The violation of these obligations and standards by any of our associates would adversely
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affect our clients and us. Associate conduct on non-business matters, such as social issues, could be inconsistent with our policies and ethics and result in reputational harm to our business as a result of their employment by us or affiliation with us. It is not always possible to deter or prevent every instance of associate misconduct, and the precautions we take to detect and prevent this activity may not be effective.effective in all cases. If our associates engage in misconduct, our business would be adversely affected.
We are exposed to litigation risks, which could materially and adversely impact our business operations and prospects.
Many aspects of our business involve substantial risksrisk of liability. We have been named as a defendant or co-defendant in lawsuits and arbitrations primarily involving primarily claims for damages. The risks associated with potential litigation often may be difficult to assess or quantify and the existence and magnitude of potential claims often remain unknown for substantial periods of time. Unauthorized or illegal acts of our associates could also result in substantial liability. Our Private Client Group business segment has historically been more susceptible to litigation than our institutional businesses.
In challenging market conditions, the volume of claims and amount of damages sought in litigation and regulatory proceedings against financial institutions hashave historically increased. TheseLitigation risks include potential liability under securities laws or other laws for: alleged materially false or misleading statements made in connection with securities offerings and other transactions; issues related to our investment recommendations, including the suitability of our investment recommendations;such recommendations or potential concentration of investments; the inability to sell or redeem securities in a timely manner during adverse market conditions; contractual issues; employment claims; and potential liability for other advice we provide to participants in strategic transactions. Substantial legal liability could have a material adverse financial impact or cause us significant reputational harm, which in turn
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
could seriously harm our business and future business prospects. In addition to the foregoing financial costs and risks associated with potential liability, the costs of defending individual litigation and claims continue to increase over time. The amount of outside attorneys’ fees incurred in connection with the defense of litigation and claims could be substantial and might materially and adversely affect our results of operations. See “Item 3 - Legal Proceedings” of this Form 10-K for further information about legal matters.
See Item 3, “Legal Proceedings” in this report for a discussion of our legal matters and see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management,” in this report for a discussion regarding our approach to managing legal risk.
The preparation of the consolidated financial statements requires the use of estimates that may vary from actual results and new accounting standards could adversely affect future reported results.
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses duringfor the reporting period. Such estimates and assumptions may require management to make difficult, subjective and complex judgments about matters that are inherently uncertain. One of our most critical estimates is RJ Bank’sour allowance for loancredit losses. At any given point in time, conditions in real estate and credit markets may increase the complexity and uncertainty involved in estimating the losses inherent in RJ Bank’sour loan portfolio. If management’s underlying assumptions and judgments prove to be inaccurate, the allowance for loancredit losses could be insufficient to cover actual losses. Our financial condition, including our liquidity and capital, and results of operations could be materially and adversely impacted. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates,” in this report for additional information on the nature of these estimates.
Our financial instruments, including certain trading assets and liabilities, derivatives, available-for-sale securities, including Auction Rate Securities (“ARS”), certain loans intangible assets and private equity investments, among other items, require management to make a determination of their fair value in order to prepare our consolidated financial statements. Where quoted market prices are not available, we may make fair value determinations based on internally developed models or other means, which ultimately rely to some degree on our subjective judgment. Some of these instruments and other assets and liabilities may have no directdirectly observable inputs, making their valuation particularly subjective and, consequently, based on significant estimation and judgment. In addition, sudden illiquidity in markets or declines in prices of certain securities may make it more difficult to value certain items, which may lead to the possibility that such valuations will be subject to further change or adjustment, as well as declines in our earnings in subsequent periods.
Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. The Financial Accounting Standards Board (the “FASB”) and the SEC have at times revised the financial accounting and reporting standards that govern the preparation of our financial statements. In addition, accounting standard setters and those who interpret the accounting standards may change or even reverse their previous interpretations or positions on how these standards should be applied. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in our restating prior periodprior-period financial statements. For further discussion of some of our significant accounting estimates, policies and standards, see the “Critical Accounting Estimates” discussion within Item“Item 7 in- Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical accounting estimates” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Recent accounting developments” of this report,Form 10-K and Note 2 of the Notes to Consolidated Financial Statements inof this Form 10-K.
The FASB has issued several new accounting standards, including on the topics of credit losses, revenue recognition and leases.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Specifically, the new credit losses standard will replace multiple existing impairment models, including the replacement of the “incurred loss” model for loans with an “expected loss” model. We are evaluating the potential impact that the adoption of these standards will have on our financial position and results of operations. See Note 2 of the Notes to Consolidated Financial Statements in this Form 10-K for further information.
Regions may fail to honor its indemnification obligations associated with Morgan Keegan matters.
Under the definitive stock purchase agreement entered into in connection with our acquisition of Morgan Keegan & Company, Inc., and MK Holding, Inc. and certain of its affiliates (collectively referred to as “Morgan Keegan”) from Regions Financial Corporation (“Regions”), Regions has obligations to continue to indemnify RJF with respect to certain litigation as well as other matters. Specifically, the terms of the agreement provide that Regions will indemnify RJF for losses incurred in connection with legal proceedings pending as of the closing date of that acquisition (April 2, 2012), or commenced thereafter and related to pre-closing matters that were received prior to the closing date, as well as any cost of defense pertaining thereto. RJF is relying on Regions to continue to fulfill its indemnification obligations under the agreement with respect to such matters. Our inability to enforce these indemnification provisions in the future, or our failure to recover future losses for which we are entitled to be indemnified, could result in our incurring significant costs for defense, settlement, and any adverse judgments, and resultantly have an adverse effect on our results of operations, financial condition, and our regulatory capital levels.
See Note 17 of the Notes to Consolidated Financial Statements in this Form 10-K for further information regarding the indemnification from Regions.
Our operations could be adversely affected by serious weather conditions.
Certain of our principal operations are located in St. Petersburg, Florida. While we have a business continuity plan that permitsprovides for significant operations to be conducted out of remote locations, as well as our Southfield, Michigan and Memphis, Tennessee locationscorporate offices and our U.S. information systems processing to be conducted out of our information technology data center in the Denver, Colorado area, our operations could be adversely affected by hurricanes or other serious weather conditions that could affect the processing of transactions, communications, and the ability of our associates to get to our offices, or work from home.remotely. In addition, since the onset of the COVID-19 pandemic in March 2020, we have allowed nearly all of our associates to work remotely and, as a result, our operations are dependent on our associates’ ability to relocate to a secondary location in the event of a power outage or other disruption in their primary remote work location. As discussed above,previously mentioned, weather events could also adversely impact the value of certain loans within RJ Bank’sour bank loan portfolio. Refer to Item 7, “Management’s Discussion
Climate change and Analysis of Financial Condition and Results of Operations - Risk Management” in this Form 10-K for a discussionsustainability concerns could disrupt our businesses, adversely affect client activity levels, adversely affect the creditworthiness of our operational risk management.counterparties and damage our reputation.
We are exposedClimate change may cause extreme weather events that disrupt operations at one or more of our primary locations, which may negatively affect our ability to riskservice and interact with our associates, clients, and other key stakeholders. Climate change may also have a negative impact on the financial condition of our clients, which may decrease revenues from international markets.
We do business in other parts of the worldthose clients and as a result, are exposed to risks, including economic, market, litigation and regulatory risks. Our businesses and revenues derived from non-U.S. operations are subject to risk of loss from currency fluctuations, social or political instability, less established regulatory regimes, changes in governmental or central bank policies, downgrades inincrease the credit ratings of sovereign countries, expropriation, nationalization, confiscation of assetsrisk associated with loans and unfavorable legislative, economicother credit exposures to those clients. Additionally, our reputation and political developments. Action or inaction in any of these operations, including failure to follow proper practices with respect to regulatory compliance and/or corporate governance, could harm our operations and our reputation. We also invest or trade in the securities of corporations located in non-U.S. jurisdictions. Revenues from trading non-U.S. securities alsoclient relationships may be subject to negative fluctuationsdamaged as a result of our clients’ involvement in certain industries or projects associated with causing or exacerbating climate change or by our failure or our clients’ failure to support sustainability initiatives. New regulations or guidance relating to environmental, social, and governance standards, as well as the above mentioned factors.perspectives of shareholders, employees and other stakeholders regarding these standards, may affect our business activities and increase disclosure requirements, which may increase costs.
The phase-out of LIBOR could negatively impact our financial condition and require significant operational work.
Central banks and regulators in the U.S. and other jurisdictions are working to implement the transition to suitable replacements for LIBOR. The discontinuance of LIBOR has resulted in significant uncertainty regarding the transition to suitable alternative reference rates and could adversely impact our business, operations, and financial results. Although alternative reference rates have been proposed to replace LIBOR, market and client adoption of these rates varies across products, services, and contracts, leading to market fragmentation, reduced liquidity in the market, and increased operational complexity. Alternative reference rates have different characteristics than LIBOR, and may demonstrate less predictable behavior over time and across different monetary, market, and economic environments. Although the full impact of transition remains unclear, this change may have an adverse impact on the value of, return on and trading markets for a broad array of financial products, including any LIBOR-based securities, loans and derivatives that are included in our financial assets and liabilities. However, we do not believe the transition to an alternative reference rate will have a material impact on our financial condition, cash flows, or results of operations.
We are exposed to risks related to our insurance programs.
Our operations and financial results are subject to risks and uncertainties related to our use of a combination of insurance, self-insured retention and self-insurance for a number of risks. WeTo a large extent, we have elected to self-insure our workers compensation, errors and omissions liability and our employee-related health care benefit plans. We have self-insured retention risk related to several exposures, including our property and casualty, workers compensation and general liability benefit plans.
While we endeavor to purchase insurance coverage appropriate to our risk assessment, we are unable to predict with certainty the frequency, nature or magnitude of claims for direct or consequential damages. Our business may be negatively affected if our insurance proves to be inadequate or unavailable. In addition, claims associated with risks we have retained either through our self-insurance retention or by self-insuring may exceed our recorded reservesliabilities which could negatively impact future earnings. Insurance claims may divert management resources away from operating our business.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
RISKS RELATED TO OUR REGULATORY ENVIRONMENT
Financial services firms have been subject to regulatory changes resulting from the Dodd-Frank Actare highly regulated and increased regulatory scrutiny over the last several years, increasingsuch regulation may increase the risk of financial liability and reputational harm resulting from adverse regulatory actions.
Financial services firms over the last several years have been operatingoperate in an onerousevolving regulatory environment, which could become more stringent in light of recent well-publicized failures of regulators to detect and prevent fraud.environment. The industry has experienced increasedan extended period of significant change in laws and regulations governing the financial services industry, as well as a high degree of scrutiny from various regulators, including the SEC, the Fed, the OCC and the CFPB, in addition to stock exchanges, FINRA and state attorneys general. For example, the Dodd-Frank Act resulted in sweeping changes to the regulatory regime, including a significant increase in the supervision and regulation of the financial services industry. Penalties and fines imposed by regulatory authorities have increased substantiallybeen substantial in recent years. We may be adversely affected by changes in the interpretation or enforcement of existing laws, rules and regulations.
As a result of the demand by the public for changes in the way the financial services industry is regulated, including a call for more stringent legislation Existing and regulation in the United Statesnew laws and abroad. The Dodd-Frank Act enacted sweeping changes and an unprecedented increase in the supervision and regulation of the financial services industry (see Item 1, “Regulation,” in this report for a discussion of such changes). The ultimate impact that the Dodd-Frank Act and implementing regulations will have on us, the financial industry and the economy at large cannot be quantified until all of the implementing regulations called for under the legislation have been finalized and fully implemented. Nevertheless, it is apparent that these legislative and regulatory changes could affect our revenue, limit our ability to pursue business opportunities, impact the value of our assets, require us to alter at least some of our business practices, impose additional compliance costs, and otherwise adversely affect our businesses.
The Dodd-Frank Act impacts the manner in which we market our products and services, manage our business and operations, and interact with regulators, all of which could materially impact our results of operations, financial condition and liquidity. Certain provisions of the Dodd-Frank Act that have or may impact our businesses include: the establishment of a fiduciary standard for broker-dealers; regulatory oversight of incentive compensation; the imposition of capital requirements on financial holding companies; prohibition of proprietary trading; restrictions on investments in covered funds; and, to a lesser extent, greater oversight over derivatives trading. There is also increased regulatory scrutiny (and related compliance costs) as we continue to grow and surpass certain consolidated asset thresholds, established under the Dodd-Frank Act, which have the effect of imposing enhanced standards and requirements on larger institutions. These include, but are not limited to, RJRaymond James Bank’s oversight by the CFPB. The CFPB has had an active enforcement agenda and anyAny action taken by the CFPB could
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
result in requirements to alter or cease offering affected products and services, make such products and services less attractive, impose additional compliance measures, or result in fines, penalties or required remediation. To the extent the Dodd-Frank Act impacts the operations, financial condition, liquidity and capital requirements of unaffiliated financial institutions with whom we transact business, those institutions may seek to pass on increased costs, reduce their capacity to transact, or otherwise present inefficiencies in their interactions with us.
We are also required to comply with the Volcker Rule’s provisions. Although we have not historically engaged in significant levels of proprietary trading, due to our underwriting and market-makingtrading activities and our investments in covered funds, we have experienced and expect to continue to experience increased operational and compliance costs and changes to our private equity investments. Any changes to regulations or changes to the supervisory approach may also result in increased compliance costs to the extent we are required to modify our existing compliance policies, procedures and practices.
Broker-dealers and investment advisors are subject to regulations covering all aspects of the securities business, including, but not limited to: sales and trading methods; trade practices among broker-dealers; use and safekeeping of clients’ funds and securities; capital structure of securities firms; anti-money laundering efforts; recordkeeping; and the conduct of directors, officers and employees. Any violation of these laws or regulations could subject us to the following events, any of which could have a material adverse effect on our business, financial condition and prospects: civil and criminal liability; sanctions, which could include the revocation of our subsidiaries’ registrations as investment advisors or broker-dealers; the revocation of the licenses of our financial advisors; censures; fines; or a temporary suspension or permanent bar from conducting business.
The majority of our affiliated financial advisors are independent contractors. Legislative or regulatory action that redefines the criteria for determining whether a person is an employee or an independent contractor could materially impact our relationships with our advisors and our business, resulting in an adverse effect on our results of operations.
Raymond James Bank is subject to the CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other U.S. federal fair lending laws and regulations that impose nondiscriminatory lending requirements on financial institutions. The U.S. Department of Justice and other federal agencies, including the CFPB, are responsible for enforcing these laws and regulations. An unfavorable CRA rating or a successful challenge to an institution’s performance under the fair lending laws and regulations could result in a wide variety of sanctions, including the required payment of damages and civil monetary penalties, injunctive relief, and the imposition of restrictions on mergers, acquisitions and expansion activity. Private parties may also have the ability to challenge a financial institution’s performance under fair lending laws by bringing private class action litigation.
As discussed in “Item 1 - Business - Regulation” of this Form 10-K, on July 20, 2021, the Fed, the FDIC, and the OCC issued a joint statement in which they committed to working together to jointly modernize the CRA regulations. These developments create uncertainty in planning our CRA activities. Any revisions to the CRA regulations may negatively impact our business, including through increased costs related to compliance.
In addition, we have certain international business operations that are subject to laws, regulations, and standards in the countries in which we operate. Any violations of these laws, regulations or standards could subject us to a range of potential regulatory events or outcomes that could have a material adverse effect on our business, financial condition and prospects including potential adverse impacts on continued operations in the relevant international jurisdiction.
Regulatory actions brought against us may result in judgments, settlements, fines, penalties or other results, any of which could have a material adverse effect on our business, financial condition or results of operations. There is no assurance that regulators will be satisfied with the policies and procedures implemented by RJF and its subsidiaries. In addition, from time to time, RJF and its affiliatessubsidiaries may become subject to additional findings with respect to supervisory, compliance or other regulatory deficiencies, which could subject us to additional liability, including penalties and restrictions on our business activities. Among other things, these restrictions could limit our ability to make investments, complete acquisitions, expand into new business lines, pay dividends on our common stock and/or engage in share repurchases. See “Item 1 - Business - Regulation” of this Form 10-K for additional information regarding our regulatory environment.
Changes in requirements relating to the standard of conduct for broker-dealers applicable under federal and state law have increased our costs.
In June 2019, the SEC adopted a package of rulemakings and interpretations related to the provision of advice by broker-dealers and investment advisers, including Regulation Best Interest. Since June 30, 2020, Regulation Best Interest requires, among other things, a broker-dealer to act in the best interest of a retail client when making a recommendation to that client of any securities transaction or investment strategy involving securities. The regulation imposes heightened standards on broker-dealers, and we have incurred substantial costs in order to review and modify our policies and procedures, including associated supervisory and compliance controls. We anticipate that we will continue to incur costs in the future to comply with the standard.
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repurchases. See Item 1, “Regulation,” in this report for additional information regarding our regulatory environmentIn addition to the SEC, various states have adopted, or are considering adopting, laws and Item 7, “Management’s Discussion and Analysisregulations seeking to impose new standards of Financial Condition and Results of Operations - Risk Management,” in this report regarding our approaches to managing regulatory risk.
Changes in regulations resultingconduct on broker-dealers that, as written, differ from the DOL Rule, including the DOL fiduciary standard,SEC’s new regulations and may adversely affect our businesses.
The DOL Rule became effective earlier in the year, subjectlead to a transition period until January 2018 applying to both the BIC Exemption and Principal Transactions Exemption. Although we have undertaken a comprehensive plan to comply with the DOL Rule given that qualified accounts, particularly IRA accounts, comprise a significant portion of our business, we expect that compliance with the DOL Rule and reliance on the BIC Exemption and the Principal Transactions Exemption will require us to continue to incur increased legal, compliance and information technologyadditional implementation costs. We anticipate that if the DOL Rule is amended, a rule imposing heightened standards on broker-dealers is adopted by the SEC, or fiduciary rules are adopted at the state level, we will be required to incur additional costs in order to review and possibly modify our compliance plan and approach. Implementation of the DOL Rule,new SEC regulations, as well as any amendments to the rule, and anynew state rules that are adopted addressing similar matters, will negatively impact our results including the impact ofhas resulted in (and may continue to result in) increased costs related to compliance, legal, operations and information technology.
The DOL has also reinstated the historical “five-part test” for determining who is an investment advice “fiduciary” when dealing with certain retirement plans and accounts and proposed a new exemption to allow investment advice fiduciaries to receive transaction-based compensation and engage in certain principal trades. In addition, we expectthe DOL is expected to amend the rule that our legal risks will increase, in part, asdetermines whether an investment professional is a result of the new contractual rights requiredfiduciary to be given to IRA and non-ERISA plan clientstheir clients’ retirement accounts under the BIC ExemptionEmployee Retirement Income Security Act and Principal Transactions Exemption.Internal Revenue Code. As such, imposing a new standard of care on additional client relationships could lead to incremental costs for our business.
Numerous regulatory changes and enhanced regulatory and enforcement activity relating to the assetour investment management businessactivities may increase our compliance and legal costs and otherwise adversely affect our business.
The SEC has proposed certain measures that would establish a new framework to replace the requirements of Rule 12b-1 under the 1940 Act with respect to how mutual funds pay fees to cover the costs of selling and marketing their shares. The staff of the SEC’s Office of Compliance, Inspections and Examinations has indicated that it is reviewing the use of fund assets to pay for fees to sub-transfer agents and sub-administrators for services that may be deemed to be distribution-related. Any adoption of such measures would be phased in over a number of years. As these measures are neither final nor undergoing implementation throughout the financial services industry, their impact cannot be fully ascertained at this time. As this regulatory trend continues, it could adversely affect our operations and, in turn, our financial results.
Asset management businesses have experienced a number of highly publicized regulatory inquiries, which have resulted in increased scrutiny within the industry and new rules and regulations for mutual funds, investment advisors and broker-dealers. As some of our wholly ownedwholly-owned subsidiaries are registered as investment advisors with the SEC, increased regulatory scrutiny and rulemaking initiatives may result in augmentedadditional operational and compliance costs or the assessment of significant fines or penalties against our asset management business, and may otherwise limit our ability to engage in certain activities. ItWhile it is not possible to determine the extent of the long-term impact of any new laws or regulations that have been promulgated, or initiatives that have been or may be proposed, even the short-term impact of preparing for or whether any ofimplementing changes to our infrastructure and processes could negatively impact the proposals will become law.ways we conduct business and increase our compliance and legal costs. Conformance with any new lawslaw or regulations could also make compliance more difficult and expensive and affect our product and service offerings.
Investment management businesses have been affected by the mannerSEC’s Regulation Best Interest which, in which we conduct business. For example, pursuantaddition to the Dodd-Frank Act, the SEC was charged with considering whether broker-dealers should be subject tocreating a standard of care similar toa financial advisor owes its clients, also impacts investment advice provided by investment advisers. The result has been increased scrutiny within the fiduciary standard applicable to registered investment advisors. It is not clear whether the SEC will determine that a heightened standard of conduct is appropriate for broker-dealers; however, any such standard, if mandated, would likely require us to reviewindustry regarding how advisory products are offered and sold. Such changes could impact our productrevenues and service offerings and implement certain changes, as well as require that we incur additional regulatory costs in order to ensure compliance.profitability.
In addition, U.S. and foreign governments have recently taken regulatory actions impacting the investment management industry, and may continue to take further actions, including expanding current (or enacting new) standards, requirements and rules that may be applicable to us and our subsidiaries. For example, several states and municipalities in the United States have adopted “pay-to-play” rules, which could limit our ability to charge advisory fees. Such “pay-to-play” rules could affect the profitability of that portion of our business. Additionally, the use of “soft dollars,” where a portion of commissions paid to broker-dealers in connection with the execution of trades also pays for research and other services provided to advisors, is periodically reexamined and may be limited or modified in the future. A substantial portion of the research relied on by our investment management business in the investment decision making process is generated internally by our investment analysts and external research, including external research paid for with soft dollars. This external research generally is used for information gathering or verification purposes, and includes broker-provided research, as well as third-party provided databases and research services. If the use of soft dollars is limited, we may have to bear some of these additional costs. Furthermore, newNew regulations regarding the management of hedge funds and the use of certain investment products, including additional recordkeeping and disclosure requirements, may also impact our asset management business and result in increased costs. For example, many regulators around the world adopted disclosure and reporting requirements relating to the hedge fund business or other businesses, and changes to the laws, rules and regulations in the U.S. related to the over-the-counter swaps and derivatives markets require additional registration, record keeping and reporting obligations.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Failure to comply with regulatory capital requirements primarily applicable to RJF, RJRaymond James Bank or our broker-dealer subsidiaries would significantly harm our business.
As discussed in “Item 1 - Business - Regulation” of this Form 10-K, RJF and RJRaymond James Bank are subject to various regulatory and capital requirements administered by various federal regulators in the United StatesU.S. and, accordingly, must meet specific capital guidelines that involve quantitative measures of RJF and RJRaymond James Bank’s assets, liabilities and certain off-balance sheet items, as calculated under regulatory accounting practices. The capital amounts and classification for both RJF and RJ Bank are also subject to qualitative judgments by U. S. federal regulators based on components of our capital, risk-weightings of assets, off-balance sheet transactions, and other factors. Quantitative measures established by regulation to ensure capital adequacy require RJF and RJ Bank to maintain minimum amounts and ratios of Common Equity Tier 1, Tier 1 and Total capital to risk-weighted assets, Tier 1 capital to average assets and capital conservation buffers (as defined in the regulations).guidelines. Failure to meet minimum capital requirements can trigger certain mandatory (and potentially additional discretionary) actions by regulators that, if undertaken, could harm either RJF or RJRaymond James Bank’s operations and financial condition. As more fully discussed in Item 1, “Regulation,” in this report, RJF and RJ Bank are required to perform annual stress tests using certain scenarios provided by the Fed. WhileFurther, we believe that both the quality and size of our capital base is sufficient to support our current operations given our risk profile, the results of the stress testing process may affect our approach to managing and deploying capital.
We are subject to the SEC’s uniform net capital ruleUniform Net Capital Rule (Rule 15c3-1) and FINRA’s net capital rule, which may limit our ability to make withdrawals of capital from our broker-dealer subsidiaries. The uniform net capital rule sets the minimum level of net capital that a broker-dealer must maintain and also requires that a portion of its assets be relatively liquid. FINRA may prohibit a member firm from expanding its business or paying cash dividends if resulting net capital falls below certain thresholds. In addition, our Canada-based broker-dealer subsidiaryRJ Ltd. is subject to similar limitations under applicable regulationregulations in that jurisdictionCanada by IIROC. Regulatory capital requirements applicable to some of our significant subsidiaries may impede access to funds that RJF needsmay need to make payments on any suchof its obligations.
See Note 2124 of the Notes to Consolidated Financial Statements inof this Form 10-K for further information on regulations and capital requirements.
The Basel III regulatory capital standards impose additional capital and other requirements on us that could decreasenegatively impact our profitability.
In July 2013, theThe Fed the OCC and the FDIC released final U.S. Basel III Rules, whichother federal banking regulators have implemented the global regulatory capital reformsrequirements of Basel III and certain changes requiredrequirements implemented by the Dodd-Frank Act. The U.S. Basel III Rules increaseestablish the quantity and quality of regulatory capital, establishset forth a capital conservation buffer and make selected changes todefine the calculation of risk-weighted assets. We became subject to the requirements under the final U.S. Basel III Rules as of January 1, 2015, subject to a phase-in period for several of its provisions, including the new minimum capital ratio requirements, the capital conservation buffer and the regulatory capital adjustments and deductions. The increased capital requirements stipulated under the U.S. Basel III Rules could restrict our ability to grow during favorable market conditions or require us to raise additional capital. Revisions to the Basel III Rules, including in connection with the implementation of the standards released by the Basel Committee in December 2017 could, when implemented in the United States, negatively impact our regulatory capital ratio calculations. As a result, our business, results of operations, financial condition and prospects could
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
be adversely affected. See “Item 1 - Business - Regulation” of this Form 10-K for further information on the Basel III regulatory capital standards.
As a financial holding company, RJF’s liquidity depends on payments from its subsidiaries, which may be subject to regulatory restrictions.
RJF isas a financial holding company and therefore depends on dividends, distributions and other payments from its subsidiaries in order to meet its obligations, including its debt service obligations. RJF’s subsidiaries are subject to laws and regulations that restrict dividend payments or authorize regulatory bodies to prevent or reduce the flow of funds from those subsidiaries to RJF. RJF’s broker-dealers and bank subsidiary are limited in their ability to lend or transact with affiliates and are subject to minimum regulatory capital and other requirements, as well as limitations on their ability to use funds deposited with them in brokerbrokerage or bank accounts to fund their businesses. These requirements may hinder RJF’s ability to access funds from its subsidiaries. RJF may also become subject to a prohibition or limitations on its ability to pay dividends or repurchase its common stock. The federal bankingFederal regulators, including the OCC, the Fed and the FDIC, as well as the SEC (through FINRA), have the authority and under certain circumstances, the obligation, to limit or prohibit dividend payments and stock repurchases by the banking organizations they supervise, including RJF and its bank subsidiaries. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” in this report for additional information on liquidity and how we manage our liquidity risk.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
RJ Bank is subject to the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to penalties.
The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other U.S. federal fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. The U.S. Department of Justice and other federal agencies, including the CFPB, are responsible for enforcing these laws and regulations. A successful challenge to an institution’s performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including the required payment of damages and civil monetary penalties, injunctive relief, and the imposition of restrictions on mergers, acquisitions and expansion activity. Private parties may also have the ability to challenge a financial institution’s performance under fair lending laws by bringing private class action litigation.
ItemITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.None.
ItemITEM 2. PROPERTIES
The RJF and RJ Bank corporate headquarters are located on land we own that is located within the Carillon Office ParkWe operate our business from our principal location in St. Petersburg, Florida. This office complex currently includes buildings which provide approximatelyFlorida in 1.25 million square feet of office space. Our current office space provides us the capacitythat we need to support our expected growth for several years, however, we also have the necessary rights to add approximately 440,000 square feet of new office space on our existing land withinown in the Carillon Office Park. We conduct certain operations from our owned facility in Southfield, Michigan, comprising approximately 90,000 square feet, and operate a 40,000 square foot information technology data center on land we own in the Denver, Colorado area. Generally, our owned locations and principal leases, identified below, support all of our business segments.
We lease the premises we occupy in other U.S. and foreign locations, including employee-based branch office operations. Leases for branch offices for independent contractors are the responsibility of the respective independent contractor financial advisors and are not included in the amounts listed below. Our leases contain various expiration dates through fiscal year 2032. Our principal leases are in the following locations:
•We occupy leased space of approximately 250,000 square feet in Memphis, along with approximately 165,000 square feet in New York City, 70,000 square feet in Chicago and 30,000 square feet in Denver, with other office and branch locations throughout the U.S.;
•We occupy leased space of approximately 80,000 and 85,000 square feet in Vancouver and Toronto, respectively, along with other office and branch locations throughout Canada;
•We occupy leased space of approximately 30,000 square feet in London, along with other office locations in Europe, primarily in Germany.
Additionally, we own approximately 65 acres of land located in Pasco County, Florida for futurepotential development, and occupancy as needed. We regularly monitor the facilities we own or occupy to ensure that they suit our needs, particularly as we introduce more flexibility in work location for our associates as we return to office. To facilitate certain storagethe extent that they do not meet our needs, we lease warehouse space near our headquarters complex.
We conduct employee-based branch office operations in various locations throughout the U.S. and in certain foreign countries. RJ&A branches are leased from third parties under leases that contain various expiration dates through fiscal year 2028, with the exception of one company-owned RJ&A branch located in Crystal River, Florida. Leases for branch offices of RJFS, the independent contractors of RJ Ltd. and Raymond James Investment Services Limited (“RJIS”) are the responsibility of the respective independent contractor financial advisors.
We conduct certain operations from our office building located on land we own in Southfield, Michigan (approximately 88,000 square feet) and operate an information technology data center on land we own in the Denver, Colorado area (approximately 40,000 square feet). We also conduct certain operations in leased office space (approximately 186,000 square feet) in the Raymond James Tower located in downtown Memphis, Tennessee.
RJ Ltd. leases its main office premises in Vancouver, Calgary, Toronto, and Montreal,will expand, contract or relocate, as well as certain branch offices located throughout Canada. These leases have various expiration dates through fiscal year 2031. RJ Ltd. does not own any land or buildings.
necessary. See Note 172 and Note 14 of the Notes to Consolidated Financial Statements inof this Form 10-K for further information onregarding our lease commitments.obligations.
ITEM 3. LEGAL PROCEEDINGS
In addition to the matters specifically described below, in the normal course of our business, we have been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with our activities as a diversified financial services institution.
WeRJF and certain of its subsidiaries are also subject to regular reviews and inspections by regulatory authorities and self-regulatory organizations. Reviews can result in the imposition of sanctions for regulatory violations, ranging from non-monetary censures to fines and, in serious cases, temporary or permanent suspension from conducting business, or limitations on certain business
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
activities. In addition, regulatory agencies and SROs institute investigations from time to time, toamong other reviews, investigationsthings, into industry practices, which can also result in the imposition of such sanctions.
We may contest liability and/or the amount of damages, as appropriate, in each pending matter. Over the last several years, the level of litigation and proceedingsinvestigatory activity (both formal and informal) by governmentalgovernment and self-regulatory agencies regarding our business. Such proceedings may involve, among other things, our sales and trading activities, financial products or offerings we sponsored, underwrote or sold, and operational matters. Some of these proceedings have resulted, and may in the future result, in adverse judgments, settlements, fines, penalties, injunctionsfinancial services industry continues to be significant. There can be no assurance that material losses will not be incurred from claims that have not yet been asserted or other relief and/or require usare not yet determined to undertake remedial actions.be material.
WeFor many legal and regulatory matters, we are unable to estimate a range of reasonably possible loss as we cannot predict if, how or when such proceedings or investigations will be resolved or what the eventual settlement, fine, penalty or other relief, if any, may be. A large number of factors may contribute to this inherent unpredictability: the proceeding is in its early stages; the damages sought are unspecified, unsupported or uncertain; it is unclear whether a case brought as a class action will be allowed to proceed on that basis; the other party is seeking relief other than or in addition to compensatory damages (including, in the case of regulatory and governmental proceedings, potential fines and penalties); the matters present significant legal uncertainties; we
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
have not engaged in settlement discussions; discovery is not complete; there are significant facts in dispute; and numerous parties are named as defendants (including where it is uncertain how liability might be shared among defendants).
We contest liability and/or the amount of damages, as appropriate, in each pending matter. Over the last several years, the level of litigation and investigatory activity (both formal and informal) by government and self-regulatory agencies has increased significantly in the financial services industry. While we have identified below certain proceedings that we believe could be material, individually or collectively, there can be no assurance that material losses will not be incurred from claims that have not yet been asserted or are not yet determined to be material.
We include in some of the descriptions of individual matters below certain quantitative information about the plaintiff’s claim against us as alleged in the plaintiff’s pleadings or other public filings. Although this information may provide insight into the potential magnitude of a matter, it does not represent our estimate of reasonably possible loss or our judgment as to any currently appropriate accrual related thereto.
Subject to the foregoing, we believe, after consultation with counsel, and consideration of the accrued liability amounts included in the accompanying consolidated financial statements,we believe that the outcome of such litigation and regulatory proceedings will not have a material adverse effect on our consolidated financial condition. However, the outcome of such litigation and regulatory proceedings could be material to our operating results and cash flows for a particular future period, depending on, among other things, our revenues or income for such period.
See Note 1719 of the Notes to Consolidated Financial Statements inof this Form 10-K for additional information regarding legal and regulatory matter contingencies, and refer to “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical accounting estimates” in the “losssection “Loss provisions arising fromfor legal and regulatory matters” section of Critical Accounting Estimates in Part II - Item 7 of this report, and Note 2 of the Notes to Consolidated Financial Statements inof this Form 10-K for information on our criteria for establishing accruals.
Jay Peak Litigation
We were named defendants in various lawsuits related to an alleged fraudulent scheme conducted by Ariel Quiros (“Quiros”) and William Stenger involving the misuse of EB-5 visa program investor funds in connection with the Jay Peak ski resort in Vermont and associated limited partnerships (“Jay Peak”). Plaintiffs alleged that Quiros misused $200 million from the limited partnerships and misappropriated $50 million for his personal benefit. There were six civil court actions in which the plaintiffs variously demanded, among other things, compensatory damages, treble damages under the Racketeer Influenced and Corrupt Organizations Act (“RICO”) and punitive damages.
On April 13, 2017, RJA entered into an agreement regarding a proposed final, comprehensive settlement of all past, present and future investor claims against us relating to the Jay Peak matters. Under the agreement, we paid to the SEC-appointed receiver for the Jay Peak entities an aggregate of $150 million, which included $4.5 million previously paid in our settlement with the State of Vermont. On June 30, 2017, the court issued a final order approving the proposed settlement agreement and barring all existing or potential future claims against us (other than by governmental bodies or agencies) for any actions or damages associated with the Jay Peak matters. The time period for appealing this final order expired on August 29, 2017, and the final order was not appealed.
Morgan Keegan Litigation
Indemnification from Regions
Under the agreement with Regions governing our 2012 acquisition of Morgan Keegan, Regions is obligated to indemnify us for losses we may incur in connection with any Morgan Keegan legal proceedings pending as of the closing date for that transaction (which was April 2, 2012), or commenced after the closing date but related to pre-closing matters that were received prior to April 2, 2015.
Pending Morgan Keegan matter (subject to indemnification)
In July 2006, Morgan Keegan & Company, Inc., a Morgan Keegan affiliate, and one of its former analysts were named as defendants in a lawsuit filed by Fairfax Financial Holdings Limited and an affiliate in the Superior Court of New Jersey, Law Division, in Morris County, New Jersey. Plaintiffs made claims under a civil RICO statute, for commercial disparagement, tortious interference with contractual relationships, tortious interference with prospective economic advantage and common law conspiracy. Plaintiffs alleged that defendants engaged in a multi-year conspiracy to publish and disseminate false and defamatory information about plaintiffs in order to improperly drive down the stock price of Fairfax, so that others could profit from short positions. Plaintiffs alleged that the defendants’ actions disparaged them and harmed their business relationships. Plaintiffs further alleged various categories of damages, including lost insurance business, losses on stock and bond offerings, reputational loss, increased audit fees and directors’ and officers’
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
insurance premiums, and lost acquisitions. They requested actual and punitive damages and treble damages under their RICO claims. On May 11, 2012, the trial court dismissed the plaintiffs’ RICO claims. On June 27, 2012, the trial court dismissed plaintiffs’ tortious interference with prospective relations claim, but allowed the other claims to go forward. Prior to commencement of a jury trial, the court dismissed the remaining claims with prejudice, and the plaintiffs appealed. On April 27, 2017, the Superior Court of New Jersey, Appellate Division, affirmed the trial court's dismissal of certain claims against Morgan Keegan, including the RICO allegations, while remanding to the trial court the claims of disparagement, tortious interference with prospective business relations, and civil conspiracy, and limiting the actual damages to certain lost insurance business. Plaintiffs petitioned the Supreme Court of New Jersey for review of the Appellate Division’s opinion, but on October 17, 2017, the Supreme Court of New Jersey denied the petition.
ItemITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
| |
Item 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NYSE under the symbol “RJF.” As of November 16, 2017,18, 2021, we had 361309 holders of record of our common stock. Shares of our common stock are held by a substantially greater number of beneficial owners, whose shares are held of record by banks, brokers, and other financial institutions.
The following table sets forth for the periods indicated the high and low trades for our common stock:
|
| | | | | | | | | | | | | | | |
| Fiscal year |
| 2017 | | 2016 |
| High | | Low | | High | | Low |
First quarter | $ | 74.70 |
| | $ | 56.61 |
| | $ | 59.81 |
| | $ | 45.86 |
|
Second quarter | $ | 81.92 |
| | $ | 69.09 |
| | $ | 56.68 |
| | $ | 39.84 |
|
Third quarter | $ | 82.59 |
| | $ | 71.35 |
| | $ | 56.69 |
| | $ | 44.22 |
|
Fourth quarter | $ | 85.97 |
| | $ | 74.81 |
| | $ | 58.97 |
| | $ | 46.30 |
|
Cash dividends per share of common stock paid during the quarter are reflected below. The dividends were declared during the quarter preceding their payment.
|
| | | | | | | |
| Fiscal year |
| 2017 | | 2016 |
First quarter | $ | 0.20 |
| | $ | 0.18 |
|
Second quarter | $ | 0.22 |
| | $ | 0.20 |
|
Third quarter | $ | 0.22 |
| | $ | 0.20 |
|
Fourth quarter | $ | 0.22 |
| | $ | 0.20 |
|
On August 23, 2017, our Board of Directors declared a quarterly cash dividend of $0.22 per share of common stock which was paid on October 16, 2017.
See Note 2124 of the Notes to Consolidated Financial Statements inof this Form 10-K for information regarding our intentions for paying cash dividends and the related capital restrictions.
Information related to our compensation plans under which equity securities are authorized for issuance is presented in Note 23 of the Notes to Consolidated Financial Statements and Part III, Item 12 of this Form 10-K.
We did not have any sales of unregistered securities for the fiscal years ended September 30, 2021, 2020 or 2019.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
We purchase our own stock from time to time in conjunction with a number of activities, each of which is described below.in the following paragraphs. The following table presents information on our purchases of our own stock, on a monthly basis, for the twelve month period ended September 30, 2017:
|
| | | | | | | | | | | | | |
| Total number of shares purchased | | Average price per share | | Number of shares purchased as part of publicly announced plans or programs | | Approximate dollar value (in thousands) at each month-end, of securities that may yet be purchased under the plans or programs |
| |
October 1, 2016 – October 31, 2016 | 13,245 |
| | $ | 60.46 |
| | — |
| | $ | 135,671 |
|
November 1, 2016 – November 30, 2016 | 157,010 |
| | $ | 73.12 |
| | — |
| | $ | 135,671 |
|
December 1, 2016 – December 31, 2016 | 189,500 |
| | $ | 72.70 |
| | — |
| | $ | 135,671 |
|
First quarter | 359,755 |
| | $ | 72.43 |
| | — |
| | |
| | | | | | | |
January 1, 2017 – January 31, 2017 | 15,096 |
| | $ | 71.28 |
| | — |
| | $ | 135,671 |
|
February 1, 2017 – February 28, 2017 | 15,251 |
| | $ | 79.33 |
| | — |
| | $ | 135,671 |
|
March 1, 2017 – March 31, 2017 | 9,077 |
| | $ | 79.13 |
| | — |
| | $ | 135,671 |
|
Second quarter | 39,424 |
| | $ | 76.20 |
| | — |
| | |
| | | | | | | |
April 1, 2017 – April 30, 2017 | 29,329 |
| | $ | 74.14 |
| | — |
| | $ | 135,671 |
|
May 1, 2017 – May 31, 2017 | 5,408 |
| | $ | 73.94 |
| | — |
| | $ | 135,671 |
|
June 1, 2017 – June 30, 2017 | 7,128 |
| | $ | 76.16 |
| | — |
| | $ | 135,671 |
|
Third quarter | 41,865 |
| | $ | 74.46 |
| | — |
| | |
| | | | | | | |
July 1, 2017 – July 31, 2017 | 142 |
| | $ | 80.95 |
| | — |
| | $ | 135,671 |
|
August 1, 2017 – August 31, 2017 | 22,464 |
| | $ | 78.91 |
| | — |
| | $ | 135,671 |
|
September 1, 2017 – September 30, 2017 | 1,203 |
| | $ | 76.08 |
| | — |
| | $ | 135,671 |
|
Fourth quarter | 23,809 |
| | $ | 78.78 |
| | — |
| | |
Fiscal year total | 464,853 |
| | $ | 73.26 |
| | — |
| | |
Of the total for the yearmonths ended September 30, 2017,2021. Share and per share purchases forinformation has been retroactively adjusted to reflect the trust fundSeptember 2021 three-for-two stock split.
| | | | | | | | | | | | | | | | | | | | | | | |
| Total number of shares purchased | | Average price per share | | Number of shares purchased as part of publicly announced plans or programs | | Approximate dollar value (in millions) at each month-end, of securities that may yet be purchased under the plans or programs |
October 1, 2020 – October 31, 2020 | 1,806 | | | $ | 53.36 | | | — | | | $487 |
November 1, 2020 – November 30, 2020 | 139,838 | | | $ | 60.33 | | | — | | | $487 |
December 1, 2020 – December 31, 2020 | 175,139 | | | $ | 62.01 | | | 161,625 | | | $740 |
First quarter | 316,783 | | | $ | 61.23 | | | 161,625 | | | |
| | | | | | | |
January 1, 2021 – January 31, 2021 | 3,602 | | | $ | 66.71 | | | — | | | $740 |
February 1, 2021 – February 28, 2021 | 10,412 | | | $ | 66.62 | | | — | | | $740 |
March 1, 2021 – March 31, 2021 | 752,640 | | | $ | 80.03 | | | 750,000 | | | $680 |
Second quarter | 766,654 | | | $ | 79.79 | | | 750,000 | | | |
| | | | | | | |
April 1, 2021 – April 30, 2021 | 1,331 | | | $ | 85.94 | | | — | | | $680 |
May 1, 2021 – May 31, 2021 | — | | | $ | — | | | — | | | $680 |
June 1, 2021 – June 30, 2021 | 562,500 | | | $ | 85.70 | | | 562,500 | | | $632 |
Third quarter | 563,831 | | | $ | 85.70 | | | 562,500 | | | |
| | | | | | | |
July 1, 2021 – July 31, 2021 | 1,217 | | | $ | 86.71 | | | — | | | $632 |
August 1, 2021 – August 31, 2021 | 114 | | | $ | 90.55 | | | — | | | $632 |
September 1, 2021 – September 30, 2021 | — | | | $ | — | | | — | | | $632 |
Fourth quarter | 1,331 | | | $ | 87.04 | | | — | | | |
Fiscal year total | 1,648,599 | | | $ | 78.24 | | | 1,474,125 | | | |
In the preceding table, the total number of shares purchased includes shares purchased pursuant to the Restricted Stock Trust Fund, which was established to acquire our common stock in the open market and used to settle restricted stock units (“RSUs”) granted as a retention vehicle for certain employees of our wholly ownedwholly-owned Canadian subsidiaries approximated 77 thousand shares, for a total consideration of $6 million (forsubsidiaries. For more information on this trust fund, see Note 2 and Note 10 of the Notes to Consolidated Financial Statements inof this Form 10-K).10-K. These activities do not utilize the repurchase authorityauthorization presented in the table above.preceding table.
WeThe total number of shares purchased also repurchaseincludes shares whenrepurchased as a result of employees surrendersurrendering shares as payment for option exercises or withholding taxes. Of the total for the year ended September 30, 2017, shares surrendered to us by employees for such purposes approximated 388 thousand shares, for a total consideration of $28 million. These activities do not utilize the repurchase authorityauthorization presented in the table above.preceding table.
ITEM 6. RESERVED
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
| |
Item 6. | SELECTED FINANCIAL DATA |
|
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands, except per share amounts | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Operating results: | | | | | | | | | | |
Total revenues | | $ | 6,524,875 |
| | $ | 5,521,120 |
| | $ | 5,309,680 |
| | $ | 4,964,128 |
| | $ | 4,594,305 |
|
Net revenues | | $ | 6,371,097 |
| | $ | 5,405,064 |
| | $ | 5,203,606 |
| | $ | 4,861,924 |
| | $ | 4,487,893 |
|
Net income attributable to Raymond James Financial, Inc. | | $ | 636,235 |
| | $ | 529,350 |
| | $ | 502,140 |
| | $ | 480,248 |
| | $ | 367,154 |
|
Earnings per common share - basic | | $ | 4.43 |
| | $ | 3.72 |
| | $ | 3.51 |
| | $ | 3.41 |
| | $ | 2.64 |
|
Earnings per common share - diluted | | $ | 4.33 |
| | $ | 3.65 |
| | $ | 3.43 |
| | $ | 3.32 |
| | $ | 2.58 |
|
Weighted-average common shares outstanding - basic | | 143,275 |
| | 141,773 |
| | 142,548 |
| | 139,935 |
| | 137,732 |
|
Weighted-average common and common equivalent shares outstanding - diluted | | 146,647 |
| | 144,513 |
| | 145,939 |
| | 143,589 |
| | 140,541 |
|
Cash dividends per common share - declared | | $ | 0.88 |
| | $ | 0.80 |
| | $ | 0.72 |
| | $ | 0.64 |
| | $ | 0.56 |
|
| | | | | | | | | | |
Financial condition: | | | | | | | | | | |
Total assets | | $ | 34,883,456 |
| | $ | 31,486,976 |
| | $ | 26,325,850 |
| | $ | 23,135,343 |
| | $ | 22,965,444 |
|
Senior notes payable maturing within twelve months | | $ | — |
| | $ | — |
| | $ | 250,000 |
| | $ | — |
| | $ | — |
|
Long-term obligations: | | | | | | | | | | |
Non-current portion of other borrowings | | $ | 898,967 |
| | $ | 604,080 |
| | $ | 583,740 |
| | $ | 537,932 |
| | $ | 47,132 |
|
Non-current portion of senior notes payable | | $ | 1,550,000 |
| | $ | 1,700,000 |
| | $ | 900,000 |
| | $ | 1,150,000 |
| | $ | 1,150,000 |
|
Total long-term debt | | $ | 2,448,967 |
| | $ | 2,304,080 |
| | $ | 1,483,740 |
|
| $ | 1,687,932 |
| | $ | 1,197,132 |
|
Total equity attributable to Raymond James Financial, Inc. | | $ | 5,581,713 |
| | $ | 4,916,545 |
| | $ | 4,524,481 |
| | $ | 4,143,686 |
| | $ | 3,665,373 |
|
Shares outstanding | | 144,097 |
| | 141,545 |
| | 142,751 |
| | 140,836 |
| | 138,750 |
|
Book value per share | | $ | 38.74 |
| | $ | 34.73 |
| | $ | 31.69 |
| | $ | 29.42 |
| | $ | 26.42 |
|
As a result of our October 1, 2016 adoption of the new consolidation guidance, we deconsolidated a number of tax credit fund variable interest entities (“VIEs”) that had been previously consolidated. We determined that under the new guidance, we are no longer deemed to be the primary beneficiary of these VIEs. We applied the new consolidation guidance on the full retrospective basis, meaning that we have reflected the adjustments arising from this adoption as of the beginning of our earliest comparative period presented. There was no net income impact on our Consolidated Statements of Income and Comprehensive Income for the prior year periods as the net changes in revenues, interest and other expenses were offset by the impact of the deconsolidation on the net income/(loss) attributable to noncontrolling interests. See Note 2 in the Notes to the Consolidated Financial Statements for additional information.
Senior notes maturing within twelve months and the non-current portion of senior notes payable excludes the impact of debt issuance costs.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
| | | | | |
Item 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|
INDEX | |
INDEX | PAGE |
| PAGE |
Introduction | |
Executive overview | |
SegmentsReconciliation of non-GAAP financial measures to GAAP financial measures | |
Reconciliation of GAAP measures to non-GAAP measuresSegments | |
Net interest analysis | |
Results of Operations | |
Private Client Group | |
Capital Markets | |
Asset Management | |
Raymond James Bank | |
Other | |
Certain statistical disclosures by bank holding companies | |
Liquidity and Capital Resources | |
Sources of Liquidity | |
Statement of financial condition analysis | |
Contractual obligationsLiquidity and capital resources | |
Regulatory | |
Critical accounting estimates | |
Recent accounting developments | |
Off-Balance sheet arrangementsRisk management | |
Effects of inflation | |
Risk Management | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis
INTRODUCTION
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 consolidated financial statements and accompanying notes to consolidated financial statements. Where “NM” is used in various percentage change computations, the computed percentage change has been determined not to be not meaningful.
Executive overview
We operate as a financial holding company and bank holding company. Results in the businesses in which we operate are highly correlated to the general overall strength of economic conditions and, more specifically, to the direction of the U.S. equity and fixed income markets, changes in interest rates, market volatility, the corporate and mortgage lending markets and commercial and residential credit trends. Overall market conditions, interest rates, 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, which includeincluding investors, borrowers, and competitors, impacting their level of participation in the financial markets. These factors also impact the level of investment banking activity including public offerings, as well as trading profits, and asset valuations, or a combination thereof. In turn, these decisions and factorswhich ultimately affect our business results.
EXECUTIVE OVERVIEW
Year ended September 30, 20172021 compared with the year ended September 30, 20162020
We achievedgenerated strong results for fiscal 2021, with net revenues of $6.37$9.76 billion, a $966 million, or 18% increase. Our pre-tax income amounted to $925 million, an increase of $125 million, or 16%22% compared with the prior year, and pre-tax income of $1.79 billion, an increase of 70%. During fiscal 2021, pre-tax margin increased in all of our operating segments and we generated particularly strong results in our PCG, Capital Markets and Asset Management segments. Our net income of $636 million increased $107 million, or 20%,$1.40 billion was 72% higher than the prior year, and our earnings per diluted share were $4.33, a 19% increase.
During the year ended September 30, 2017, earnings were impacted negatively by the Jay Peak settlement, losses on the early extinguishment of certain of our senior notes and acquisition-related expenses. After excluding$6.63(1), which reflected the impact of these expenses, which totaled $194 milliona 3-for-2 stock split in the current yearSeptember 2021, increased 71%. Our return on a pre-tax basis, our adjusted pre-tax incomeequity (“ROE”) was $1.12 billion,(1) an increase of 30%18.4%, compared with adjusted pre-tax income in11.9% for the prior year, and return on tangible common equity (“ROTCE”) was 20.4%(2), compared with 13.0%(2) for the prior year.
During fiscal 2021, we completed a $750 million, 30-year senior notes offering at 3.75%, utilizing the proceeds from the offering and cash on hand to early-redeem our $250 million of 5.625% senior notes due 2024 and our $500 million of 3.625% senior notes due 2026. We recognized losses on the extinguishment of such notes of $98 million. Excluding these losses and acquisition-related expenses of $19 million, our adjusted net income was $768 million,(1) $1.49 billion(2), an increase of 35%74% compared with adjusted net income infor the prior year. Adjusted earnings per diluted share were $5.23,$7.05(1)(2), a 33%73% increase compared with adjusted earnings per diluted share inof $4.08(1)(2) for the prior year. Our adjusted ROE was 19.5%(2), compared with 12.5%(2) for the prior year, and adjusted ROTCE was 21.6%(2), compared with 13.6%(2) for the prior year.
NetThe significant increase in net revenues increased in each of our four operating segments, including significant growth incompared with the Private Client Group (“PCG”)prior year was driven by higher asset management and Asset Management segments, which benefited from growth in clientrelated administrative fees, largely attributable to higher PCG assets in fee-based accounts, as well as strong investment banking revenues and significantbrokerage revenues. Revenues in the current year also included $74 million of private equity valuation gains, of which $25 million were attributable to noncontrolling interests and were offset in other expenses, compared with $28 million of losses in the prior year, of which $20 million were attributable to noncontrolling interests. Offsetting these increases was the negative impact of lower short-term interest rates on our net interest income and RJBDP fees from third-party banks.
Compensation, commissions and benefits expense increased $1.12 billion, or 20%, primarily resulting from the growth in RJ Bank due to an increase in average interest-earning assetsrevenues and an increase in net interest margin. Investment banking revenues in our Capital Markets segment were strong and were significantly higher than fiscal year 2016; however institutional sales commissions declined reflectingpre-tax income compared with the low levelsprior year. Our compensation ratio, or the ratio of market volatility. Total client assets under administration reached $692.9 billion at September 30, 2017, a 15% increase, primarily attributable to strong financial advisor recruiting and retention results and equity market appreciation.
Non-interest expenses increased $850 million, or 19%. The increase primarily resulted from increased compensation, commissions and benefits expenses, primarily associatedexpense to net revenues, decreased to 67.4% compared with increased revenues and income, as well as increased staffing levels required to support our continued growth, and increased regulatory and compliance requirements. We also had losses on the early extinguishment of certain senior notes and increased legal expenses during the year for the Jay Peak settlement.
Our effective tax rate was 31.2% in the current year, down from the 33.9%68.4% for the prior year. The decrease in our effective tax rate compared to the prior year wascompensation ratio primarily resulted from higher revenues and changes in our revenue mix due to the favorable impact of the adoption of new stock compensation accounting guidancestrong net revenues in our Capital Markets segment, which had a favorable impact onlower compensation ratio at 56% than our effective tax rate of 2.7% and our provision for taxes of $25 million (see Note 2 and Note 20 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information). Also contributing to the decrease was a favorable impact of 1.7% due to the increase in the amount of nontaxable gains arising from the value of our company-owned life insurance portfolio as a result of an increase in equity market values, compared to a 1.1% favorable impact in the prior year.
Both the U.S. SenatePCG segment, and the U.S. House of Representativesprivate equity valuation gains which have recently introduced versions of income tax reform, which would have significant impacts on the federal tax code. These proposals contain several corporate income tax provisions, including a corporate tax rate reduction from 35 percent to 20 percent which would prospectively benefit our effective tax rate following enactment. Depending on the scope of any enacted legislation, there could also be a significant negative impact on our results in the period of enactment, primarily due to the potential remeasurement of U.S. deferred tax balances at lower corporate enacted tax rates and a repatriation tax, if any, on deemed repatriated earnings from foreign subsidiaries.
| |
(1) | “Adjusted pre-tax income,” “adjusted net income,” and “adjusted earnings per diluted share” are each non-GAAP financial measures. Please see the “reconciliation of GAAP measures to non-GAAP measures” in this Item 2, for a reconciliation of our non-GAAP measures to the most directly comparable GAAP measures, and for other important disclosures. |
Management's Discussion and Analysis
A summary of our financial results by segment as compared to the prior year are as follows:
no associated direct compensation. Our Private Client Group segment generated net revenues of $4.42 billion, a 22% increase, while pre-tax income increased 10% to $373 million. The increase in net revenues was primarily attributable to an increase in securities commissions and fees, driven by strong recruiting results, the acquisitions of Alex. Brown and 3Macs in late fiscal 2016 and a stronger market environment compared to the prior year. The segmentcompensation ratio also benefited from expense management initiatives.
(1) During our fiscal fourth quarter of 2021 the impactBoard of higher short-term interest rates, resulting in increases in fees related to our RJ Bank Deposit Program (“RJBDP”) and interest income. Non-interest expenses increased $773 million, or 24%, primarily resulting from an increase in sales commission expense, increased legal expenses related to the Jay Peak settlement and increased administrative & incentive compensation and benefits expense.
The Capital Markets segment generated net revenues of $1.01 billion,Directors approved a 1% increase, while pre-tax income also increased 1% to $141 million. The increase in net revenues was primarily due to an increase in merger & acquisition and advisory fee revenues and equity underwriting fees, partially offset by a decline in institutional sales commissions and trading profits, reflecting lower levels of volatility, and a decline in tax credit funds syndication revenues resulting from uncertainty over corporate tax reform. Non-interest expenses increased $16 million, or 2%, primarily resulting from an increase in incentive compensation and benefits expense largely related to improved investment banking results.
Our Asset Management segment benefited from increased fee-based client assets, generating a 21% increase in net revenues to $488 million, while pre-tax income increased 30% to $172 million. The increase in net revenues primarily reflected increases in advisory fee revenues from managed programs and in non-discretionary asset-based administration fee revenues as financial assets under management in managed programs and assets held in non-discretionary asset-based programs increased 25% and 32%, respectively over the prior year level. Non-interest expenses increased $42 million, or 16%, primarily resulting from increased investment sub-advisory fees and growth-related increases in administrative & incentive compensation and benefits expense.
RJ Bank generated a 20% increase in net revenues to $593 million, while pre-tax income increased 21% to $409 million. The increase in pre-tax income resulted primarily from an increase in net interest income and a decrease3-for-2 stock split, effected in the provision for loan losses, partially offset by higher affiliate deposit feesform of a 50% stock dividend, paid to the Private Client Group due to an increase in client account balances. Net interest income increased due to both growth in average interest-earning assetson September 21, 2021. All share and an increase in the net interest margin which benefited from the impact of higher short-term interest rates.
Activities in our Other segment generated a pre-tax loss that is $21 million, or 14% more than the prior year, primarily due to the losses on the early extinguishment of certain senior notes payable, combined with higher interest expense related to a higher average balance of our senior notes payable for the fiscal year. Total revenues in the segment increased $19 million, or 41%, primarily due to higher net valuation gains from our private equity portfolio and an increase in interest income due to increased short-term interest rates and higher corporate cash balances.
Consistent with our growth strategies, in April 2017 we announced we had entered into a definitive agreement to acquire 100% of the outstanding shares of Scout Investments, Inc. (the “Scout Group”), an asset management and distribution entity, from UMB Financial Corporation. The Scout Group includes Scout Investments (“Scout”) and its Reams Asset Management division (“Reams”), as well as Scout Distributors. The addition of Scout, an equity asset manager, and Reams, an institutional-focused fixed income specialist, broadens the investment solutions available to our clients. The Scout Group was included in our Asset Management segment upon completion of this acquisition, which occurred November 17, 2017.
Year ended September 30, 2016 compared with the year ended September 30, 2015
We achieved net revenues in fiscal year 2016 of $5.41 billion, a $201 million, or 4% increase over fiscal year 2015. Our fiscal year 2016 net income of $529 million reflected an increase of $27 million, or 5%, and our diluted earnings per share amountedinformation has been retroactively adjusted to $3.65, a 6% increase. The fiscal year 2016 diluted earnings per share benefited from our repurchase of commonreflect this stock in open market transactions. Total client assets under administration increased to $604.4 billion at September 30, 2016, a 26% increase over the fiscal year 2015 level. The increase in assets under administration was attributable to our acquisitions of Alex. Brown and 3Macs, strong financial advisor recruiting results, high levels of retention of our existing financial advisors, and an increase in U.S. equity markets over the year.split.
After excluding the fiscal year 2016 impact of acquisition-related expenses and legal reserves for the Jay Peak matter, our adjusted net income amounted to $569 million (1) and adjusted diluted earnings per share amounted to $3.93 (1).
(1)(2) “ROTCE,” “Adjusted net income,” “adjusted earnings per diluted share,” “adjusted ROE” and “adjusted diluted earnings per share”ROTCE” are each non-GAAP financial measures. Please see the “reconciliation“Reconciliation of GAAPnon-GAAP financial measures to non-GAAPGAAP financial measures” in this Item 7,MD&A for a reconciliation of our non-GAAP measures to the most directly comparable GAAP measures and for other important disclosures.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis
Fiscal year 2016 net revenues increased in each of our four operating segments as compared to fiscal year 2015. Our non-operating Other segment reflected a decline in net revenues as fiscal year 2015 experienced higher valuation gains from our private equity investments than fiscal year 2016, as well as realized gains on sales of our auction rate securities (“ARS”). Non-interestNon-compensation expenses increased $204decreased $87 million, or 5%. The increase6%, primarily resulted from: increases in compensation, commissions and benefits due to annual raises, growth in related securities commissions and fee revenues, and increases in benefits expenses; increases in communications and information processing expenses resulting from our continued investment in our PCG platform and in improving our compliance and regulatory systems; an increasea $265 million decrease in the bank loan loss provision resulting from loan growth and an increase associated with thefor credit deteriorationlosses, which was a benefit of certain loans$32 million in the energy sector; and increasescurrent year computed under the current expected credit loss (“CECL”) methodology compared with a provision of $233 million in other expenses predominately due to increases in certain legal and regulatory expenses during fiscal year 2016.
A summary of the most significant items impacting our fiscal year 2016 financial results as compared to the prior year arecomputed under the incurred loss methodology. Non-compensation expenses also decreased as follows:
Our Private Client Group segment generated fiscala result of $46 million of expenses in the prior year 2016 net revenuesrelated to a reduction in workforce, which did not recur in the current year, as well as a decrease in business development expenses due to lower travel and event-related expenses as a result of $3.62 billion, a 3% increase, while pre-tax income decreasedthe COVID-19 pandemic. These decreases were partially offset by $2the aforementioned losses on extinguishment of debt of $98 million to $341 million. The increase in net revenues was primarily attributable to an increase in account and service fee income, most notably an increase in fees associated with our RJBDP program resulting from both an increase in short-term interest rates,the current year, and an increase in client cash balances resulting from clients’ reaction to market volatility and uncertainty during fiscal year 2016.
Securities commission and fee revenues increased 1% overall. Fees arising from fee-based accounts as well as commissions on fixed income products increased substantially, more than offsetting declines in commissions on mutual funds, equity securities and new issue sales credits. Non-interestother expenses, increased compared to the fiscal year 2015 levels, most significantly due to higher administrative expenses to support our continued growth, higher communications and information technology expenses resulting from our continued investments in our platform and in improving our compliance and regulatory systems, and expenses related to the Jay Peak matter.
The Capital Markets segment generated fiscal year 2016 net revenues of $1.00 billion, a 4% increase, while pre-tax income increased by 30% to $139 million. The fiscal year 2016 increase in net revenues was driven by an increase in trading profits, sales commissions on fixed income products and an increase in tax credit fund syndication fee revenues, offset by declines in equity underwriting fees and merger & acquisition and advisory fee revenues. Non-interest expenses increased a modest 1% over the fiscal year 2015 level.
Our Asset Management segment generated net revenues of $404 million, a 3% increase, while pre-tax income decreased by 2% to $132 million in fiscal year 2016. Non-discretionary asset-based administration fee revenues increased, driven by an increase in assets held in these programs. Investment advisory fee revenues from managed programs approximated the fiscal year 2015 level despite the increase in balances of financial assets under management as of September 30, 2016primarily due to the volatility of markets duringchange in private equity valuations attributable to noncontrolling interests compared with the prior year.
Our effective income tax rate was 21.7% for fiscal year 2016 and2021, a decrease compared with the timing of our fee computations. Expenses increased 6% in22.2% effective tax rate for fiscal year 2016 due, in large part, to the fiscal year 2015 reversal of certain incentive compensation expense accruals for associates who left the firm.
RJ Bank generated fiscal year 2016 net revenues of $494 million, a 19% increase, while pre-tax income increased by 21% to $337 million. The loan loss provision increased nearly $5 million, or 20% over the fiscal year 2015 level due to higher corporate loan growth, charges resulting from loans outstanding within the energy sector, and additional provision for corporate loan downgrades during fiscal year 2016. Non-interest expenses (excluding provision for loan losses) increased $16 million, or 15%,2020, primarily due to an increase in non-taxable gains on our corporate-owned life insurance portfolio.
Liquidity and capital remained strong. As of September 30, 2021, our total capital ratio of 26.2% and tier 1 leverage ratio of 12.6% were each more than double the affiliate deposit account servicing fees paidregulatory requirements to be considered well-capitalized. We also continued to have substantial liquidity, with $1.16 billion(1) of cash at the parent company, which includes parent cash loaned to RJ&A. We expect to continue to be opportunistic in deploying our capital in fiscal 2022, through a combination of organic growth and acquisitions, as evidenced by our fiscal 2021 acquisitions of NWPS Holdings, Inc., Financo, LLC, and Cebile Capital, and the announced acquisitions of Charles Stanley Group PLC and TriState Capital Holdings, Inc. which we expect to close in fiscal 2022. Pursuant to our Board of Directors’ share repurchase authorization, we repurchased 1.5 million(2) shares of common stock during fiscal 2021 for $118 million, leaving $632 million of availability remaining under the authorization as of September 30, 2021. However, due to regulatory restrictions following our announced acquisition of TriState Capital Holdings, we do not expect to repurchase shares until after closing.
We remain well-positioned entering fiscal 2022, with nearly $1.2 trillion of client assets under administration, strong activity levels for financial advisory recruiting, and a strong investment banking pipeline. However, we expect to continue to face headwinds from near-zero short-term interest rates and economic uncertainty, including that arising from inflation, supply chain complications and uncertainty around U.S. economic policy. In addition, although the economy has improved since the beginning of the COVID-19 pandemic, the pace of recovery in the future is uncertain due to concerns related to the Private Client Group resulting from an increasepandemic, including the spread of the Delta variant and other variants, vaccine distribution, and vaccine rates. As a result, we may experience volatility in client account balances, as well as an increase in FDIC insurance premiums.
Activities inbrokerage and investment banking revenues, which may negatively impact our Other segment during fiscal year 2016 reflect a pre-tax loss that was $84 million, or 129%, more thanability to sustain the prior year. Totallevel of revenues in the segment decreased $21 million, or 31%, primarily resulting from a decrease in private equity valuation gains, and a decrease of $11 million in gains on the sale of certain ARS resulting from fiscal year 2015 sales that did not recurfuture periods which were achieved in fiscal 2021. Although our results during the year 2016, offsetwere positively impacted by increased interest revenue and foreign exchange gains. Acquisition-related expenses of $41 milliona benefit for fiscal year 2016 did not occur in fiscal year 2015, and resulted from incremental expensescredit losses related to our acquisitions of Alex. Brown, 3Macs, and Mummert during fiscal year 2016.
Our effective tax rate was 33.9%bank loan portfolio, net loan growth and/or future market deterioration could result in increased provisions in future periods. In addition, we expect that expenses will continue to increase in fiscal year 2016, down from the 37.1% in the prior year. The fiscal year 2016 reduction2022, as business and event-related travel increase and as we continue to make investments in our effective tax ratepeople and technology to support our growth.
Year ended September 30, 2020 compared with the year ended September 30, 2019
Refer to the prior year was due to the following factors: (1) as“Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2020 Form 10-K for a resultdiscussion of theour fiscal year 2016 increase in equity market values2020 results compared to fiscal year 2015,2019.
(1) For additional information, please see the change“Liquidity and capital resources - Sources of liquidity” section in this MD&A.
(2) During our fiscal fourth quarter of 2021 the Board of Directors approved a 3-for-2 stock split, effected in the amountform of our non-taxable gains/losses arising from the value of our company-owned life insurance portfolio had the effect of decreasing our effective tax rate by 1.5% compareda 50% stock dividend, paid on September 21, 2021. All share and per share information has been retroactively adjusted to fiscal year 2015; (2) adjustments associated with our divestitures of our businesses in South America accounted for an effective rate decrease of 1.1%; (3) we settled significant state tax audits during the year which reduced our effective rate by 0.4%; and (4) we were ablereflect this stock split.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis
to generate and utilize additional low-income housing tax credits to apply against our tax liability which had a favorable 0.5% impact on our effective tax rate.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL MEASURES
We repurchased approximately 3.2 million shares of our common stock in open market transactions during fiscal year 2016 for a total purchase price of approximately $144.5 million, reflecting an average per share repurchase price of $45.69. The fiscal year 2016 diluted earnings per share benefited by $0.05 as a result of these repurchases.
Segments
The following table presents our consolidated and segment net revenues and pre-tax income/(loss), the latter excluding noncontrolling interests, for the years indicated:
|
| | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | % change | | 2016 | | % change | | 2015 |
Total company | | | | | | | | | | |
Net revenues | | $ | 6,371,097 |
| | 18 | % | | $ | 5,405,064 |
| | 4 | % | | $ | 5,203,606 |
|
Pre-tax income excluding noncontrolling interests | | 925,346 |
| | 16 | % | | 800,643 |
| | — |
| | 798,174 |
|
| | | | | | | | | | |
Private Client Group | | |
| | | | |
| | | | |
|
Net revenues | | 4,421,633 |
| | 22 | % | | 3,616,479 |
| | 3 | % | | 3,507,806 |
|
Pre-tax income | | 372,950 |
| | 10 | % | | 340,564 |
| | — |
| | 342,243 |
|
| | | | | | | | | | |
Capital Markets | | |
| | | | |
| |
| | |
|
Net revenues | | 1,013,683 |
| | 1 | % | | 1,001,716 |
| | 4 | % | | 963,431 |
|
Pre-tax income | | 141,236 |
| | 1 | % | | 139,173 |
| | 30 | % | | 107,009 |
|
| | | | | | | | | | |
Asset Management | | |
| | | | |
| | | | |
|
Net revenues | | 487,658 |
| | 21 | % | | 404,349 |
| | 3 | % | | 392,301 |
|
Pre-tax income | | 171,736 |
| | 30 | % | | 132,158 |
| | (2 | )% | | 135,050 |
|
| | | | | | | | | | |
RJ Bank | | |
| | | | |
| | | | |
|
Net revenues | | 592,670 |
| | 20 | % | | 493,966 |
| | 19 | % | | 414,295 |
|
Pre-tax income | | 409,303 |
| | 21 | % | | 337,296 |
| | 21 | % | | 278,721 |
|
| | | | | | | | | | |
Other | | |
| | | | |
| | | | |
|
Net revenues | | (29,870 | ) | | 6 | % | | (31,692 | ) | | (211 | )% | | (10,198 | ) |
Pre-tax loss | | (169,879 | ) | | (14 | )% | | (148,548 | ) | | (129 | )% | | (64,849 | ) |
| | | | | | | | | | |
Intersegment eliminations | | |
| | | | |
| | | | |
|
Net revenues | | (114,677 | ) | |
|
| | (79,754 | ) | |
| | (64,029 | ) |
Management's Discussion and Analysis
Reconciliation of GAAP measures to non-GAAP measures
We utilize certain non-GAAP calculationsfinancial measures as additional measures to aid in, and enhance, the understanding of our financial results and related measures. These non-GAAP financial measures include adjusted net income, adjusted earnings per diluted share, adjusted ROE, ROTCE, and adjusted ROTCE. We believe that thecertain of these non-GAAP financial measures provideprovides useful information to management and investors by excluding certain material items that may not be indicative of our core operating results. We believe thatutilize these non-GAAP financial measures will allow for better evaluation ofin assessing the operatingfinancial performance of the business, andas they facilitate a meaningful comparison of current- and prior-period results. We believe that ROTCE is meaningful to investors as this measure facilitates comparison of our results into the current year to those in prior and future years. Theresults 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 informationmeasures 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 table providestables provide a reconciliation of GAAPnon-GAAP financial measures to non-GAAPthe most directly comparable GAAP financial measures for the periods which include non-GAAP adjustments. Non-GAAP measures for the year ended September 30, 2016 have been revised from those previously reported to conform to our current presentation, which includes amounts related to the Jay Peak settlement.indicated.
| | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions, except per share amounts | | 2021 | | 2020 | | |
Net income | | $ | 1,403 | | | $ | 818 | | | |
Non-GAAP adjustments: | | | | | | |
Losses on extinguishment of debt | | 98 | | | — | | | |
Acquisition and disposition-related expenses | | 19 | | | 7 | | | |
Reduction in workforce expenses | | — | | | 46 | | | |
| | | | | | |
Pre-tax impact of non-GAAP adjustments | | 117 | | | 53 | | | |
Tax effect of non-GAAP adjustments | | (28) | | | (13) | | | |
Total non-GAAP adjustments, net of tax | | 89 | | | 40 | | | |
Adjusted net income | | $ | 1,492 | | | $ | 858 | | | |
| | | | | | |
Earnings per diluted share | | $ | 6.63 | | | $ | 3.88 | | | |
Non-GAAP adjustments: | | | | | | |
Losses on extinguishment of debt | | 0.46 | | | — | | | |
Acquisition and disposition-related expenses | | 0.09 | | | 0.03 | | | |
Reduction in workforce expenses | | — | | | 0.22 | | | |
| | | | | | |
Pre-tax impact of non-GAAP adjustments | | 0.55 | | | 0.25 | | | |
Tax effect of non-GAAP adjustments | | (0.13) | | | (0.05) | | | |
Total non-GAAP adjustments, net of tax | | 0.42 | | | 0.20 | | | |
Adjusted earnings per diluted share | | $ | 7.05 | | | $ | 4.08 | | | |
|
| | | | | | | | |
| | Year ended September 30, |
$ in thousands, except per share amounts | | 2017 | | 2016 |
Net Income (1) | | $ | 636,235 |
| | $ | 529,350 |
|
Non-GAAP adjustments: (2) | | | | |
Acquisition-related expenses | | 17,995 |
| | 40,706 |
|
Losses on extinguishment of debt | | 45,746 |
| | — |
|
Jay Peak matter | | 130,000 |
| | 20,000 |
|
Sub-total pre-tax non-GAAP adjustments | | 193,741 |
| | 60,706 |
|
Tax effect of non-GAAP adjustments | | (61,869 | ) | | (20,570 | ) |
Non-GAAP adjustments, net of tax | | 131,872 |
| | 40,136 |
|
Adjusted net income | | $ | 768,107 |
| | $ | 569,486 |
|
| | | | |
Pre-tax income (1) | | $ | 925,346 |
| | $ | 800,643 |
|
Total pre-tax non-GAAP adjustments (as detailed above) | | 193,741 |
| | 60,706 |
|
Adjusted pre-tax income | | $ | 1,119,087 |
| | $ | 861,349 |
|
Pre-tax margin on net revenues (3) | | 14.5 | % | | 14.8 | % |
Adjusted pre-tax margin on net revenues (3) | | 17.6 | % | | 15.9 | % |
| | | | |
Earnings per common share: | | | | |
Basic | | $ | 4.43 |
| | $ | 3.72 |
|
Diluted | | $ | 4.33 |
| | $ | 3.65 |
|
Adjusted earnings per common share: | | | | |
Adjusted basic | | $ | 5.35 |
| | $ | 4.01 |
|
Adjusted diluted | | $ | 5.23 |
| | $ | 3.93 |
|
| | | | |
Average equity (4) | | $ | 5,235,231 |
| | $ | 4,695,588 |
|
Adjusted average equity (4) | | $ | 5,310,489 |
| | $ | 4,707,959 |
|
Return on equity (5) | | 12.2 | % | | 11.3 | % |
Adjusted return on equity (5) | | 14.5 | % | | 12.1 | % |
| |
(1) | Excludes noncontrolling interests. |
| |
(2) | See Note 3 for information on our acquisition-related expenses, Note 15 for information on our extinguishment of debt and Item 3 in this Form 10-K for more information on the Jay Peak matter. |
| |
(3) | Computed by dividing the pre-tax income attributable to RJF by net revenues for each respective period or, in the case of adjusted pre-tax margin on net revenues, computed by dividing adjusted pre-tax income attributable to RJF by net revenues for each respective period. |
| |
(4) | Computed by adding the total equity attributable to RJF as of each quarter-end date during the indicated period to the beginning of the year total and dividing by five. Adjusted average equity is computed by adjusting for the impact on average equity of the non-GAAP adjustments, as applicable for each respective period. |
| |
(5) | Computed by dividing net income attributable to RJF by average equity for each respective period or, in the case of adjusted return on equity, computed by dividing adjusted net income attributable to RJF by adjusted average equity for each respective period. |
Management'sManagement’s Discussion and Analysis
| | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2021 | | 2020 | | |
Return on equity | | | | | | |
Average equity | | $ | 7,635 | | | $ | 6,860 | | | |
Impact on average equity of non-GAAP adjustments: | | | | | | |
Losses on extinguishment of debt | | 39 | | | — | | | |
Acquisition and disposition-related expenses | | 6 | | | 1 | | | |
Reduction in workforce expenses | | — | | | 9 | | | |
| | | | | | |
Pre-tax impact of non-GAAP adjustments | | 45 | | | 10 | | | |
Tax effect of non-GAAP adjustments | | (11) | | | (2) | | | |
Total non-GAAP adjustments, net of tax | | 34 | | | 8 | | | |
Adjusted average equity | | $ | 7,669 | | | $ | 6,868 | | | |
| | | | | | |
Average equity | | $ | 7,635 | | | $ | 6,860 | | | |
Less: | | | | | | |
Average goodwill and identifiable intangible assets, net | | 809 | | | 605 | | | |
Average deferred tax liabilities, net | | (53) | | | (31) | | | |
Average tangible common equity | | $ | 6,879 | | | $ | 6,286 | | | |
Impact on average tangible common equity of non-GAAP adjustments: | | | | | | |
Losses on extinguishment of debt | | 39 | | | — | | | |
Acquisition and disposition-related expenses | | 6 | | | 1 | | | |
Reduction in workforce expenses | | — | | | 9 | | | |
| | | | | | |
Pre-tax impact of non-GAAP adjustments | | 45 | | | 10 | | | |
Tax effect of non-GAAP adjustments | | (11) | | | (2) | | | |
Total non-GAAP adjustments, net of tax | | 34 | | | 8 | | | |
Adjusted average tangible common equity | | $ | 6,913 | | | $ | 6,294 | | | |
| | | | | | |
Return on equity | | 18.4 | % | | 11.9 | % | | |
Adjusted return on equity | | 19.5 | % | | 12.5 | % | | |
Return on tangible common equity | | 20.4 | % | | 13.0 | % | | |
Adjusted return on tangible common equity | | 21.6 | % | | 13.6 | % | | |
Net interest analysis
Tangible common equity is computed by subtracting goodwill and identifiable intangible assets, net, along with the associated deferred tax liabilities, from total equity attributable to RJF. Average equity is computed by adding the total equity attributable to RJF as of each quarter-end date during the indicated fiscal year to the beginning of the year total and dividing by five, or in the case of average tangible common equity, computed by adding tangible common equity as of each quarter-end date during the indicated fiscal year to the beginning of year total, and dividing by five. Adjusted average equity is computed by adjusting for the impact on average 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.
ROE is computed by dividing net income by average equity for each respective period or, in the case of ROTCE, computed by dividing net income by average tangible common equity for each respective period. Adjusted ROE is computed by dividing adjusted net income by adjusted average equity for each respective period, or in the case of adjusted ROTCE, computed by dividing adjusted net income by adjusted average tangible common equity for each respective period.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
SEGMENTS
The following table presents our consolidated and segment net revenues and pre-tax income/(loss) for the years indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, | | % change |
$ in millions | | 2021 | | 2020 | | 2019 | | 2021 vs. 2020 | | 2020 vs. 2019 |
Total company | | | | | | | | | | |
Net revenues | | $ | 9,760 | | | $ | 7,990 | | | $ | 7,740 | | | 22 | % | | 3 | % |
Pre-tax income | | $ | 1,791 | | | $ | 1,052 | | | $ | 1,375 | | | 70 | % | | (23) | % |
| | | | | | | | | | |
Private Client Group | | | | | | | | | | |
Net revenues | | $ | 6,611 | | | $ | 5,552 | | | $ | 5,359 | | | 19 | % | | 4 | % |
Pre-tax income | | $ | 749 | | | $ | 539 | | | $ | 579 | | | 39 | % | | (7) | % |
| | | | | | | | | | |
Capital Markets | | | | | | | | | | |
Net revenues | | $ | 1,885 | | | $ | 1,291 | | | $ | 1,083 | | | 46 | % | | 19 | % |
Pre-tax income | | $ | 532 | | | $ | 225 | | | $ | 110 | | | 136 | % | | 105 | % |
| | | | | | | | | | |
Asset Management | | | | | | | | | | |
Net revenues | | $ | 867 | | | $ | 715 | | | $ | 691 | | | 21 | % | | 3 | % |
Pre-tax income | | $ | 389 | | | $ | 284 | | | $ | 253 | | | 37 | % | | 12 | % |
| | | | | | | | | | |
Raymond James Bank | | | | | | | | | | |
Net revenues | | $ | 672 | | | $ | 765 | | | $ | 846 | | | (12) | % | | (10) | % |
Pre-tax income | | $ | 367 | | | $ | 196 | | | $ | 515 | | | 87 | % | | (62) | % |
| | | | | | | | | | |
Other | | | | | | | | | | |
Net revenues | | $ | (8) | | | $ | (82) | | | $ | 5 | | | 90 | % | | NM |
Pre-tax loss | | $ | (246) | | | $ | (192) | | | $ | (82) | | | (28) | % | | (134) | % |
| | | | | | | | | | |
Intersegment eliminations | | | | | | | | | | |
Net revenues | | $ | (267) | | | $ | (251) | | | $ | (244) | | | (6) | % | | (3) | % |
NET INTEREST ANALYSIS
The following table presents the high, low and end of period target federal funds rates for our fiscal years ended September 30, 2021, 2020 and 2019, respectively.
| | | | | | | | | | | | | | | | | | | | |
| | Target federal funds rate |
Twelve months ended: | | Low | | High | | End of period |
September 30, 2021 | | 0.00 | % | | 0.25 | % | | 0% - 0.25% |
September 30, 2020 | | 0.00 | % | | 2.00 | % | | 0% - 0.25% |
September 30, 2019 | | 1.75 | % | | 2.50 | % | | 1.75% - 2.00% |
In response to macroeconomic concerns resulting from the COVID-19 pandemic, the Federal Reserve Bank announced increases indecreased its benchmark short-term interest rate in March 2020 to a range of 250-0.25%, a decrease of 150 basis points. These decreases, as well as the interest rate cuts implemented in calendar 2019 (225 basis points in each of June 2017, March 2017 and December 2016,total) have negatively impacted our net interest income, as well as in December 2015. Increases in short-term interest ratesthe fees we earn from third-party banks on client cash balances swept to such banks as these have a significant impact on our overall financial performance, as we have certain assets and liabilities, primarily held in our PCG and RJ Bank segments,part of the RJBDP which are also sensitive to changes in interest rates. GivenThe negative impact of the relationship of our interest sensitive assets to liabilities held in each of these segments, increasesdecline in short-term interest rates has outweighed the growth in average interest-earning assets and average RJBDP balances swept to third-party banks compared with the prior year. We expect the current near-zero interest rate environment to continue into fiscal 2022.
Given the relationship between our interest-sensitive assets and liabilities (primarily held in our PCG, Raymond James Bank and Other segments) and the nature of fees we earn from third-party banks on the RJBDP, decreases in short-term interest rates generally result in an overall increasedecrease 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.
In PCG, we also earn fees in lieu of interest income from our RJBDP, a multi-bank a sweep program in which clients’ cash deposits in their brokerage accounts are swept into interest-bearing deposit accounts at RJ Bank and various third-party banks. Such fees are recorded in “Account and service fees” in our Consolidated Statements of Income and Comprehensive Income and fluctuate based on changes in short-term interest rates relative toliabilities, including deposit rates paid to clients on clienttheir cash balances. Of the total client domestic cash balances of $43.0 billion at September 30, 2017, approximately $38.1 billion was included in the RJBDP, compared with $37.7 billion of the $43.9 billion of total client domestic cash balances at September 30, 2016. While the short-term interest rate increases in 2017 had a significant impact on fees earned from our RJBDP, they have not yet had a significant impact on market deposit rates paid on client cash balances. As such,Conversely, any future increases in short-term interest rates may have less of an impact and/or could actually reduce our fees earneddecreases in this program, depending on the level of deposit rates paid on client cash balances.
If the Federal Reserve Bank was to reverse its previous actions and decrease the benchmark short-term interest rate or if deposit rates that we pay on client cash balances increased and resulted inclients generally have a decline in spreads earned on our RJBDP program, thepositive impact on our net interest income and account and service fees would be an unfavorable reversal of the positive impact described above.earnings.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis
The following table presents our consolidated average balance, interest income and expense balances and the related yield and rates. Average balances are calculated on a daily basis unless otherwise noted.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
| | 2017 | | 2016 | | 2015 |
$ in thousands | | Average balance | | Interest inc./exp. | | Average yield/cost | | Average balance | | Interest inc./exp. | | Average yield/cost | | Average balance | | Interest inc./exp. | | Average yield/cost |
Interest-earning assets: | | | | | | | | | | | | | | | | |
Assets segregated pursuant to regulations and other segregated assets | | $ | 3,250,854 |
| | $ | 37,270 |
| | 1.15 | % | | $ | 3,565,252 |
| | $ | 22,287 |
| | 0.63 | % | | $ | 2,498,357 |
| | $ | 13,792 |
| | 0.55 | % |
Securities loaned | | 456,573 |
| | 14,049 |
| | 3.08 | % | | 577,002 |
| | 8,777 |
| | 1.52 | % | | 433,642 |
| | 12,036 |
| | 2.78 | % |
Trading instruments (1) | | 655,302 |
| | 21,068 |
| | 3.22 | % | | 707,321 |
| | 19,362 |
| | 2.74 | % | | 678,715 |
| | 19,450 |
| | 2.87 | % |
Available-for-sale securities | | 1,588,484 |
| | 27,946 |
| | 1.76 | % | | 561,925 |
| | 7,596 |
| | 1.35 | % | | 508,223 |
| | 5,100 |
| | 1.00 | % |
Margin loans | | 2,403,451 |
| | 85,699 |
| | 3.57 | % | | 1,811,845 |
| | 68,712 |
| | 3.79 | % | | 1,805,312 |
| | 67,573 |
| | 3.74 | % |
Bank loans, net of unearned income (2) | | | | | |
|
| | | | | |
|
| | | | | |
|
|
Loans held for sale | | 159,384 |
| | 5,156 |
| | 3.34 | % | | 150,305 |
| | 4,551 |
| | 3.07 | % | | 107,255 |
| | 2,686 |
| | 2.64 | % |
Loans held for investment: | | | | | | | | | | | | | | | | | | |
C&I loans | | 7,340,052 |
| | 281,274 |
| | 3.78 | % | | 7,171,402 |
| | 271,476 |
| | 3.73 | % | | 6,677,117 |
| | 244,986 |
| | 3.62 | % |
CRE construction loans | | 129,073 |
| | 6,184 |
| | 4.73 | % | | 169,101 |
| | 8,462 |
| | 4.92 | % | | 118,626 |
| | 5,042 |
| | 4.19 | % |
CRE loans | | 2,831,870 |
| | 100,563 |
| | 3.50 | % | | 2,297,224 |
| | 70,048 |
| | 3.00 | % | | 1,728,324 |
| | 53,369 |
| | 3.05 | % |
Tax-exempt loans (3) | | 891,922 |
| | 23,057 |
| | 3.98 | % | | 617,701 |
| | 16,707 |
| | 4.16 | % | | 301,767 |
| | 8,812 |
| | 4.49 | % |
Residential mortgage loans | | 2,803,464 |
| | 83,537 |
| | 2.94 | % | | 2,217,789 |
| | 64,607 |
| | 2.87 | % | | 1,927,105 |
| | 55,370 |
| | 2.83 | % |
SBL | | 2,123,189 |
| | 72,400 |
| | 3.36 | % | | 1,713,243 |
| | 51,515 |
| | 2.96 | % | | 1,269,337 |
| | 35,313 |
| | 2.74 | % |
Total bank loans, net | | 16,278,954 |
| | 572,171 |
| | 3.55 | % | | 14,336,765 |
| | 487,366 |
| | 3.42 | % | | 12,129,531 |
| | 405,578 |
| | 3.34 | % |
Loans to financial advisors (1) | | 848,677 |
| | 13,333 |
| | 1.57 | % | | 563,548 |
| | 8,207 |
| | 1.46 | % | | 457,797 |
| | 7,056 |
| | 1.54 | % |
Corporate cash and all other (1) | | 3,450,514 |
| | 30,590 |
| | 0.89 | % | | 2,750,688 |
| | 18,090 |
| | 0.66 | % | | 2,957,309 |
| | 12,697 |
| | 0.43 | % |
Total interest-earning assets | | $ | 28,932,809 |
| | $ | 802,126 |
| | 2.77 | % | | $ | 24,874,346 |
| | $ | 640,397 |
| | 2.57 | % | | $ | 21,468,886 |
| | $ | 543,282 |
| | 2.53 | % |
Interest-bearing liabilities: | | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Bank deposits | | | | | |
| | | | | |
| | | | | | |
Certificates of deposit | | $ | 293,589 |
| | $ | 4,325 |
| | 1.47 | % | | $ | 345,628 |
| | $ | 5,402 |
| | 1.56 | % | | $ | 347,748 |
| | $ | 5,839 |
| | 1.68 | % |
Money market, savings and Negotiable Order of Withdrawal (“NOW”) accounts | | 15,566,621 |
| | 12,859 |
| | 0.08 | % | | 12,640,068 |
| | 4,816 |
| | 0.05 | % | | 10,851,494 |
| | 2,543 |
| | 0.02 | % |
Securities borrowed | | 110,416 |
| | 6,690 |
| | 6.06 | % | | 79,613 |
| | 3,174 |
| | 3.99 | % | | 135,027 |
| | 5,237 |
| | 3.88 | % |
Trading instruments sold but not yet purchased (1) | | 289,218 |
| | 6,138 |
| | 2.12 | % | | 281,501 |
| | 5,035 |
| | 1.79 | % | | 274,364 |
| | 4,503 |
| | 1.64 | % |
Brokerage client liabilities | | 4,678,445 |
| | 4,884 |
| | 0.10 | % | | 4,291,632 |
| | 2,084 |
| | 0.05 | % | | 3,693,928 |
| | 940 |
| | 0.03 | % |
Other borrowings | | 855,638 |
| | 16,559 |
| | 1.94 | % | | 723,904 |
| | 12,957 |
| | 1.79 | % | | 721,296 |
| | 6,079 |
| | 0.84 | % |
Senior notes | | 1,689,172 |
| | 94,665 |
| | 5.60 | % | | 1,210,148 |
| | 78,533 |
| | 6.49 | % | | 1,149,136 |
| | 76,088 |
| | 6.62 | % |
Other (1) | | 267,794 |
| | 7,658 |
| | 2.86 | % | | 241,454 |
| | 4,055 |
| | 1.68 | % | | 293,615 |
| | 4,845 |
| | 1.65 | % |
Total interest-bearing liabilities | | $ | 23,750,893 |
| | $ | 153,778 |
| | 0.65 | % | | $ | 19,813,948 |
| | $ | 116,056 |
| | 0.59 | % | | $ | 17,466,608 |
| | $ | 106,074 |
| | 0.61 | % |
Net interest income | |
|
| | $ | 648,348 |
| | | |
|
| | $ | 524,341 |
| | | |
|
| | $ | 437,208 |
| | |
| |
(1) | Average balance is calculated based on the average of the end of the month balances for each month within the period. |
| |
(2) | Nonaccrual loans are included in the average loan balances. Payment or income received on corporate nonaccrual loans are applied to principal. Income on other nonaccrual loans is recognized on a cash basis. Fee income on all loans included in interest income for the twelve months ended September 30, 2017, 2016 and 2015, was $38 million, $36 million and $30 million respectively. |
| |
(3) | The yield is presented on a tax equivalent basis utilizing the federal statutory rate of 35%. |
Management's Discussion and Analysis
Year ended September 30, 2017 compared with the year ended September 30, 2016
Net interest income increased $124 million, or 24%, primarily reflecting an increase in interest income in our PCG and RJ Bank segments, partially offset by the impact of an increase in interest expense related to our senior notes payable.
Net interest income in the PCG segment increased $40 million, or 41%. Interest income in the PCG segment increased as a result of: 1) the impact of the increase in average segregated assets compared with prior year levels, largely driven by our September 2016 acquisition of Alex. Brown, as well as the impact of an increase in short-term interest rates on these balances; and 2) increased client margin balances, largely driven by our September 2016 acquisition of Alex. Brown. The favorable impact of the growth was partially offset by a decrease in average client margin rates on the portfolio. Interest expense for the segment increased, albeit to a much lesser extent, primarily due to an increase in client cash balances and an increase in the interest rate paid to clients on such balances.
The RJ Bank segment’s net interest income increased $96 million, or 20%, resulting from an increase in average loans outstanding and an increase in available-for-sale securities, as well as an increase in net interest margin as compared to the prior year. Refer to the discussion of the specific components of RJ Bank’sour net interest income inwithin the RJ“Management’s Discussion and Analysis - Results of Operations” of our PCG, Raymond James Bank, sectionand Other segments. Also refer to “Management’s Discussion and Analysis - Results of this MD&A.Operations - Private Client Group - Clients’ domestic cash sweep balances” for further information on the RJBDP.
Interest expense incurred onThe following table presents our senior notes increased by $16 million, or 21%, as theconsolidated average outstanding balance of senior notes increased compared to the prior year. The net increase in the balance outstanding was due to our May 2017interest-earning asset and July 2016 issuances of a combined $1.30 billion in senior notes, offset by the April 2016 maturity and repayment of $250 million of senior notes and the March 2017 extinguishment of $350 million of senior notes. The early extinguishment of $300 million of senior notes in September 2017 did not meaningfully reduce our interest expense in fiscal year 2017.
Year ended September 30, 2016 compared with the year ended September 30, 2015
Netinterest-bearing liability balances, interest income increased $87 million, or 20%, primarily due to an increase in net interest income in RJ Bank and to a lesser extent in PCG.
Net interest income in the PCG segment increased $8 million, or 9%. Average customer cash balancesexpense and the related segregated asset balances increased compared to the prior year as many clients reacted to uncertainties in the equity markets during portions of fiscal 2016 by increasing the cash balances in their brokerage accounts. The December 2015 Federal Reserve Bank short-term interest rate increase further increased the net interest earned on these segregated asset balances. In addition, both the interest ratesyields and the average balances associated with marginrates.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, | | |
| | 2021 | | 2020 | | 2019 | | |
$ in millions | | Average balance | | Interest | | Average rate | | Average balance | | Interest | | Average rate | | Average balance | | Interest | | Average rate | | |
Interest-earning assets: | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 5,561 | | $ | 12 | | | 0.21 | % | | $ | 5,173 | | | $ | 41 | | | 0.79 | % | | $ | 3,340 | | | $ | 83 | | | 2.49 | % | | |
Assets segregated for regulatory purposes and restricted cash | | 8,735 | | 15 | | | 0.17 | % | | 3,042 | | | 28 | | | 0.94 | % | | 2,399 | | | 59 | | | 2.47 | % | | |
Available-for-sale securities | | 7,950 | | 85 | | | 1.07 | % | | 4,250 | | | 83 | | | 1.94 | % | | 2,872 | | | 69 | | | 2.39 | % | | |
Brokerage client receivables | | 2,280 | | 77 | | | 3.37 | % | | 2,232 | | | 84 | | | 3.77 | % | | 2,584 | | | 122 | | | 4.73 | % | | |
Bank loans, net of unearned income and deferred expenses: | | | | | | | | | | | | | | | | | | | | |
Loans held for investment: | | | | | | | | | | | | | | | | | | | | |
C&I loans | | 7,828 | | | 201 | | | 2.54 | % | | 7,860 | | | 274 | | | 3.43 | % | | 8,050 | | | 377 | | | 4.62 | % | | |
CRE loans | | 2,703 | | | 70 | | | 2.56 | % | | 2,589 | | | 88 | | | 3.34 | % | | 2,311 | | | 110 | | | 4.68 | % | | |
REIT loans | | 1,273 | | | 32 | | | 2.48 | % | | 1,333 | | | 42 | | | 3.09 | % | | 1,381 | | | 62 | | | 4.43 | % | | |
Tax-exempt loans | | 1,270 | | | 34 | | | 3.31 | % | | 1,246 | | | 33 | | | 3.35 | % | | 1,284 | | | 35 | | | 3.36 | % | | |
Residential mortgage loans | | 5,110 | | | 140 | | | 2.72 | % | | 4,874 | | | 148 | | | 3.04 | % | | 4,091 | | | 135 | | | 3.30 | % | | |
SBL and other | | 4,989 | | | 112 | | | 2.22 | % | | 3,559 | | | 112 | | | 3.10 | % | | 3,139 | | | 145 | | | 4.57 | % | | |
Loans held for sale | | 163 | | | 4 | | | 2.55 | % | | 130 | | | 5 | | | 3.70 | % | | 151 | | | 7 | | | 4.73 | % | | |
Total bank loans, net | | 23,336 | | | 593 | | | 2.55 | % | | 21,591 | | | 702 | | | 3.25 | % | | 20,407 | | | 871 | | | 4.26 | % | | |
All other interest-earning assets | | 2,251 | | | 41 | | | 1.77 | % | | 2,289 | | | 62 | | | 2.70 | % | | 2,967 | | | 77 | | | 2.60 | % | | |
Total interest-earning assets | | $ | 50,113 | | | $ | 823 | | | 1.64 | % | | $ | 38,577 | | | $ | 1,000 | | | 2.59 | % | | $ | 34,569 | | | $ | 1,281 | | | 3.71 | % | | |
Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | |
Bank deposits: | | | | | | | | | | | | | | | | | | | | |
Savings, money market and Negotiable Order of Withdrawal (“NOW”) accounts | | $ | 28,359 | | | $ | 6 | | | 0.02 | % | | $ | 23,629 | | | $ | 21 | | | 0.09 | % | | $ | 20,889 | | | $ | 120 | | | 0.58 | % | | |
Certificates of deposit | | 904 | | | 17 | | | 1.90 | % | | 1,006 | | | 20 | | | 2.03 | % | | 536 | | | 12 | | | 2.24 | % | | |
Total bank deposits | | 29,263 | | | 23 | | | 0.08 | % | | 24,635 | | | 41 | | | 0.17 | % | | 21,425 | | | 132 | | | 0.62 | % | | |
Brokerage client payables | | 10,180 | | | 3 | | | 0.03 | % | | 4,179 | | | 11 | | | 0.28 | % | | 3,326 | | | 21 | | | 0.62 | % | | |
Other borrowings | | 862 | | | 19 | | | 2.20 | % | | 892 | | | 20 | | | 2.24 | % | | 926 | | | 21 | | | 2.30 | % | | |
Senior notes payable | | 2,078 | | | 96 | | | 4.58 | % | | 1,800 | | | 85 | | | 4.72 | % | | 1,550 | | | 73 | | | 4.70 | % | | |
All other interest-bearing liabilities | | 585 | | | 9 | | | 0.82 | % | | 795 | | | 21 | | | 1.99 | % | | 1,030 | | | 36 | | | 3.13 | % | | |
Total interest-bearing liabilities | | $ | 42,968 | | | $ | 150 | | | 0.34 | % | | $ | 32,301 | | | $ | 178 | | | 0.54 | % | | $ | 28,257 | | | $ | 283 | | | 1.00 | % | | |
Net interest income | | | | $ | 673 | | | | | | | $ | 822 | | | | | | | $ | 998 | | | | | |
Firmwide net interest margin (net yield on interest-earning assets) | | | | | | 1.35 | % | | | | | | 2.14 | % | | | | | | 2.89 | % | | |
Raymond James Bank net interest margin | | | | | | 1.95 | % | | | | | | 2.63 | % | | | | | | 3.32 | % | | |
Nonaccrual loans provided to brokerage clients increased.
The RJ Bank segment’s net interest income increased $75 million, or 19%, resulting from an increase in average interest-earning banking assets, partially offset by a small decline in the net interest margin. Interest expense incurred on other borrowings increased, primarily related to RJ Bank’s borrowings from the FHLB and the related interest hedges. Refer to the discussion of the specific components of RJ Bank’s net interest income in the RJ Bank section of this MD&A.
Interest expense incurred on our senior notes increased by $2 million, or 3%. The incremental interest expense arising from our July 2016 $800 million senior note issuances exceeded the interest savings resulting from our April 2016 repayment of the $250 million 4.25% issuance which matured.
Results of Operations – Private Client Group
The success of the PCG segment is dependent upon the quality of our products, services, financial advisors and support personnel. Revenues of this segment are correlated with the level of PCG client assets under administration, including fee-based accounts, as well as the overall U.S. equity markets. In periods where equity markets improve, assets under administration and client activity generally increase, thereby having a favorable impact on net revenues.
Through our PCG segment, we provide investment services for which we charge sales commissions or asset-based fees. In addition, we also offer investment advisory services for which we earn a fee calculated as a percentage of assets in the client account or a flat periodic fee charged to the client for investment advice. Such revenues are included in “Securities commissions and fees.” We also earn certain servicing fees, such as omnibus and education and marketing support (“EMS”) fees, from mutual fund and annuity companies whose products we distribute, which are included in “Account and service fees.”
Net interest revenuethe average loan balances in the PCG segmentpreceding table. Any payments received for corporate nonaccrual loans are applied entirely to principal. Interest income on residential mortgage nonaccrual loans is generated by interest earningsrecognized on margina cash basis.
The yield on tax-exempt loans provided to clients andin the preceding table is presented on cash segregated pursuant to regulations, less interest paid on client cash balances in our client interest program. We also earn fees in lieua tax-equivalent basis utilizing the applicable federal statutory rates for each of interest revenue from our RJBDP program, which are included in “Account and service fees.” Higher client cash balances generally lead tothe years presented.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis
increased interest income and account and service fee revenues, depending upon spreads realized in our client interest program and RJBDP. For more information on client cash balances, see our previous discussion of interest-earning and interest-bearing assets and liabilities in the Net Interest section of this MD&A.
For an overview of our PCG segment operations, refer to the information presented in Item I, Business in this Form 10-K.
|
| | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | % change | | 2016 | | % change | | 2015 |
Revenues: | | | | | | | | | | |
Securities commissions and fees: | | | | | | | |
|
| | |
Fee-based accounts | | $ | 2,040,839 |
| | 28 | % | | $ | 1,589,124 |
| | 8 | % | | $ | 1,472,877 |
|
Mutual funds | | 646,614 |
| | 2 | % | | 631,102 |
| | (7 | )% | | 680,375 |
|
Insurance and annuity products | | 385,493 |
| | 2 | % | | 377,329 |
| | 4 | % | | 363,352 |
|
Equity products | | 303,015 |
| | 26 | % | | 240,855 |
| | (11 | )% | | 270,435 |
|
Fixed income products | | 118,062 |
| | 23 | % | | 95,908 |
| | 29 | % | | 74,448 |
|
New issue sales credits | | 72,281 |
| | 64 | % | | 44,088 |
| | (41 | )% | | 75,015 |
|
Sub-total securities commissions and fees | | 3,566,304 |
| | 20 | % | | 2,978,406 |
| | 1 | % | | 2,936,502 |
|
Interest | | 152,711 |
| | 42 | % | | 107,281 |
| | 7 | % | | 100,594 |
|
Account and service fees: | | | | |
| | | | |
| | |
Mutual fund and annuity service fees | | 290,661 |
| | 14 | % | | 255,405 |
| | 2 | % | | 249,232 |
|
RJBDP fees | | 270,030 |
| | 99 | % | | 135,460 |
| | 63 | % | | 83,059 |
|
Client account and service fees | | 98,500 |
| | 4 | % | | 95,010 |
| | 2 | % | | 93,117 |
|
Client transaction fees | | 22,205 |
| | 10 | % | | 20,258 |
| | 7 | % | | 18,971 |
|
Account and service fees – all other | | 2,898 |
| | — |
| | 2,898 |
| | 8 | % | | 2,685 |
|
Sub-total account and service fees | | 684,294 |
| | 34 | % | | 509,031 |
| | 14 | % | | 447,064 |
|
Other | | 34,279 |
| | 7 | % | | 32,000 |
| | (10 | )% | | 35,398 |
|
Total revenues | | 4,437,588 |
| | 22 | % | | 3,626,718 |
| | 3 | % | | 3,519,558 |
|
Interest expense | | (15,955 | ) | | 56 | % | | (10,239 | ) | | (13 | )% | | (11,752 | ) |
Net revenues | | 4,421,633 |
| | 22 | % | | 3,616,479 |
| | 3 | % | | 3,507,806 |
|
Non-interest expenses: | | |
| | |
| | |
| | |
| | |
|
Sales commissions | | 2,653,287 |
| | 21 | % | | 2,193,099 |
| | 1 | % | | 2,169,823 |
|
Admin & incentive compensation and benefit costs | | 713,043 |
| | 20 | % | | 595,541 |
| | 8 | % | | 552,762 |
|
Communications and information processing | | 193,902 |
| | 16 | % | | 166,507 |
| | 6 | % | | 157,729 |
|
Occupancy and equipment costs | | 146,394 |
| | 17 | % | | 125,555 |
| | 4 | % | | 121,115 |
|
Business development | | 98,138 |
| | 11 | % | | 88,535 |
| | (4 | )% | | 92,473 |
|
Jay Peak matter | | 130,000 |
| | 550 | % | | 20,000 |
| | NM |
| | — |
|
Brokerage, clearing, exchange and other | | 113,919 |
| | 31 | % | | 86,678 |
| | 21 | % | | 71,661 |
|
Total non-interest expenses | | 4,048,683 |
| | 24 | % | | 3,275,915 |
| | 3 | % | | 3,165,563 |
|
Pre-tax income | | $ | 372,950 |
| | 10 | % | | $ | 340,564 |
| | — |
| | $ | 342,243 |
|
Management's Discussion and Analysis
|
| | | | | | | | | | | | | | | | | | |
Client Asset Balances: | | As of September 30, |
$ in billions | | 2017 | | % change | | 2016 | | % change | | 2015 |
PCG assets under administration | | $ | 659.5 |
| | 15 | % | | $ | 574.1 |
| | 27 | % | | $ | 453.3 |
|
PCG assets in fee-based accounts | | $ | 294.5 |
| | 27 | % | | $ | 231.0 |
| | 29 | % | | $ | 179.4 |
|
|
| | | | | | | | | |
Financial advisors and Branch locations:
| | September 30, |
| | 2017 (1) | | 2016 | | 2015 |
Employees | | 3,041 |
| | 3,098 |
| | 2,738 |
|
Independent Contractors | | 4,305 |
| | 4,048 |
| | 3,858 |
|
Total financial advisors | | 7,346 |
| | 7,146 |
| | 6,596 |
|
Branch locations | | 2,994 |
| | 2,890 |
| | 2,702 |
|
| |
(1) | During the year ended September 30, 2017, we refined the criteria to determine our financial advisor population, which resulted in a decrease in our previously reported counts of approximately 100 advisors as of our date of adoption. The impact of the change in our methodology did not have a significant impact on the prior periods, and thus we have not revised the number of financial advisors reported in prior periods. |
PCG assets under administration increased 15% over September 30, 2016, resulting from net client inflows and equity market appreciation. Our net client inflows were primarily attributable to strong financial advisor recruiting results. PCG assets in fee-based accounts as a percentage of overall PCG assets under administration increased compared to September 30, 2016 due, in part, to clients moving to fee-based alternatives versus traditional transaction-based accounts in response to the recently implemented DOL regulatory changes. PCG assets under administration increased as of September 30, 2016 compared with September 30, 2015 due to strong financial advisor recruiting results as well as our fiscal year 2016 acquisitions of Alex. Brown and 3Macs.
The net increase in financial advisors as of September 30, 2017 compared to September 30, 2016 resulted from strong financial advisor recruiting and high levels of retention throughout fiscal year 2017. The client asset levels and productivity measures associated with those financial advisors recruited during the fiscal year exceed our historical benchmark averages. Notwithstanding the future impact of changes in the overall economy, and more specifically their impact on the markets, we believe that this increase in financial advisors is a positive indication of potential future revenue growth in this segment.
Year ended September 30, 2017 compared with the year ended September 30, 2016
Net revenues increased $805 million, or 22% to $4.42 billion. Pre-tax income, which was negatively impacted by the Jay Peak settlement, increased $32 million, or 10% to $373 million.
Securities commissions and fees increased $588 million, or 20%, primarily due to strong recruiting results, the acquisitions of Alex. Brown and 3Macs in late fiscal 2016 and a stronger market environment compared to the prior year.
Account and service fees increased $175 million, or 34%, primarily due to higher RJBDP fees resulting from an increase in short-term interest rates during fiscal year 2017. Mutual fund and annuity service fees also increased, reflecting higher EMS fees and mutual fund omnibus fees. The increase in EMS fees is primarily due to increased assets in the program. The increase in omnibus fees is a result of an increase in the number of positions invested in fund families on the omnibus platform.
The portion of total segment revenues that we consider to be recurring was 79% for fiscal 2017, an increase from 77% for fiscal 2016. Recurring revenues include asset-based fees, trailing commissions from mutual funds and variable annuities/insurance products, mutual fund and annuity service fees, fees earned on funds in our RJBDP program, and interest, all of which contributed to the increase.
As previously discussed, net interest income in the PCG segment increased $40 million, or 41%.
Non-interest expenses increased $773 million, or 24%. Sales commissions increased $460 million, or 21%, relatively in line with the increase in securities commissions and fees. Expenses related to the Jay Peak matter increased by $110 million to reflect the amount of the settlement in fiscal 2017. Administrative and incentive compensation and benefits expense increased $118 million, or 20%, primarily resulting from additional staffing levels, primarily in operations and information technology functions, to support our continued growth and increased regulatory and compliance requirements.
Management's Discussion and Analysis
Year ended September 30, 2016 compared with the year ended September 30, 2015
Net revenues in fiscal 2016 increased $109 million, or 3%, to $3.62 billion. Pre-tax income decreased $2 million, to $341 million. PCG’s pre-tax margin on net revenues decreased to 9.4% as compared to 9.8% in fiscal 2015. The 3Macs and Alex. Brown acquisitions were completed toward the end of fiscal year 2016 and therefore the impact of these acquisitions on this segment’s operations were not significant to our fiscal year 2016 results.
Securities commissions and fees in fiscal 2016 increased $42 million, or 1%. Revenues earned in fiscal year 2016 on fee-based accounts increased $116 million, or 8%, commissions earned on fixed income products increased $21 million, or 29%, and commission revenues on insurance and annuity products increased $14 million, or 4%. Offsetting these increases, commissions on mutual funds decreased $49 million, or 7%, new issue sales credits declined $31 million, or 41%, and commissions on equity products decreased $30 million, or 11%, all of which reflect the challenging equity market conditions during significant portions of fiscal year 2016.
Total account and service fees in fiscal year 2016 increased $62 million, or 14%. RJBDP fees increased $52 million, or 63%, primarily resulting from increased average balances in the program as well as the December 2015 increase in interest rates. Mutual fund and annuity service fees increased $6 million, or 2%, primarily as a result of an increase in money market processing fees and omnibus fees arising from increased client assets and positions which are paid to us by companies whose products we distribute.
The portion of total segment revenues that we consider to be recurring was approximately 77% for fiscal 2016, an increase from 75% from fiscal 2015. Recurring commission and fee revenues include asset-based fees, trailing commissions from mutual funds and variable annuities/insurance products, mutual fund and annuity service fees, fees earned on funds in our RJBDP program, and interest.
As previously discussed, net interest income in the PCG segment increased $8 million, or 9%.
Non-interest expenses in fiscal year 2016 increased $110 million, or 3%. Administrative & incentive compensation and benefit costs increased $43 million, or 8%, resulting in part from annual increases in salaries, increases in employee benefit plan costs and additional staffing levels, primarily in PCG operations and information technology functions, to support our continuing growth during fiscal year 2016. Sales commission expense in fiscal year 2016 increased $23 million, or 1%, which is consistent with the 1% increase in securities commissions and fees revenues. Expenses related to the Jay Peak matter were $20 million in fiscal 2016 and there were no expenses related to this matter in fiscal 2015. Communications and information processing expense increased $9 million, or 6%, due to increases in software consulting and other information technology expenses associated with our continued investment in our platform and improving our compliance and regulatory systems.
Results of Operations – Capital Markets
Our Capital Markets segment conducts fixed income institutional sales and equity securities trading, equity research, investment banking and the syndication and related management of investments that qualify for tax credits. We primarily conduct these activities in the U.S., Canada and Europe.
We earn institutional sales commissions for the sale of both equity and fixed income products, which are driven primarily through trade volume, resulting from a combination of participation in public offerings, general market activity, and by the Capital Markets group’s ability to find attractive investment opportunities and promote those opportunities to clients.
This segment also includes trading which involves the purchase of securities from, and the sale of securities to, our clients as well as other dealers who may be purchasing or selling securities for their own account or acting as agent for their clients. Profits and losses related to this trading activity are primarily derived from the spreads between bid and ask prices, as well as market trends for the individual securities during the period we hold them. In our fixed income businesses, we also enter into interest rate swaps and futures contracts to facilitate client transactions or to actively manage risk exposures.
We provide various investment banking services, including public and private equity and debt financing activities, including our public finance activities, merger and acquisition advisory, and other advisory services. Revenues from investment banking activities are driven principally by our role in the transaction and the number and dollar value of the transactions with which we are involved. For an overview of our Capital Markets segment operations, refer to the information presented in Item I, Business in this Form 10-K.
Management's Discussion and Analysis
Operating results
|
| | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | % change | | 2016 | | % change | | 2015 |
Revenues: | | | | | | | | | | |
Securities commissions and fees: | | | | | | | | | | |
Equity | | $ | 222,942 |
| | (2 | )% | | $ | 228,346 |
| | (8 | )% | | $ | 247,414 |
|
Fixed income | | 267,749 |
| | (15 | )% | | 316,144 |
| | 11 | % | | 283,828 |
|
Sub-total securities commissions and fees | | 490,691 |
| | (10 | )% | | 544,490 |
| | 2 | % | | 531,242 |
|
Equity underwriting fees | | 72,845 |
| | 34 | % | | 54,492 |
| | (27 | )% | | 74,229 |
|
Merger & acquisition and advisory fees | | 228,422 |
| | 54 | % | | 148,503 |
| | (8 | )% | | 162,270 |
|
Fixed income investment banking | | 43,234 |
| | 5 | % | | 41,024 |
| | (3 | )% | | 42,149 |
|
Tax credit funds syndication fees | | 54,098 |
| | (9 | )% | | 59,424 |
| | 33 | % | | 44,601 |
|
Sub-total investment banking | | 398,599 |
| | 31 | % | | 303,443 |
| | (6 | )% | | 323,249 |
|
Investment advisory fees | | 21,623 |
| | (27 | )% | | 29,684 |
| | 6 | % | | 27,905 |
|
Net trading profit | | 78,155 |
| | (11 | )% | | 87,966 |
| | 60 | % | | 55,021 |
|
Interest | | 27,095 |
| | 9 | % | | 24,867 |
| | 9 | % | | 22,738 |
|
Other | | 18,072 |
| | (32 | )% | | 26,701 |
| | 63 | % | | 16,425 |
|
Total revenues | | 1,034,235 |
| | 2 | % | | 1,017,151 |
| | 4 | % | | 976,580 |
|
Interest expense | | (20,552 | ) | | 33 | % | | (15,435 | ) | | 17 | % | | (13,149 | ) |
Net revenues | | 1,013,683 |
| | 1 | % | | 1,001,716 |
| | 4 | % | | 963,431 |
|
Non-interest expenses: | | |
| | |
| | |
| | |
| | |
|
Sales commissions | | 176,197 |
| | (14 | )% | | 204,965 |
| | 3 | % | | 198,691 |
|
Admin & incentive compensation and benefit costs | | 469,468 |
| | 8 | % | | 433,136 |
| | 1 | % | | 428,501 |
|
Communications and information processing | | 70,140 |
| | (3 | )% | | 72,305 |
| | 1 | % | | 71,630 |
|
Occupancy and equipment costs | | 33,920 |
| | (1 | )% | | 34,250 |
| | 1 | % | | 34,006 |
|
Business development | | 38,389 |
| | (4 | )% | | 39,892 |
| | (9 | )% | | 44,058 |
|
Losses and non-interest expenses of real estate partnerships held by consolidated VIEs | | 13,663 |
| | 40 | % | | 9,788 |
| | 142 | % | | 4,050 |
|
Brokerage, clearing, exchange and other | | 84,702 |
| | 11 | % | | 76,189 |
| | (2 | )% | | 77,801 |
|
Total non-interest expenses | | 886,479 |
| | 2 | % | | 870,525 |
| | 1 | % | | 858,737 |
|
Income before taxes and including noncontrolling interests | | 127,204 |
| | (3 | )% | | 131,191 |
| | 25 | % | | 104,694 |
|
Noncontrolling interests | | (14,032 | ) | | |
| | (7,982 | ) | | |
| | (2,315 | ) |
Pre-tax income excluding noncontrolling interests | | $ | 141,236 |
| | 1 | % | | $ | 139,173 |
| | 30 | % | | $ | 107,009 |
|
Noncontrolling interests is primarily comprised of the net pre-tax impact (which are net losses) from the consolidation of certain low-income housing tax credit funds, with noncontrolling interests reflecting the portion of such losses that we do not own.
Year ended September 30, 2017 compared with the year ended September 30, 2016
Net revenues increased $12 million, or 1%, to $1.01 billion, led by higher merger & acquisition and advisory fees and equity underwriting revenues, partially offset by lower institutional sales commissions. Pre-tax income increased $2 million, or 1% to $141 million.
Total commission revenues decreased $54 million, or 10%. Institutional fixed income commissions decreased $48 million, or 15%, driven by lower client trading volumes, as fixed income was faced with a challenging operating environment characterized by low levels of volatility and a flattening yield curve. Institutional equity sales commissions decreased $5 million, or 2%, primarily reflecting the impact of low levels of volatility.
Merger & acquisition and advisory fees increased $80 million, or 54%, primarily due to a stronger volume of both domestic and foreign merger & acquisition activity in the current year compared to low levels in the prior year, as well as higher average fees per transaction. Fiscal year 2017 also benefited from the impact of a full year of revenues related to our June 2016 acquisition of Mummert & Company Corporate Finance GmbH (“Mummert”).
Equity underwriting fees increased $18 million, or 34%, primarily due to the improved equity market conditions compared with a difficult fiscal 2016. The total number of both lead-managed and co-managed underwritings increased significantly over the prior year levels.
Net revenues related to our public finance underwriting and advisory activities remained solid during our 2017 fiscal year and increased slightly compared with fiscal 2016.
Management's Discussion and Analysis
Despite the uncertainty related to the outcome of any corporate tax reform initiatives, our tax credit funds reflected good performance during the fiscal year. This uncertainty did depress new investment activity amongst syndicators of Low-Income Housing Tax Credit Fund (“LIHTC”) investments during the year and, as a result, our tax credit fund syndication fees decreased $5 million, or 9%, from prior year levels. Depending on the scope of any enacted tax reform legislation, there could also be a significant negative impact on the future results of our tax credit fund business.
Net trading profit decreased $10 million, or 11%, compared with a strong fiscal 2016, primarily due to lower market volatility.
Non-interest expenses increased $16 million, or 2%. Administrative & incentive compensation and benefit expenses increased $36 million, or 8%, primarily resulting from the increase in incentive compensation as a result of the increase in investment banking net revenues. Offsetting the increase, sales commission expenses decreased $29 million, or 14%, primarily as a result of lower institutional fixed income commission revenues during the year.
Year ended September 30, 2016 compared with the year ended September 30, 2015
Net revenues in fiscal year 2016 increased $38 million, or 4%, to $1.00 billion. Fiscal year 2016 pre-tax income increased $32 million, or 30%, to $139 million.
Commission revenues in fiscal year 2016 increased $13 million, or 2%. Institutional fixed income commissions increased $32 million, or 11%, benefiting from increased activity both in the anticipation of, and the aftermath resulting from the December 2015 Federal Reserve Bank action to increase short-term interest rates, as well as the interest rate volatility in the markets during much of fiscal year 2016. Offsetting the increase, institutional equity sales commissions decreased $19 million, or 8%, resulting primarily from decreased equity underwriting activities throughout most of fiscal year 2016.
Equity underwriting fees decreased in fiscal year 2016 by $20 million, or 27%, while merger & acquisition and advisory fees decreased $14 million, or 8%. The late September 2015 decline in the equity markets, coupled with market uncertainty in advance of the December 2015 Federal Reserve Bank announcement and their related commentary on interest rates, combined to result in an unfavorable market environment for equity activities during much of fiscal year 2016. As a result, we experienced lower volumes in both our merger & acquisition advisory and equity underwriting activities throughout most of fiscal year 2016. While merger & acquisition and advisory fees are a volatile revenue source in general, the number of merger & acquisition transactions in fiscal year 2016 was low. Most of the decrease in our equity underwriting revenues resulted from our domestic operations. Revenues from our Canadian activities were relatively unchanged from the low amount generated in fiscal year 2015. The number of both lead-managed and co-managed equity underwritings in both our domestic and Canadian operations decreased during fiscal year 2016 compared to fiscal year 2015.
We experienced solid performance in our public finance underwritings in fiscal year 2016, which positively impacted both our securities commissions and fee revenues and our investment banking revenues. The combined revenues resulting from these public finance business activities increased 1% over the fiscal year 2015 level.
Tax credit fund syndication fee revenues increased $15 million, or 33%, due to an increase in the volume of tax credit fund partnership interests sold during fiscal year 2016. As a market leader amongst syndicators of LIHTC investments, we achieved a new milestone in fiscal year 2016 by selling over $1 billion of such investments to institutional investors. Additionally, we recognized nearly $7 million in revenues that were associated with partnership interests sold in prior years which had been deferred in those years. Fiscal year 2016 recognition of these previously deferred revenues resulted from the favorable resolution of certain conditions associated with the partnership interests. As of September 30, 2016, approximately $11 million of previously deferred revenues remained to be recognized in future revenues, whenever such conditions for revenue recognition are fully satisfied.
Our net trading profit in fiscal year 2016 increased $33 million, or 60%. Trading profits generated in our fixed income operations increased approximately $27 million, reflecting solid results in most product categories. Our fiscal year 2015 equity capital markets operations included $5 million of realized trading losses attributable to an equity underwriting position held in our Canadian subsidiary that did not recur in fiscal year 2016.
Other revenues increased $10 million, or 63%. These revenues include $5 million in fiscal year 2016 arising from revenues associated with our annual analyst best picks. Foreign exchange gains associated with certain of our international operations increased $4 million during fiscal year 2016.
Management's Discussion and Analysis
Non-interest expenses in fiscal year 2016 increased $12 million, or 1%. Sales commission expense increased $6 million, or 3%, consistent with the 2% increase in institutional sales commission revenues. Administrative & incentive compensation and benefit expenses increased $5 million, or 1%, consistent with annual increases in salaries and increases in employee benefit plan costs. Our business development expenses decreased $4 million, or 9%, reflecting the outcome of heightened expense management in fiscal year 2016.
Results of Operations – Asset Management
Our Asset Management segment provides investment advisory and asset management services to individual and institutional investors, and also sponsors a family of mutual funds. Investment advisory fee revenues are earned on the assets held in either managed or non-discretionary asset-based programs. In managed programs, decisions are made by in-house or third-party portfolio managers or investment committees about how to invest the assets in accordance with such programs’ objectives. In non-discretionary asset-based programs, we provide administrative support, which may include trade execution, record-keeping and periodic investor reporting. We generally earn higher fees for managed programs than for non-discretionary asset-based programs, as we provide additional services, such as portfolio management, to managed programs. These fees are computed based on balances either at the beginning of the quarter, the end of the quarter, or average daily assets. Asset balances are impacted by both the performance of the market and the new sales (inflows) and redemptions (outflows) of client accounts/funds. Rising equity markets have historically had a positive impact on investment advisory fee revenues as existing accounts increase in value, and individuals and institutions may commit incremental funds in rising markets. For an overview of our Asset Management segment operations, refer to the information presented in Item I, Business in this Form 10-K.
Operating results
|
| | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | % change | | 2016 | | % change | | 2015 |
Revenues: | | | | | | | | | | |
Investment advisory and related administrative fees: | | | | | | | | | | |
Managed programs | | $ | 326,405 |
| | 21 | % | | $ | 270,623 |
| | — |
| | $ | 271,609 |
|
Non-discretionary asset-based administration | | 91,087 |
| | 23 | % | | 74,130 |
| | 10 | % | | 67,286 |
|
Sub-total investment advisory and related administrative fees | | 417,492 |
| | 21 | % | | 344,753 |
| | 2 | % | | 338,895 |
|
Account and service fees and Other | | 70,243 |
| | 18 | % | | 59,668 |
| | 12 | % | | 53,483 |
|
Total revenues | | 487,735 |
| | 21 | % | | 404,421 |
| | 3 | % | | 392,378 |
|
| | | | | | | | | | |
Interest expense | | (77 | ) | | 7 | % | | (72 | ) | | (6 | )% | | (77 | ) |
Net revenues | | 487,658 |
| | 21 | % | | 404,349 |
| | 3 | % | | 392,301 |
|
Non-interest expenses: | | |
| | |
| | |
| | |
| | |
|
Compensation and benefits | | 123,119 |
| | 9 | % | | 112,998 |
| | 11 | % | | 101,723 |
|
Communications and information processing | | 30,109 |
| | 11 | % | | 27,027 |
| | 7 | % | | 25,286 |
|
Occupancy and equipment costs | | 5,046 |
| | 14 | % | | 4,423 |
| | (3 | )% | | 4,564 |
|
Business development | | 9,673 |
| | 2 | % | | 9,500 |
| | (4 | )% | | 9,911 |
|
Investment sub-advisory fees | | 75,497 |
| | 33 | % | | 56,751 |
| | 3 | % | | 54,938 |
|
Other | | 67,509 |
| | 17 | % | | 57,911 |
| | 3 | % | | 56,177 |
|
Total non-interest expenses | | 310,953 |
| | 16 | % | | 268,610 |
| | 6 | % | | 252,599 |
|
Income before taxes and including noncontrolling interests | | 176,705 |
| | 30 | % | | 135,739 |
| | (3 | )% | | 139,702 |
|
Noncontrolling interests | | 4,969 |
| | |
| | 3,581 |
| | |
| | 4,652 |
|
Pre-tax income excluding noncontrolling interests | | $ | 171,736 |
| | 30 | % | | $ | 132,158 |
| | (2 | )% | | $ | 135,050 |
|
Noncontrolling interests is primarily comprised of the net pre-tax impact (which are net gains) from the consolidation of certain subsidiaries with noncontrolling interests reflecting the portion of such gains we do not own.
Management's Discussion and Analysis
Selected key metrics
Managed Programs - For the fiscal years ended September 30, 2017 and 2016, approximately 80% of investment advisory fees recorded in this segment were earned from assets held in managed programs. Of these revenues, approximately 70% of such fees recorded in each quarter were determined based on balances at the beginning of the quarter, approximately 15% were based on balances at the end of the quarter and the remaining 15% were computed based on average assets throughout the quarter.
Financial assets under management:
|
| | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2017 | | 2016 | | 2015 |
Eagle Asset Management, Inc. (“Eagle”) (1) | | $ | 31,670 |
| | $ | 27,235 |
| | $ | 25,692 |
|
Freedom accounts (2) | | 32,714 |
| | 24,136 |
| | 20,188 |
|
Raymond James Consulting Services (3) | | 23,612 |
| | 18,883 |
| | 13,484 |
|
Unified Managed Accounts (“UMA”) (4) | | 12,577 |
| | 10,389 |
| | 8,613 |
|
All other | | 1,220 |
| | 1,086 |
| | 1,116 |
|
Sub-total financial assets under management | | 101,793 |
| | 81,729 |
| | 69,093 |
|
Less: Assets managed for affiliated entities | | (5,397 | ) | | (4,744 | ) | | (3,916 | ) |
Total financial assets under management | | $ | 96,396 |
| | $ | 76,985 |
| | $ | 65,177 |
|
| |
(1) | Accounts for which Eagle portfolio managers are engaged to manage clients’ assets with investment decisions made by the Eagle portfolio manager. |
| |
(2) | Accounts that provide the client a choice between a portfolio of mutual funds, exchange traded funds or a combination of both with investment decisions made by an in-house investment committee. |
| |
(3) | Accounts for which in-house or third-party portfolio managers are engaged to manage clients’ assets with investment decisions made by such portfolio manager. |
| |
(4) | Accounts that provide the client with the ability to combine separately managed accounts, mutual funds and exchange traded funds all in one aggregate account with investment decisions made by an in-house investment committee. |
Activity (including activity in assets managed for affiliated entities):
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2017 | | 2016 | | 2015 |
Financial assets under management at beginning of year | | $ | 81,729 |
| | $ | 69,093 |
| | $ | 69,368 |
|
Net inflows | | 9,912 |
| | 6,327 |
| | 2,797 |
|
Net market appreciation/(depreciation) in asset values | | 10,152 |
| | 6,309 |
| | (2,170 | ) |
Other | | — |
| | — |
| | (902 | ) |
Financial assets under management at end of year | | $ | 101,793 |
| | $ | 81,729 |
| | $ | 69,093 |
|
The fiscal year 2016 net inflows in the table above include approximately $2.0 billion of client assets resulting from our acquisition of Alex. Brown. The “Other” category in fiscal year 2015 includes assets that were previously included in Eagle programs which were transferred into non-discretionary asset-based programs.
Non-discretionary asset-based programs - For the fiscal years ended September 30, 2017 and 2016, approximately 20% of investment advisory and related administrative fee revenues recorded in this segment were earned for administrative services on assets held in certain non-discretionary asset-based programs. These assets (including those managed for affiliated entities) totaled $157.0 billion, $119.3 billion, and $91.0 billion as of September 30, 2017, 2016 and 2015, respectively. The increase in assets in fiscal year 2017 over the prior year level was due, in part, to clients moving to fee-based alternatives in response to the recently implemented DOL regulatory changes. The majority of the administrative fees associated with these programs are determined based on balances at the beginning of the quarter.
Year ended September 30, 2017 compared with the year ended September 30, 2016
Net revenues increased $83 million, or 21%, to $488 million. Pre-tax income increased $40 million, or 30%, to $172 million.
Total investment advisory and related administrative fee revenues increased $73 million, or 21%. Investment advisory fee revenues arising from managed programs increased $56 million, or 21%, and fee revenues on non-discretionary asset-based administration activities increased $17 million, or 23%, both resulting from the increases in assets held by such programs, including the impact of the
Management's Discussion and Analysis
Alex. Brown acquisition at the end of our 2016 fiscal year. Financial assets under management and non-discretionary assets were positively impacted by net financial advisor growth, the move to fee based accounts as a result of the implementation of the DOL regulatory changes and market appreciation.
Account and service fees and Other increased $11 million, or 18%, primarily resulting from RJ Trust which generated increased trust fee revenue arising from the increase in trust assets to $5.5 billion as of September 30, 2017, as well as increased shareholder servicing fees.
Non-interest expenses increased $42 million, or 16%, primarily resulting from a $19 million, or 33%, increase in investment sub-advisory fees and a $10 million, or 9%, increase in compensation and benefit expenses. The increase in investment sub-advisory fees resulted from the increase in assets in sub-advised managed programs. The increase in compensation and benefit expenses resulted primarily from annual salary increases as well as increases in personnel to support the growth of the business. Other expenses increased $10 million, or 17%, as a result of additional regulatory and compliance costs.
The results presented above do not include any acquisition-related expenses associated with our recently announced acquisition of Scout Investments, Inc. (the “Scout Group”) and its Reams Asset Management division (“Reams”), as well as Scout Distributors, which closed in November 2017. The acquisition-related expenses incurred in fiscal year 2017 related to this acquisition are reflected in the Other segment. See Note 3 of the Notes to Consolidated Financial Statements in this Form 10-K for further information about this acquisition.
Year ended September 30, 2016 compared to the year ended September 30, 2015
Net revenues increased $12 million, or 3%, to $404 million. Pre-tax income decreased $3 million, or 2%, to $132 million.
Total investment advisory and related administrative fee revenues increased by $6 million, or 2%. Revenues from non-discretionary asset-based administration activities increased $7 million, or 10%, primarily resulting from the 31% increase in assets held in such programs. Assets arising from our Alex. Brown and 3Macs acquisitions had little impact on revenues as the acquisitions occurred late in the fiscal year. Offsetting this increase, advisory fee revenues from managed programs decreased by approximately $1 million. Although financial assets under management increased $11.8 billion, or nearly 18% (net of assets managed for affiliated entities) compared to the prior year level, such balances were lower on fee billing dates during the 2016 fiscal year. Also, a portion of the increase in assets arose from our acquisition of Alex. Brown which occurred late in the 2016 fiscal year.
Other income increased $6 million, or 12%, resulting in part from RJ Trust which generated an increase in trust fee income arising from their 30% increase in trust assets from the prior year level. In addition, Eagle received increased shareholder servicing fees and money market fee sharing related to the increase in interest rates.
Non-interest expenses increased by approximately $16 million, or 6%, primarily resulting from an $11 million, or 11%, increase in compensation and benefit expenses, a $2 million, or 3%, increase in investment sub-advisory fee expense, a $2 million, or 7%, increase in communications and information processing expense, and a $2 million, or 3%, increase in other expense. The increase in compensation and benefit expenses resulted primarily from annual salary increases, increases in personnel to support the growth of the business and increases in certain employee benefit plan costs. In addition, the prior year incentive compensation expense included a reversal of certain incentive compensation expense accruals for associates who left the firm during the prior year; such a reversal did not recur in the current year. The increase in sub-advisory fee expense results from increased assets under management in applicable programs. The increase in communication and information processing expense results from increased costs in support of growth in the business. The increase in other expense is in part the result of an increase in revenue sharing with PCG, certain regulatory compliance and legal expenses, and certain incremental costs associated with Cougar including amortization of intangible assets arising from the acquisition.
Management's Discussion and Analysis
Results of Operations – RJ Bank
RJ Bank provides corporate loans (C&I, CRE and CRE construction), SBL, tax-exempt and residential loans. RJ Bank is active in corporate loan syndications and participations. RJ Bank also provides Federal Deposit Insurance Corporation (“FDIC”)-insured deposit accounts to clients of our broker-dealer subsidiaries and to the general public. RJ Bank generates net interest revenue principally through the interest income earned on loans and investments, which is offset by the interest expense it pays on client deposits and on its borrowings. Higher interest-earning asset balances generally lead to increased net interest earnings, depending upon spreads realized on our net interest-bearing liabilities. For more information on average interest earning asset and liability balances, see our discussion below in this MD&A.
For an overview of our RJ Bank segment operations, refer to the information presented in Item I, Business in this Form 10-K.
Operating results
|
| | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | % change | | 2016 | | % change | | 2015 |
Revenues: | | | | | | | | | | |
Interest income | | $ | 609,971 |
| | 22 | % | | $ | 501,967 |
| | 21 | % | | $ | 415,271 |
|
Interest expense | | (35,175 | ) | | 51 | % | | (23,277 | ) | | 99 | % | | (11,693 | ) |
Net interest income | | 574,796 |
| | 20 | % | | 478,690 |
| | 19 | % | | 403,578 |
|
Other income | | 17,874 |
| | 17 | % | | 15,276 |
| | 43 | % | | 10,717 |
|
Net revenues | | 592,670 |
| | 20 | % | | 493,966 |
| | 19 | % | | 414,295 |
|
Non-interest expenses: | | |
| | |
| | |
| | |
| | |
|
Compensation and benefits | | 33,991 |
| | 14 | % | | 29,742 |
| | 7 | % | | 27,843 |
|
Communications and information processing | | 7,946 |
| | 12 | % | | 7,090 |
| | 37 | % | | 5,186 |
|
Occupancy and equipment costs | | 1,432 |
| | 18 | % | | 1,216 |
| | (3 | )% | | 1,256 |
|
Loan loss provision | | 12,987 |
| | (54 | )% | | 28,167 |
| | 20 | % | | 23,570 |
|
FDIC insurance premiums | | 16,832 |
| | 9 | % | | 15,478 |
| | 32 | % | | 11,746 |
|
Affiliate deposit account servicing fees | | 67,981 |
| | 58 | % | | 43,145 |
| | 22 | % | | 35,429 |
|
Other | | 42,198 |
| | 33 | % | | 31,832 |
| | 4 | % | | 30,544 |
|
Total non-interest expenses | | 183,367 |
| | 17 | % | | 156,670 |
| | 16 | % | | 135,574 |
|
Pre-tax income | | $ | 409,303 |
| | 21 | % | | $ | 337,296 |
| | 21 | % | | $ | 278,721 |
|
Management's Discussion and Analysis
The following table presents average balances, interest income and expense, the related interest yields and rates, and interest spreads and margins for RJ Bank for the years indicated:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
| | 2017 | | 2016 | | 2015 |
$ in thousands | | Average balance | | Interest inc./exp. | | Average yield/ cost | | Average balance | | Interest inc./exp. | | Average yield/ cost | | Average balance | | Interest inc./exp. | | Average yield/ cost |
Interest-earning banking assets: | | | | | | | | | | | | | | | | |
Loans, net of unearned income (1) | | | | | | | | | | | | | | | | |
Loans held for sale | | $ | 159,384 |
| | $ | 5,156 |
| | 3.34 | % | | $ | 150,305 |
| | $ | 4,551 |
| | 3.07 | % | | $ | 107,255 |
| | $ | 2,686 |
| | 2.64 | % |
Loans held for investment: | | | | | | | | | | | | | | | | |
C&I loans | | 7,340,052 |
| | 281,274 |
| | 3.78 | % | | 7,171,402 |
| | 271,476 |
| | 3.73 | % | | 6,677,117 |
| | 244,986 |
| | 3.62 | % |
CRE construction loans | | 129,073 |
| | 6,184 |
| | 4.73 | % | | 169,101 |
| | 8,462 |
| | 4.92 | % | | 118,626 |
| | 5,042 |
| | 4.19 | % |
CRE loans | | 2,831,870 |
| | 100,563 |
| | 3.50 | % | | 2,297,224 |
| | 70,048 |
| | 3.00 | % | | 1,728,324 |
| | 53,369 |
| | 3.05 | % |
Tax-exempt loans (2) | | 891,922 |
| | 23,057 |
| | 3.98 | % | | 617,701 |
| | 16,707 |
| | 4.16 | % | | 301,767 |
| | 8,812 |
| | 4.49 | % |
Residential mortgage loans | | 2,803,464 |
| | 83,537 |
| | 2.94 | % | | 2,217,789 |
| | 64,607 |
| | 2.87 | % | | 1,927,105 |
| | 55,370 |
| | 2.83 | % |
SBL | | 2,123,189 |
| | 72,400 |
| | 3.36 | % | | 1,713,243 |
| | 51,515 |
| | 2.96 | % | | 1,269,337 |
| | 35,313 |
| | 2.74 | % |
Total loans, net | | 16,278,954 |
| | 572,171 |
| | 3.55 | % | | 14,336,765 |
| | 487,366 |
| | 3.42 | % | | 12,129,531 |
| | 405,578 |
| | 3.34 | % |
Agency MBS and CMOs | | 1,432,804 |
| | 25,101 |
| | 1.75 | % | | 363,722 |
| | 4,993 |
| | 1.37 | % | | 248,408 |
| | 2,446 |
| | 0.98 | % |
Non-agency CMOs | | 30,134 |
| | 869 |
| | 2.88 | % | | 68,904 |
| | 1,764 |
| | 2.56 | % | | 89,336 |
| | 2,178 |
| | 2.44 | % |
Cash | | 859,020 |
| | 7,696 |
| | 0.90 | % | | 884,556 |
| | 4,140 |
| | 0.47 | % | | 611,375 |
| | 1,344 |
| | 0.22 | % |
FHLB stock, Federal Reserve Bank of Atlanta (“FRB”) stock, and other | | 157,395 |
| | 4,134 |
| | 2.63 | % | | 186,589 |
| | 3,704 |
| | 1.98 | % | | 111,891 |
| | 3,725 |
| | 3.33 | % |
Total interest-earning banking assets | | 18,758,307 |
| | $ | 609,971 |
| | 3.28 | % | | 15,840,536 |
| | $ | 501,967 |
| | 3.18 | % | | 13,190,541 |
| | $ | 415,271 |
| | 3.15 | % |
Non-interest-earning banking assets: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Allowance for loan losses | | (194,029 | ) | | |
| | |
| | (188,429 | ) | | |
| | |
| | (158,373 | ) | | |
| | |
|
Unrealized loss on available-for-sale securities | | (6,663 | ) | | |
| | |
| | (3,172 | ) | | |
| | |
| | (4,666 | ) | | |
| | |
|
Other assets | | 374,769 |
| | |
| | |
| | 281,961 |
| | |
| | |
| | 321,919 |
| | |
| | |
|
Total non-interest-earning banking assets | | 174,077 |
| | |
| | |
| | 90,360 |
| | |
| | |
| | 158,880 |
| | |
| | |
|
Total banking assets | | $ | 18,932,384 |
| | |
| | |
| | $ | 15,930,896 |
| | |
| | |
| | $ | 13,349,421 |
| | |
| | |
|
Interest-bearing banking liabilities: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Deposits: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Certificates of deposit | | $ | 293,589 |
| | $ | 4,325 |
| | 1.47 | % | | $ | 345,628 |
| | $ | 5,402 |
| | 1.56 | % | | $ | 347,748 |
| | $ | 5,839 |
| | 1.68 | % |
Money market, savings, and NOW accounts | | 15,975,308 |
| | 16,230 |
| | 0.10 | % | | 13,238,007 |
| | 7,087 |
| | 0.05 | % | | 10,851,494 |
| | 2,543 |
| | 0.02 | % |
FHLB advances and other | | 820,594 |
| | 14,620 |
| | 1.76 | % | | 680,778 |
| | 10,788 |
| | 1.56 | % | | 664,387 |
| | 3,311 |
| | 0.49 | % |
Total interest-bearing banking liabilities | | 17,089,491 |
| | $ | 35,175 |
| | 0.20 | % | | 14,264,413 |
| | $ | 23,277 |
| | 0.16 | % | | 11,863,629 |
| | $ | 11,693 |
| | 0.10 | % |
Non-interest-bearing banking liabilities | | 92,762 |
| | |
| | |
| | 71,278 |
| | |
| | |
| | 52,933 |
| | |
| | |
|
Total banking liabilities | | 17,182,253 |
| | |
| | |
| | 14,335,691 |
| | |
| | |
| | 11,916,562 |
| | |
| | |
|
Total banking shareholder’s equity | | 1,750,131 |
| | |
| | |
| | 1,595,205 |
| | |
| | |
| | 1,432,859 |
| | |
| | |
|
Total banking liabilities and shareholders’ equity | | $ | 18,932,384 |
| | |
| | |
| | $ | 15,930,896 |
| | |
| | |
| | $ | 13,349,421 |
| | |
| | |
|
Excess of interest-earning banking assets over interest-bearing banking liabilities/net interest income | | $ | 1,668,816 |
| | $ | 574,796 |
| | | | $ | 1,576,123 |
| | $ | 478,690 |
| | | | $ | 1,326,912 |
| | $ | 403,578 |
| | |
Bank net interest: | | |
| | |
| | | | |
| | |
| | | | |
| | |
| | |
Spread | | |
| | |
| | 3.08 | % | | |
| | |
| | 3.02 | % | | |
| | |
| | 3.05 | % |
Margin (net yield on interest-earning banking assets) | | |
| | |
| | 3.10 | % | | |
| | |
| | 3.04 | % | | |
| | |
| | 3.07 | % |
Ratio of interest-earning banking assets to interest-bearing banking liabilities | | |
| | |
| | 109.77 | % | | |
| | |
| | 111.05 | % | | |
| | |
| | 111.18 | % |
| |
(1) | Nonaccrual loans are included in the average loan balances. Payment or income received on corporate nonaccrual loans are applied to principal. Income on other nonaccrual loans is recognized on a cash basis. Fee income on all loans included in interest income for the years ended September 30, 2017, 2016 and 2015 was $38 million, $36 million, and $30 million, respectively. |
| |
(2) | The yield is presented on a tax-equivalent basis utilizing the federal statutory tax rate of 35%. |
Management's Discussion and Analysis
Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning banking 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 itsour interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average yield/cost. Similarly, the effect of rate changes is calculated by multiplying the change in average yield/cost by the previous year’speriod’s volume. Changes applicableattributable to both volume and rate have been allocated proportionately.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
| | 2021 compared to 2020 | | 2020 compared to 2019 |
| | Increase/(decrease) due to | | Increase/(decrease) due to |
$ in millions | | Volume | | Rate | | Total | | Volume | | Rate | | Total |
Interest income: | | | | | | | | | | | | |
Interest-earning assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 3 | | | $ | (32) | | | $ | (29) | | | $ | 46 | | | $ | (88) | | | $ | (42) | |
Assets segregated for regulatory purposes and restricted cash | | 54 | | | (67) | | | (13) | | | 16 | | | (47) | | | (31) | |
Available-for-sale securities | | 71 | | | (69) | | | 2 | | | 33 | | | (19) | | | 14 | |
Brokerage client receivables | | 2 | | | (9) | | | (7) | | | (16) | | | (22) | | | (38) | |
Bank loans, net of unearned income and deferred expenses: | | | | | | | | | | | | |
Loans held for investment: | | | | | | | | | | | | |
C&I loans | | (1) | | | (72) | | | (73) | | | (9) | | | (94) | | | (103) | |
CRE loans | | 4 | | | (22) | | | (18) | | | 13 | | | (34) | | | (21) | |
REIT loans | | (2) | | | (8) | | | (10) | | | (3) | | | (18) | | | (21) | |
Tax-exempt loans | | 2 | | | (1) | | | 1 | | | (2) | | | — | | | (2) | |
Residential mortgage loans | | 8 | | | (16) | | | (8) | | | 26 | | | (13) | | | 13 | |
SBL and other | | 45 | | | (45) | | | — | | | 19 | | | (52) | | | (33) | |
Loans held for sale | | 1 | | | (2) | | | (1) | | | (1) | | | (1) | | | (2) | |
Total bank loans, net | | 57 | | | (166) | | | (109) | | | 43 | | | (212) | | | (169) | |
All other interest-earning assets | | (1) | | | (20) | | | (21) | | | (18) | | | 3 | | | (15) | |
Total interest-earning assets | | 186 | | | (363) | | | (177) | | | 104 | | | (385) | | | (281) | |
Interest expense: | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | |
Bank deposits: | | | | | | | | | | | | |
Savings, money market and NOW accounts | | 4 | | | (19) | | | (15) | | | 17 | | | (116) | | | (99) | |
Certificates of deposit | | (2) | | | (1) | | | (3) | | | 10 | | | (2) | | | 8 | |
Total bank deposits | | 2 | | | (20) | | | (18) | | | 27 | | | (118) | | | (91) | |
Brokerage client payables | | 17 | | | (25) | | | (8) | | | 5 | | | (15) | | | (10) | |
Other borrowings | | (1) | | | — | | | (1) | | | (1) | | | — | | | (1) | |
Senior notes payable | | 13 | | | (2) | | | 11 | | | 12 | | | — | | | 12 | |
All other interest-bearing liabilities | | (9) | | | (3) | | | (12) | | | (8) | | | (7) | | | (15) | |
Total interest-bearing liabilities | | 22 | | | (50) | | | (28) | | | 35 | | | (140) | | | (105) | |
Change in net interest income | | $ | 164 | | | $ | (313) | | | $ | (149) | | | $ | 69 | | | $ | (245) | | | $ | (176) | |
RESULTS OF OPERATIONS – PRIVATE CLIENT GROUP
Through our PCG segment, we provide financial planning, investment advisory and securities transaction services for which we generally charge either asset-based fees (presented in “Asset management and related administrative fees”) or sales commissions (presented in “Brokerage revenues”). We also earn revenues for distribution and related support services performed primarily related to mutual funds, fixed and variable annuities and insurance products. Revenues of this segment are typically correlated with the level of PCG client AUA, including fee-based accounts, as well as the overall U.S. equity markets. In periods where equity markets improve, AUA and client activity generally increase, thereby having a favorable impact on net revenues.
We also earn servicing fees, such as omnibus and education and marketing support fees, from mutual fund and annuity companies whose products we distribute. Servicing fees earned from mutual fund and annuity companies are based on the level of assets, a flat fee or number of positions in such programs. Our PCG segment also earns fees from banks to which we sweep clients’ cash in the RJBDP, including both third-party banks and Raymond James Bank. Such fees are included in “Account
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
| | 2017 compared to 2016 | | 2016 compared to 2015 |
| | Increase/(decrease) due to | | Increase/(decrease) due to |
$ in thousands | | Volume | | Rate | | Total | | Volume | | Rate | | Total |
Interest revenue: | | | | | | | | | | | | |
Interest-earning banking assets: | | | | | | | | | | | | |
Bank loans, net of unearned income | | | | | | | | | | | | |
Loans held for sale | | $ | 275 |
| | $ | 330 |
| | $ | 605 |
| | $ | 1,078 |
| | $ | 787 |
| | $ | 1,865 |
|
Loans held for investment: | | | | | | | | | | | | |
C&I loans | | 6,384 |
| | 3,414 |
| | 9,798 |
| | 18,135 |
| | 8,355 |
| | 26,490 |
|
CRE construction loans | | (2,003 | ) | | (275 | ) | | (2,278 | ) | | 2,145 |
| | 1,275 |
| | 3,420 |
|
CRE loans | | 16,303 |
| | 14,212 |
| | 30,515 |
| | 17,567 |
| | (888 | ) | | 16,679 |
|
Tax-exempt loans | | 7,416 |
| | (1,066 | ) | | 6,350 |
| | 9,227 |
| | (1,332 | ) | | 7,895 |
|
Residential mortgage loans | | 17,062 |
| | 1,868 |
| | 18,930 |
| | 8,352 |
| | 885 |
| | 9,237 |
|
SBL | | 12,327 |
| | 8,558 |
| | 20,885 |
| | 12,349 |
| | 3,853 |
| | 16,202 |
|
Total bank loans, net | | 57,764 |
| | 27,041 |
| | 84,805 |
| | 68,853 |
| | 12,935 |
| | 81,788 |
|
Available-for-sale securities | | | | | | | | | | | | |
Agency MBS and CMOs | | 14,675 |
| | 5,433 |
| | 20,108 |
| | 1,135 |
| | 1,412 |
| | 2,547 |
|
Non-agency CMOs | | (993 | ) | | 98 |
| | (895 | ) | | (498 | ) | | 84 |
| | (414 | ) |
Cash | | (120 | ) | | 3,676 |
| | 3,556 |
| | 601 |
| | 2,195 |
| | 2,796 |
|
FHLB stock, FRB stock and other | | (579 | ) | | 1,009 |
| | 430 |
| | 2,486 |
| | (2,507 | ) | | (21 | ) |
Total interest-earning assets | | 70,747 |
| | 37,257 |
| | 108,004 |
| | 72,577 |
| | 14,119 |
| | 86,696 |
|
Interest expense: | | |
| | |
| | |
| | |
| | |
| | |
|
Interest-bearing liabilities: | | |
| | |
| | |
| | |
| | |
| | |
|
Bank deposits | | | | | | | | | | | | |
Certificates of deposit | | $ | (814 | ) | | $ | (263 | ) | | $ | (1,077 | ) | | $ | (36 | ) | | $ | (401 | ) | | $ | (437 | ) |
Money market, savings and NOW accounts | | 1,466 |
| | 7,677 |
| | 9,143 |
| | 559 |
| | 3,985 |
| | 4,544 |
|
FHLB advances and other | | 2,216 |
| | 1,616 |
| | 3,832 |
| | 82 |
| | 7,395 |
| | 7,477 |
|
Total interest-bearing liabilities | | 2,868 |
| | 9,030 |
| | 11,898 |
| | 605 |
| | 10,979 |
| | 11,584 |
|
Change in net interest income | | $ | 67,879 |
| | $ | 28,227 |
| | $ | 96,106 |
| | $ | 71,972 |
| | $ | 3,140 |
| | $ | 75,112 |
|
The following tables present certain credit quality trends for loans held by RJ Bank:
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | 2016 | | 2015 |
Net loan (charge-offs)/recoveries: | | | | | | |
C&I loans | | $ | (25,748 | ) | | $ | (2,956 | ) | | $ | (580 | ) |
CRE loans | | 5,013 |
| | — |
| | 3,773 |
|
Residential mortgage loans | | 83 |
| | (53 | ) | | (436 | ) |
Total | | $ | (20,652 | ) | | $ | (3,009 | ) | | $ | 2,757 |
|
Management'sManagement’s Discussion and Analysis
|
| | | | | | | | | | | | |
| | As of September 30, |
$ in thousands | | 2017 | | 2016 | | 2015 |
Nonperforming assets: | | |
| | |
| | |
|
Nonperforming loans: | | |
| | |
| | |
|
C&I loans | | $ | 5,221 |
| | $ | 35,194 |
| | $ | — |
|
CRE loans | | — |
| | 4,230 |
| | 4,796 |
|
Residential mortgage loans: | | | | | | |
Residential first mortgage | | 33,718 |
| | 41,746 |
| | 47,504 |
|
Home equity loans/lines | | 31 |
| | 37 |
| | 319 |
|
Total nonperforming loans | | 38,970 |
| | 81,207 |
| | 52,619 |
|
Other real estate owned: | | |
| | |
| | |
|
Residential first mortgage | | 4,729 |
| | 4,497 |
| | 4,631 |
|
Total other real estate owned | | 4,729 |
| | 4,497 |
| | 4,631 |
|
Total nonperforming assets | | $ | 43,699 |
| | $ | 85,704 |
| | $ | 57,250 |
|
Total nonperforming assets as a % of RJ Bank total assets | | 0.21 | % | | 0.50 | % | | 0.39 | % |
Total loans: | | | | | | |
Loans held for sale, net | | $ | 70,316 |
| | $ | 214,286 |
| | $ | 119,519 |
|
Loans held for investment: | | | | |
| | |
|
C&I loans | | 7,385,910 |
| | 7,470,373 |
| | 6,928,018 |
|
CRE construction loans | | 112,681 |
| | 122,718 |
| | 162,356 |
|
CRE loans | | 3,106,290 |
| | 2,554,071 |
| | 2,054,154 |
|
Tax-exempt loans | | 1,017,791 |
| | 740,944 |
| | 484,537 |
|
Residential mortgage loans | | 3,148,730 |
| | 2,441,569 |
| | 1,962,614 |
|
SBL | | 2,386,697 |
| | 1,904,827 |
| | 1,481,504 |
|
Net unearned income and deferred expenses | | (31,178 | ) | | (40,675 | ) | | (32,424 | ) |
Total loans held for investment | | 17,126,921 |
| | 15,193,827 |
| | 13,040,759 |
|
Total loans | | $ | 17,197,237 |
| | $ | 15,408,113 |
| | $ | 13,160,278 |
|
Total loansand service fees.” See “Clients’ domestic cash sweep balances” in the above table are net“Selected key metrics” section for further information about fees earned from the RJBDP.
Net interest income in the PCG segment is primarily generated by interest earnings on margin loans provided to clients and on assets segregated for regulatory purposes, less interest paid on client cash balances in the CIP. Higher client cash balances generally lead to increased interest income, depending on spreads realized in the CIP. For more information on client cash balances, see “Clients’ domestic cash sweep balances” in the “Selected key metrics” section.
For an overview of unearned income and deferred expenses. Total loans held for investment include $1.61 billion, $1.25 billion and $1.15 billionour PCG segment operations, refer to the information presented in “Item 1 - Business” of loans to borrowers domiciled in Canada at September 30, 2017, 2016 and 2015, respectively. At September 30, 2017, there was $1.00 billion in Canadian dollar-denominated loans held for investment.this Form 10-K.
The following table presents RJ Bank’s allowance for loan losses by loan category:Operating results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, | | % change |
$ in millions | | 2021 | | 2020 | | 2019 | | 2021 vs. 2020 | | 2020 vs. 2019 |
Revenues: | | | | | | | | | | |
Asset management and related administrative fees | | $ | 4,056 | | | $ | 3,162 | | | $ | 2,820 | | | 28 | % | | 12 | % |
Brokerage revenues: | | | | | | | | | | |
Mutual and other fund products | | 670 | | | 567 | | | 599 | | | 18 | % | | (5) | % |
Insurance and annuity products | | 438 | | | 397 | | | 412 | | | 10 | % | | (4) | % |
Equities, ETFs and fixed income products | | 438 | | | 419 | | | 378 | | | 5 | % | | 11 | % |
Total brokerage revenues | | 1,546 | | | 1,383 | | | 1,389 | | | 12 | % | | — | |
Account and service fees: | | | | | | | | | | |
Mutual fund and annuity service fees | | 408 | | | 348 | | | 334 | | | 17 | % | | 4 | % |
RJBDP fees: | | | | | | | | | | |
Third-party banks | | 76 | | | 150 | | | 280 | | | (49) | % | | (46) | % |
Raymond James Bank | | 183 | | | 180 | | | 173 | | | 2 | % | | 4 | % |
Client account and other fees | | 157 | | | 129 | | | 122 | | | 22 | % | | 6 | % |
Total account and service fees | | 824 | | | 807 | | | 909 | | | 2 | % | | (11) | % |
Investment banking | | 47 | | | 41 | | | 32 | | | 15 | % | | 28 | % |
Interest income | | 123 | | | 155 | | | 225 | | | (21) | % | | (31) | % |
All other | | 25 | | | 27 | | | 26 | | | (7) | % | | 4 | % |
Total revenues | | 6,621 | | | 5,575 | | | 5,401 | | | 19 | % | | 3 | % |
Interest expense | | (10) | | | (23) | | | (42) | | | (57) | % | | (45) | % |
Net revenues | | 6,611 | | | 5,552 | | | 5,359 | | | 19 | % | | 4 | % |
Non-interest expenses: | | | | | | | | | | |
Financial advisor compensation and benefits | | 4,204 | | | 3,428 | | | 3,190 | | | 23 | % | | 7 | % |
Administrative compensation and benefits | | 1,015 | | | 971 | | | 933 | | | 5 | % | | 4 | % |
Total compensation, commissions and benefits | | 5,219 | | | 4,399 | | | 4,123 | | | 19 | % | | 7 | % |
Non-compensation expenses: | | | | | | | | | | |
Communications and information processing | | 275 | | | 251 | | | 235 | | | 10 | % | | 7 | % |
Occupancy and equipment | | 179 | | | 175 | | | 168 | | | 2 | % | | 4 | % |
Business development | | 71 | | | 79 | | | 124 | | | (10) | % | | (36) | % |
Professional fees | | 46 | | | 33 | | | 33 | | | 39 | % | | — | |
All other | | 72 | | | 76 | | | 97 | | | (5) | % | | (22) | % |
Total non-compensation expenses | | 643 | | | 614 | | | 657 | | | 5 | % | | (7) | % |
Total non-interest expenses | | 5,862 | | | 5,013 | | | 4,780 | | | 17 | % | | 5 | % |
Pre-tax income | | $ | 749 | | | $ | 539 | | | $ | 579 | | | 39 | % | | (7) | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | As of September 30, |
| | 2017 | | 2016 | | 2015 |
$ in thousands | | Allowance | | Loan category as a % of total loans receivable | | Allowance | | Loan category as a % of total loans receivable | | Allowance | | Loan category as a % of total loans receivable |
Loans held for sale | | $ | — |
| | — |
| | $ | — |
| | 1 | % | | $ | — |
| | 1 | % |
C&I loans | | 119,901 |
| | 43 | % | | 137,701 |
| | 48 | % | | 117,623 |
| | 52 | % |
CRE construction loans | | 1,421 |
| | 1 | % | | 1,614 |
| | 1 | % | | 2,707 |
| | 1 | % |
CRE loans | | 41,749 |
| | 18 | % | | 36,533 |
| | 17 | % | | 30,486 |
| | 16 | % |
Tax-exempt loans | | 6,381 |
| | 6 | % | | 4,100 |
| | 5 | % | | 5,949 |
| | 4 | % |
Residential mortgage loans | | 16,691 |
| | 18 | % | | 12,664 |
| | 16 | % | | 12,526 |
| | 15 | % |
SBL | | 4,299 |
| | 14 | % | | 4,766 |
| | 12 | % | | 2,966 |
| | 11 | % |
Total | | $ | 190,442 |
| | 100 | % | | $ | 197,378 |
| | 100 | % | | $ | 172,257 |
| | 100 | % |
(continued on the next page)
Management'sManagement’s Discussion and Analysis
Selected key metrics
(
PCG client asset balances
| | | | | | | | | | | | | | | | | | | | |
| | As of September 30, |
$ in billions | | 2021 | | 2020 | | 2019 |
AUA | | $ | 1,115.4 | | | $ | 883.3 | | | $ | 798.4 | |
Assets in fee-based accounts (1) | | $ | 627.1 | | | $ | 475.3 | | | $ | 409.1 | |
Percent of AUA in fee-based accounts | | 56.2 | % | | 53.8 | % | | 51.2 | % |
(1)A portion of our “Assets in fee-based accounts” is invested in “managed programs” overseen by our Asset Management segment, specifically 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.”
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 are recorded in “Asset management and related administrative fees” on our 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 substantially all 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. Assets in fee-based accounts in this segment increased 2% as of September 30, 2021 compared with June 30, 2021, which we expect will have a favorable impact on our related revenues in our fiscal first quarter of 2022.
PCG AUA increased compared to the prior year due to equity market appreciation, the net addition of financial advisors, as well as net inflows of client assets. In addition, PCG assets in fee-based accounts continued to increase as a percentage of overall PCG AUA due to clients’ increased preference for fee-based alternatives versus transaction-based accounts. As a result of the shift to fee-based accounts over the past several years, a larger portion of our PCG revenues are more directly impacted by market movements.
Financial advisors | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2021 | | 2020 | | 2019 |
Employees | | 3,461 | | | 3,404 | | | 3,301 | |
Independent contractors | | 5,021 | |
| 4,835 | | | 4,710 | |
Total advisors | | 8,482 | | | 8,239 | | | 8,011 | |
The number of financial advisors increased from prior years due to a combination of strong retention and recruiting of financial advisors, as well as new trainees that were moved into production roles, partially offset by the impact of advisors who left the firm, including planned retirements, where assets are generally retained at the firm. The growth in the number of financial advisors has been negatively impacted by the transfer of advisors who were previously affiliated with the firm as independent contractors or employees to our RCS division. Advisors in RCS are not included in the financial advisor count, although their assets of $92.7 billion are included in client AUA. The recruiting pipeline remains robust across our affiliation options despite an increasingly competitive recruiting environment.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Clients’ domestic cash sweep balances
| | | | | | | | | | | | | | | | | | | | |
| | As of September 30, |
$ in millions | | 2021 | | 2020 | | 2019 |
RJBDP | | | | | | |
Raymond James Bank | | $ | 31,410 | | | $ | 25,599 | | | $ | 21,649 | |
Third-party banks | | 24,496 | | | 25,998 | | | 14,043 | |
Subtotal RJBDP | | 55,906 | | | 51,597 | | | 35,692 | |
CIP | | 10,762 | | | 3,999 | | | 2,022 | |
Total clients’ domestic cash sweep balances | | $ | 66,668 | | | $ | 55,596 | | | $ | 37,714 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
| | 2021 | | 2020 | | | | 2019 |
Average yield on RJBDP - third-party banks | | 0.30 | % | | 0.77 | % | | | | 1.88 | % |
A significant portion of our 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 Raymond James Bank and various third-party banks. We earn servicing fees for the administrative services we provide related to our clients’ deposits that are swept to such banks as part of the RJBDP. The amounts from third-party banks 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 by the third-party banks on balances in the RJBDP. The “Average yield on RJBDP - third party banks” in the preceding table is computed by dividing 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 decreased compared with the prior year to 0.30%, as the current year reflected a full year of near-zero short-term interest rates. If demand for deposits from third-party banks does not improve from current levels, this yield could further decline, particularly in the second half of fiscal 2022. The PCG segment also earns RJBDP servicing fees from the previous page)Raymond James Bank segment, which are based on the number of accounts that are swept to Raymond James Bank. The fees from the Raymond James Bank segment are eliminated in consolidation.
|
| | | | | | | | | | | | | | |
| | As of September 30, |
| | 2014 | | 2013 |
$ in thousands | | Allowance | | Loan category as a % of total loans receivable | | Allowance | | Loan category as a % of total loans receivable |
Loans held for sale | | $ | — |
| | — |
| | $ | — |
| | 1 | % |
C&I loans | | 103,179 |
| | 58 | % | | 95,994 |
| | 59 | % |
CRE construction loans | | 1,594 |
| | 1 | % | | 1,000 |
| | 1 | % |
CRE loans | | 25,022 |
| | 15 | % | | 19,266 |
| | 14 | % |
Tax-exempt loans | | 1,380 |
| | 1 | % | | — |
| | — | % |
Residential mortgage loans | | 14,350 |
| | 16 | % | | 19,126 |
| | 19 | % |
SBL | | 2,049 |
| | 9 | % | | 1,115 |
| | 6 | % |
Total | | $ | 147,574 |
| | 100 | % | | $ | 136,501 |
| | 100 | % |
PCG segment results are impacted by changes in the allocation of client cash balances in RJBDP between Raymond James Bank and third-party banks. PCG segment results are also impacted by changes in the allocation of cash balances between RJBDP and CIP, as the net yield to the firm on cash balances in CIP (i.e., the spread between amounts earned on assets segregated for regulatory purposes and the interest paid to clients on CIP balances) is lower than the yield to the firm on RJBDP balances, on average.
Client cash balances remained elevated as of September 30, 2021, as a result of a number of factors, including the continuing economic uncertainty caused, in part, by the effects of the COVID-19 pandemic, as well as uncertainty related to the nature and timing of policy changes that may be put forth by the federal government administration. As we continued to experience growing cash balances and less demand from third-party banks in the RJBDP during fiscal 2021, cash held in CIP increased significantly, also driving an increase in our segregated asset balances.
Year ended September 30, 20172021 compared with the year ended September 30, 20162020
Net revenues of $6.61 billion increased $99$1.06 billion, or 19%, and pre-tax income of $749 million increased $210 million, or 20%, to $593 million, primarily reflecting an increase in net interest income. Pre-tax income39%.
Asset management and related administrative fees increased $72$894 million, or 21%, to $409 million.
Net interest income in the RJ Bank segment increased $96 million, or 20%28%, primarily due to a $2.92 billion increasehigher assets in average interest-earning banking assets to $18.76 billion and an increase in net interest margin. The increase in average interest-earning banking assets was driven by a $1.94 billion increase in average loans and a $1.03 billion increase in our average available-for-sale securities portfolio. The net interest marginfee-based accounts at the beginning of each of the current-year quarterly billing periods compared with the prior-year quarterly billing periods.
Brokerage revenues increased to 3.10% from 3.04%$163 million, or 12%, primarily due to an increase in the total banking assets yield, partially offset by an increase in RJ Bank’s total cost of funds. The increase in the total banking assets yield washigher trailing revenues from mutual and other fund products and annuity products, resulting from higher average asset values, as well as higher transactional revenues due to increased client activity.
Account and service fees increased $17 million, or 2%, primarily due to an increase in the loan portfolio yieldmutual fund service fees, primarily resulting from an overall rise in market interest rates. The increase in the total cost of funds primarily resulted from the rise in market interest rateshigher average mutual fund assets, as well as incremental client account and other fees resulting from our acquisition of NWPS at the end of our fiscal first quarter of 2021. Partially offsetting these increases was a decline in RJBDP fees from third-party banks as a result of lower short-term interest rates.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Net interest income decreased $19 million, or 14%, driven by a decline in interest income due to lower short-term interest rates, which more than offset the impact of higher average asset balances. In addition, our CIP balances increased significantly compared with the prior year resulting in an increase in average FHLB advances. Corresponding tosegregated assets, and a significant portion of the increase was held in average interest-earning banking assets, average interest-bearing banking liabilities increased $2.83 billion to $17.09 billion.
The loan loss provisionsegregated short-term U.S. Treasury securities at very low interest rates. Partially offsetting the impact of the decrease in interest income, interest expense also decreased, $15 million, or 54%,despite the significant increase in client cash balances in our CIP, due to the change in miximpact of loan growth during fiscal 2017. Growth was significantly lower in the C&I loan portfolio during the current year, which hasdeposit rates paid on these balances.
Compensation-related expenses increased $820 million, or 19%, primarily due to higher allowance percentages,compensable net revenues.
Non-compensation expenses increased $29 million, or 5%, largely due to higher communications and was higher in the residential mortgage, securities-based and tax-exempt loan portfolios, which have lower allowance percentages. This positive impact was partially offset by additional provision during the current year for C&I and CRE loans in specific industry sectors.
During August and September 2017, Texas and Florida suffered severe damage from Hurricanes Harvey and Irma. We performed an assessment of the impactinformation processing expenses primarily due to ongoing upgrades to our loan portfolio associated with these weather related events and determined that only our residential mortgage loan portfolio could be impacted. A qualitative adjustment was made to the allowance for loan losses during the 2017 fiscal year with respect to the residential mortgage loan portfolio.
Non-interest expenses (excluding provision for loan losses) increased $42 million, or 33%, primarily reflecting a $25 million increase in affiliate deposit account servicingtechnology platforms, as well as higher professional fees largely due to an increase in client account balancesexternal legal fees and consulting expenses. Partially offsetting these increases was a $4 million increasedecline in compensationbusiness development expenses due to limited travel and benefits expense resulting from compensation increases and staff additions to supportevent-related expenses during the growth of the business.COVID-19 pandemic.
Year ended September 30, 20162020 compared with the year ended September 30, 2019
Refer to “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2020 Form 10-K for a discussion of our fiscal 2020 results compared to fiscal 2019.
RESULTS OF OPERATIONS – CAPITAL MARKETS
Our Capital Markets segment conducts investment banking, institutional sales, securities trading, the syndication and management of investments in low-income housing funds, the majority of which qualify for tax credits, and equity research.
We provide various investment banking services, including underwriting or advisory services on public and private equity and debt financing for corporate clients, public financing activities, merger & acquisition advisory, and other advisory services. Revenues from investment banking activities are driven principally by our role in the transaction and the number and sizes of the transactions with which we are involved.
We earn brokerage revenues for the sale of both equity and fixed income products to institutional clients. Client activity is influenced by a combination of general market activity and our Capital Markets group’s ability to find attractive investment opportunities for clients. In certain cases, we transact on a principal basis, which involves the purchase of securities from, and the sale of securities to, our clients as well as other dealers who may be purchasing or selling securities for their own account or acting on behalf of their clients. Profits and losses related to this activity are primarily derived from the spreads between bid and ask prices, as well as market trends for the individual securities during the period we hold them. To facilitate such transactions, we carry inventories of financial instruments. In our fixed income businesses, we also enter into interest rate swaps and futures contracts to facilitate client transactions or to actively manage risk exposures.
For an overview of our Capital Markets segment operations, refer to the information presented in “Item 1 - Business” of this Form 10-K.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Operating results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, | | % change |
$ in millions | | 2021 | | 2020 | | 2019 | | 2021 vs. 2020 | | 2020 vs. 2019 |
Revenues: | | | | | | | | | | |
Brokerage revenues: | | | | | | | | | | |
Fixed income | | $ | 515 | | | $ | 421 | | | $ | 283 | | | 22 | % | | 49 | % |
Equity | | 145 | | | 150 | | | 131 | | | (3) | % | | 15 | % |
Total brokerage revenues | | 660 | | | 571 | | | 414 | | | 16 | % | | 38 | % |
Investment banking: | | | | | | | | | | |
Merger & acquisition and advisory | | 639 | | | 290 | | | 379 | | | 120 | % | | (23) | % |
Equity underwriting | | 285 | | | 185 | | | 100 | | | 54 | % | | 85 | % |
Debt underwriting | | 172 | | | 133 | | | 85 | | | 29 | % | | 56 | % |
Total investment banking | | 1,096 | | | 608 | | | 564 | | | 80 | % | | 8 | % |
Interest income | | 16 | | | 25 | | | 38 | | | (36) | % | | (34) | % |
Tax credit fund revenues | | 105 | | | 83 | | | 86 | | | 27 | % | | (3) | % |
All other | | 18 | | | 20 | | | 15 | | | (10) | % | | 33 | % |
Total revenues | | 1,895 | | | 1,307 | | | 1,117 | | | 45 | % | | 17 | % |
Interest expense | | (10) | | | (16) | | | (34) | | | (38) | % | | (53) | % |
Net revenues | | 1,885 | | | 1,291 | | | 1,083 | | | 46 | % | | 19 | % |
Non-interest expenses: | | | | | | | | | | |
Compensation, commissions and benefits | | 1,055 | | | 774 | | | 665 | | | 36 | % | | 16 | % |
Non-compensation expenses: | | | | | | | | | | |
Communications and information processing | | 83 | | | 77 | | | 75 | | | 8 | % | | 3 | % |
Occupancy and equipment | | 37 | | | 36 | | | 35 | | | 3 | % | | 3 | % |
Business development | | 34 | | | 47 | | | 48 | | | (28) | % | | (2) | % |
Professional fees | | 54 | | | 48 | | | 45 | | | 13 | % | | 7 | % |
Acquisition and disposition-related expenses | | 6 | | | 7 | | | 15 | | | (14) | % | | (53) | % |
Goodwill impairment | | — | | | — | | | 19 | | | — | % | | (100) | % |
All other | | 84 | | | 77 | | | 71 | | | 9 | % | | 8 | % |
Total non-compensation expenses | | 298 | | | 292 | | | 308 | | | 2 | % | | (5) | % |
Total non-interest expenses | | 1,353 | | | 1,066 | | | 973 | | | 27 | % | | 10 | % |
Pre-tax income | | $ | 532 | | | $ | 225 | | | $ | 110 | | | 136 | % | | 105 | % |
Year ended September 30, 2021 compared with the year ended September 30, 2020
Net revenues of $1.89 billion increased $594 million, or 46%, and pre-tax income of $532 million increased $307 million, or 136%.
Investment banking revenues increased $488 million, or 80%, due to a significant increase in merger & acquisition and advisory revenues and, to a lesser extent, underwriting revenues. The significant increase in merger & acquisition and advisory revenues reflected larger individual transactions and an increase in the number of transactions, as the current year reflected high levels of client activity throughout the year, while the prior year was impacted by lower levels of client activity during the onset of the COVID-19 pandemic. Equity underwriting revenues also increased significantly, primarily due to an increase in market activity in both the U.S. and Canada. An increase in debt underwriting primarily resulted from higher revenues from corporate underwritings. In addition to the strong results during the current year, our investment banking pipelines remain strong at the beginning of fiscal 2022 and, in part, reflect the results of investments we have made over the past several years, which have positioned us to enhance our services to our clients. The most recent examples of such investments are our acquisitions of Financo and Cebile, which closed during fiscal 2021.
Brokerage revenues increased $89 million, or 16%, due to a significant increase in fixed income brokerage revenues as a result of higher levels of client activity throughout the current year. The significant increase in client activity levels, particularly with depository institution clients, began toward the end of our fiscal second quarter of fiscal 2020, but were more sustained throughout fiscal 2021. We expect fixed income brokerage revenues to remain solid in fiscal 2022 driven in large part by anticipated continued demand from depository clients.
Compensation-related expenses increased $281 million, or 36%, primarily due to the increase in net revenues.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Non-compensation expenses increased $6 million, or 2%, primarily due to an increase in various expense categories as a result of growth in the business. These increases were partially offset by lower travel and event-related expenses as a result of the COVID-19 pandemic. Acquisition and disposition-related expenses were flat year-over-year, as the current year included $6 million of amortization expense related to intangible assets with short useful lives associated with our Financo and Cebile acquisitions, while the prior year included a $7 million loss related to the disposition of our interests in certain entities that operated predominantly in France.
Year ended September 30, 2020 compared with the year ended September 30, 2019
Refer to “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2020 Form 10-K for a discussion of our fiscal 2020 results compared to fiscal 2019.
RESULTS OF OPERATIONS – ASSET MANAGEMENT
Our Asset Management segment earns asset management and related administrative fees for providing asset management, portfolio management and related administrative services to retail and institutional clients. This segment oversees the portion of our fee-based AUA invested in “managed programs” for our PCG clients through AMS and through RJ Trust. This segment also provides asset management services through Carillon Tower Advisers for retail accounts managed on behalf of third-party institutions, institutional accounts or proprietary mutual funds that we manage, generally utilizing active portfolio management strategies. Asset management fees are based on fee-billable AUM, which are impacted by market fluctuations and net inflows or outflows of assets. Rising equity markets have historically had a positive impact on revenues as existing accounts increase in value.
Our Asset Management segment also earns administrative fees on certain fee-based assets within PCG that are not overseen by our Asset Management segment, but for which the segment provides administrative support (e.g., record-keeping). These administrative fees are based on asset balances, which are impacted by market fluctuations and net inflows or outflows of assets. For an overview of our Asset Management segment operations, refer to the information presented in “Item 1 - Business” of this Form 10-K.
Operating results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, | | % change |
$ in millions | | 2021 | | 2020 | | 2019 | | 2021 vs. 2020 | | 2020 vs. 2019 |
Revenues: | | | | | | | | | | |
Asset management and related administrative fees: | | | | | | | | | | |
Managed programs | | $ | 570 | | | $ | 481 | | | $ | 467 | | | 19 | % | | 3 | % |
Administration and other | | 267 | | | 207 | | | 178 | | | 29 | % | | 16 | % |
Total asset management and related administrative fees | | 837 | | | 688 | | | 645 | | | 22 | % | | 7 | % |
Account and service fees | | 18 | | | 16 | | | 31 | | | 13 | % | | (48) | % |
All other | | 12 | | | 11 | | | 15 | | | 9 | % | | (27) | % |
| | | | | | | | | | |
| | | | | | | | | | |
Net revenues | | 867 | | | 715 | | | 691 | | | 21 | % | | 3 | % |
Non-interest expenses: | | | | | | | | | | |
Compensation, commissions and benefits | | 182 | | | 177 | | | 179 | | | 3 | % | | (1) | % |
Non-compensation expenses: | | | | | | | | | | |
Communications and information processing | | 47 | | | 45 | | | 44 | | | 4 | % | | 2 | % |
Investment sub-advisory fees | | 127 | | | 99 | | | 93 | | | 28 | % | | 6 | % |
All other | | 122 | | | 110 | | | 122 | | | 11 | % | | (10) | % |
Total non-compensation expenses | | 296 | | | 254 | | | 259 | | | 17 | % | | (2) | % |
Total non-interest expenses | | 478 | | | 431 | | | 438 | | | 11 | % | | (2) | % |
Pre-tax income | | $ | 389 | | | $ | 284 | | | $ | 253 | | | 37 | % | | 12 | % |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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 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 proprietary mutual funds that we manage (collectively included in the “Carillon Tower Advisers” 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 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.
Revenues earned by Carillon Tower Advisers for retail accounts managed on behalf of third-party institutions, institutional accounts and our proprietary mutual funds are recorded entirely in the Asset Management segment. Our AUM in Carillon Tower Advisers 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, approximately 10% are based on balances as of the end of the quarter, and approximately 25% are based on average daily balances throughout the quarter.
Financial assets under management
| | | | | | | | | | | | | | | | | | | | |
| | September 30, |
$ in billions | | 2021 | | 2020 | | 2019 |
AMS (1) | | $ | 134.4 | | | $ | 102.2 | | | $ | 91.8 | |
Carillon Tower Advisers | | 67.8 | | | 59.5 | | | 58.5 | |
Subtotal financial assets under management | | 202.2 | | | 161.7 | | | 150.3 | |
Less: Assets managed for affiliated entities | | (10.3) | | | (8.6) | | | (7.2) | |
Total financial assets under management | | $ | 191.9 | | | $ | 153.1 | | | $ | 143.1 | |
(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)
| | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, | |
$ in billions | | 2021 | | 2020 | | 2019 | |
Financial assets under management at beginning of year | | $ | 161.7 | | | $ | 150.3 | | | $ | 146.6 | | |
Carillon Tower Advisers - net outflows | | (0.5) | | | (5.4) | | | (5.8) | | |
| | | | | | | |
AMS - net inflows | | 13.5 | | | 6.1 | | | 6.0 | | |
Net market appreciation in asset values | | 27.5 | | | 10.7 | | | 3.5 | | |
Financial assets under management at end of year | | $ | 202.2 | | | $ | 161.7 | | | $ | 150.3 | | |
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 FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Carillon Tower Advisers
Assets managed by Carillon Tower Advisers include assets managed by its subsidiaries and affiliates: Eagle Asset Management, Scout Investments, Reams Asset Management (a division of Scout Investments), ClariVest Asset Management and Cougar Global Investments. The following table presents Carillon Tower Advisers’ 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.
| | | | | | | | | | | | | | |
$ in billions | | September 30, 2021 | | Average fee rate |
Equity | | $ | 30.1 | | | 0.52% |
Fixed income | | 31.6 | | | 0.18% |
Balanced | | 6.1 | | | 0.35% |
Total financial assets under management | | $ | 67.8 | | | 0.35% |
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”).
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in billions | | 2021 | | 2020 | | 2019 |
Total assets | | $ | 365.3 | | | $ | 280.6 | | | $ | 229.7 | |
The increase in assets over the prior year was primarily due to equity market appreciation, successful financial advisor recruiting and retention, and the continued trend of clients moving to fee-based accounts from transaction-based accounts. Administrative fees associated with these programs are predominantly based on balances at the beginning of the quarter.
RJ Trust
The following table includes assets held in asset-based programs in RJ Trust (including those managed for affiliated entities).
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in billions | | 2021 | | 2020 | | 2019 |
Total assets | | $ | 8.1 | | | $ | 7.1 | | | $ | 6.6 | |
Year ended September 30, 2021 compared with the year ended September 30, 2020
Net revenues of $867 million increased $152 million, or 21%, and pre-tax income of $389 million increased $105 million, or 37%.
Asset management and related administrative fees increased $149 million, or 22%, driven by higher average AUM and higher assets in non-discretionary asset-based programs compared with the prior year, resulting from equity market appreciation and net inflows at AMS. While Carillon Tower Advisers continued to be negatively impacted by the industry shift from actively managed investment strategies to passive investment strategies, its net outflows for the year were much lower than in prior years. Beginning October 1, 2021, AMS will receive a lower portion of the client fee on certain managed fee-based products offered to PCG clients through AMS. Based on balances as of September 30, 2021, these changes are expected to result in an approximately $35 million annual reduction in asset management and related administrative fees in the Asset Management segment and an approximately $25 million reduction in firmwide pre-tax income.
Compensation expenses increased $5 million, or 3%, and included the impact of higher net revenues. Non-compensation expenses increased $42 million, or 17%, primarily due to increases in investment sub-advisory fees, resulting from an increase in AUM in sub-advised programs, and an increase in platform fees.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Year ended September 30, 2020 compared to the year ended September 30, 20152019
Refer to “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2020 Form 10-K for a discussion of our fiscal 2020 results compared to fiscal 2019.
RESULTS OF OPERATIONS – RAYMOND JAMES BANK
Raymond James Bank provides various types of loans, including corporate loans, tax-exempt loans, residential loans, SBL and other loans. Raymond James Bank is active in corporate loan syndications and participations and also provides FDIC-insured deposit accounts, including to clients of our broker-dealer subsidiaries. Raymond James Bank generates net interest income principally through the interest income earned on loans and an investment portfolio of available-for-sale securities, which is offset by the interest expense it pays on client deposits and on its borrowings. Raymond James Bank’s net interest income is affected by the levels of interest rates, interest-earning assets and interest-bearing liabilities. Higher interest-earning asset balances and higher interest rates generally lead to increased net interest income, depending upon spreads realized on interest-bearing liabilities. For more information on average interest-earning asset and interest-bearing liability balances and the related interest income and expense, see the following discussion in this MD&A. For an overview of our Raymond James Bank segment operations, refer to the information presented in “Item 1- Business” of this Form 10-K.
Operating results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, | | % change |
$ in millions | | 2021 | | 2020 | | 2019 | | 2021 vs. 2020 | | 2020 vs. 2019 |
Revenues: | | | | | | | | | | |
Interest income | | $ | 684 | | | $ | 800 | | | $ | 975 | | | (15) | % | | (18) | % |
Interest expense | | (42) | | | (62) | | | (155) | | | (32) | % | | (60) | % |
Net interest income | | 642 | | | 738 | | | 820 | | | (13) | % | | (10) | % |
All other | | 30 | | | 27 | | | 26 | | | 11 | % | | 4 | % |
Net revenues | | 672 | | | 765 | | | 846 | | | (12) | % | | (10) | % |
Non-interest expenses: | | | | | | | | | | |
Compensation and benefits | | 51 | | | 51 | | | 49 | | | — | % | | 4 | % |
Non-compensation expenses: | | | | | | | | | | |
Bank loan provision/(benefit) for credit losses | | (32) | | | 233 | | | 22 | | | NM | | 959 | % |
RJBDP fees to PCG | | 183 | | | 180 | | | 173 | | | 2 | % | | 4 | % |
All other | | 103 | | | 105 | | | 87 | | | (2) | % | | 21 | % |
Total non-compensation expenses | | 254 | | | 518 | | | 282 | | | (51) | % | | 84 | % |
Total non-interest expenses | | 305 | | | 569 | | | 331 | | | (46) | % | | 72 | % |
Pre-tax income | | $ | 367 | | | $ | 196 | | | $ | 515 | | | 87 | % | | (62) | % |
Year ended September 30, 2021 compared with the year ended September 30, 2020
Net revenues in fiscal year 2016 increased $80of $672 million decreased $93 million, or 19%12%, to $494while pre-tax income of $367 million primarily reflecting an increase in interest income. Pre-tax income increased $59$171 million, or 21%, to $337 million. 87%.
The $75Net interest income decreased $96 million, or 19%13%, increase in fiscal year 2016 netas the negative impact from lower short-term interest income wasrates more than offset the resultimpact of a $2.65 billion increase inhigher average interest-earning banking assets partially offset by a small decline in net interest margin.assets. The increase in average interest-earning banking assets was primarily driven by a $2.21 billion increasegrowth in average loans and a $443 million increase in average cash andthe available-for-sale securities portfolio.portfolio and securities-based loans to PCG clients. The net interest margin at September 30, 2016 decreased to 3.04%1.95% from 3.07%2.63% for the prior year, primarily due to an increase in average, lower-yielding cash balances in addition to an increase in total cost of funds. The average interest-earning banking assets yield increased primarily from the Federal Reserve Bank’s December 2015 increase inrelatively low short-term interest rates. rates throughout fiscal 2021 compared to only a partial year of such low rates in fiscal 2020, as well as a higher concentration of agency-backed available-for-sale securities, which have a lower yield on average than loans. Based on current interest rates and our current asset mix, we expect our net interest margin to approximate 1.90% for the first half of fiscal 2022.
The increasebank loan benefit for credit losses was $32 million in total costthe current year, which was calculated under the CECL model, compared with a provision for credit losses of funds primarily resulted from$233 million in the prior year, which was calculated under the incurred loss model. The current year benefit reflected improved economic forecasts used in our CECL model since our adoption of CECL on October 1, 2020, including improved outlooks on unemployment, gross domestic product and property price indices, as well as improved credit ratings within our corporate loan portfolio, partially offset by provisions for credit losses related to loan growth. We plan to continue to grow our bank loan portfolio in fiscal 2022, which we expect will result in an increase in deposit and borrowing costs, which includes additional expense from our interest rate hedging activities.increased
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis
Borrowing costs increasedprovision for credit losses in fiscalfuture periods, absent further improvement in our economic forecasts. The provision for credit losses in the prior year 2016. Correspondingwas significant due to the increase in average interest-earning banking assets, average interest-bearing banking liabilities increasedrapid and widespread economic deterioration and uncertainty caused by the onset of the COVID-19 pandemic, as well as charge-offs on certain corporate loans sold during the prior year primarily driven by our credit risk mitigation activities.
Year ended September 30, 2020 compared to the year ended September 30, 2019
Refer to “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2020 Form 10-K for a discussion of our fiscal year 2016.
The $5 million, or 20%, increase in the provision for loan losses as2020 results compared to fiscal year 2015 was primarily due to higher corporate loan growth, the charges during fiscal year 2016 related to loans outstanding within the energy sector, as well as additional provision for corporate loan downgrades resulting in higher criticized loans as compared to the prior year. The provision for loan losses also reflected the offsetting impact of improved credit characteristics from the continued decline in residential mortgage loan delinquencies and nonperforming loans.2019.
Other income in fiscal year 2016 increased $5 million, or 43%, primarily due to increases in affiliate income related to the fiscal year 2016 growth in securities-based lending, gains realized from the sale of available-for-sale securities, trading gains as a result of higher sales of Small Business Administration 7(a) (“SBA”) loan securitizations, and lower foreign exchange losses.
Non-interest expenses (excluding provision for loan losses) increased $16 million, or 15%, as compared to fiscal year 2015. The expense in fiscal year 2016 included an $8 million increase in affiliate deposit account servicing fees and a $4 million increase in FDIC insurance premiums both resulting from the increase in client account balances. Other increases in non-interest expenses included a $2 million increase in SBL affiliate fees due to increased SBL balances, a $2 million increase in communications and information processing expense, a $2 million increase in compensation and benefit expenses resulting from salary increases and staff additions, and a $1 million increase in equity losses related to RJ Bank’s investment in low income housing tax credit projects (these losses are by design of the investment structure, income tax credits not reflected in the pre-tax operating results of the segment are received by RJF which net an overall positive return on such investments). These increases in non-interest expenses were partially offset by a $3 million decrease in expense related to the reserve for unfunded lending commitments.
RESULTS OF OPERATIONS – OTHER
Results of Operations – Other
This segment’s results includesegment includes our private equity activities,investments, interest income on certain corporate cash balances, certain acquisition-related expenses, and certain corporate overhead costs of RJF, including the interest costcosts on our public debt and any losses on extinguishment of debt andsuch debt. The Other segment also includes the acquisition and integration costs associated withreduction in workforce expenses, primarily the result of the elimination of certain acquisitions.positions, that occurred in our fiscal fourth quarter of 2020 in response to the economic environment at that time. For an overview of our Other segment operations, refer to the information presented in Item I, Business in“Item 1 - Business” of this Form 10-K.
Operating results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, | | % change |
$ in millions | | 2021 | | 2020 | | 2019 | | 2021 vs. 2020 | | 2020 vs. 2019 |
Revenues: | | | | | | | | | | |
Interest income | | $ | 8 | | | $ | 30 | | | $ | 63 | | | (73) | % | | (52) | % |
Gains/(losses) on private equity investments | | 74 | | | (28) | | | 14 | | | NM | | NM |
All other | | 6 | | | 4 | | | 3 | | | 50 | % | | 33 | % |
Total revenues | | 88 | | | 6 | | | 80 | | | 1,367 | % | | (93) | % |
Interest expense | | (96) | | | (88) | | | (75) | | | 9 | % | | 17 | % |
Net revenues | | (8) | | | (82) | | | 5 | | | 90 | % | | NM |
Non-interest expenses: | | | | | | | | | | |
Compensation and all other | | 127 | | | 64 | | | 87 | | | 98 | % | | (26) | % |
Losses on extinguishment of debt | | 98 | | | — | | | — | | | NM | | — | % |
Acquisition and disposition-related expenses | | 13 | | | — | | | — | | | NM | | — | % |
Reduction in workforce expenses | | — | | | 46 | | | — | | | (100) | % | | NM |
Total non-interest expenses | | 238 | | | 110 | | | 87 | | | 116 | % | | 26 | % |
Pre-tax loss | | $ | (246) | | | $ | (192) | | | $ | (82) | | | (28) | % | | (134) | % |
|
| | | | | | | | | | | | | | | | | |
| Year ended September 30, |
$ in thousands | 2017 | | % change | | 2016 | | % change | | 2015 |
Revenues: | | | | | | | | | |
Interest income | $ | 24,998 |
| | 47 | % | | $ | 16,977 |
| | 39 | % | | $ | 12,237 |
|
Investment advisory fees | 1,478 |
| | (19 | )% | | 1,825 |
| | 11 | % | | 1,644 |
|
Other | 39,022 |
| | 42 | % | | 27,489 |
| | (48 | )% | | 53,086 |
|
Total revenues | 65,498 |
| | 41 | % | | 46,291 |
| | (31 | )% | | 66,967 |
|
| | | | | | | | | |
Interest expense | (95,368 | ) | | 22 | % | | (77,983 | ) | | 1 | % | | (77,165 | ) |
Net revenues | (29,870 | ) | | 6 | % | | (31,692 | ) | | (211 | )% | | (10,198 | ) |
| | | | | | | | | |
Non-interest expenses: | | | | | | | | | |
Compensation and other | 64,573 |
| | 7 | % | | 60,448 |
| | 49 | % | | 40,551 |
|
Acquisition-related expenses | 17,995 |
| | (56 | )% | | 40,706 |
| | NM |
| | — |
|
Losses on extinguishment of debt | 45,746 |
| | NM |
| | — |
| | NM |
| | — |
|
Total non-interest expenses | 128,314 |
| | 27 | % | | 101,154 |
| | 149 | % | | 40,551 |
|
Loss before taxes and including noncontrolling interests: | (158,184 | ) | | (19 | )% | | (132,846 | ) | | (162 | )% | | (50,749 | ) |
Noncontrolling interests | 11,695 |
| | | | 15,702 |
| | | | 14,100 |
|
Pre-tax loss excluding noncontrolling interests | $ | (169,879 | ) | | (14 | )% | | $ | (148,548 | ) | | (129 | )% | | $ | (64,849 | ) |
Noncontrolling interests is primarily comprised of the net pre-tax impact (which are net gains) from the consolidation of certain private equity investments with noncontrolling interests reflecting the portion of such gains that we do not own.
Management's Discussion and Analysis
Year ended September 30, 2017 compared to the year ended September 30, 2016
The pre-tax loss generated by this segment increased by $21 million, or 14%.
Total revenues in this segment increased $19 million, or 41%, most of which is comprised of an increase in our other revenues of $12 million, or 42%, due to higher net gains (both realized and unrealized) arising from our private equity portfolio, which increased $8 million compared to the prior year, a portion of which relates to noncontrolling interests. Interest income increased $8 million, or 47%, resulting from the increase in interest rates and higher corporate cash balances.
Interest expense increased $17 million, or 22%, as the average outstanding balance of our senior notes increased due to the May 2017 and July 2016 issuances of an aggregate $1.30 billion in senior notes, partially offset by the April 2016 maturity and repayment of $250 million of senior notes and, the March 2017 extinguishment of $350 million of senior notes. The early extinguishment of $300 million of senior notes in September 2017 did not meaningfully reduce our interest expense in fiscal year 2017. See Note 15 of the Notes to Consolidated Financial Statements in this Form 10-K for further information.
Non-interest expenses increased $27 million, or 27%. Fiscal year 2017 included a $46 million loss on extinguishment of debt comprised of a make-whole premium and the acceleration of unamortized debt issuance costs related to the early extinguishment of our senior notes during the year. Acquisition-related expenses in fiscal year 2017, which were $23 million, or 56%, lower than the prior year, pertained to certain incremental expenses incurred in connection with our announced acquisition of the Scout Group as well as our fiscal year 2016 acquisitions of Alex. Brown and 3Macs. See Note 3 of the Notes to Consolidated Financial Statements in this Form 10-K for information regarding the components of these expenses.
Year ended September 30, 20162021 compared to the year ended September 30, 20152020
The fiscal year 2016 pre-tax loss of $246 million was $54 million larger than the loss generated by this segmentin the prior year.
Net revenues increased by approximately $84$74 million, or 129%.
Total revenues in this segment decreased $21 million, or 31%. Private equity gains included in other revenues in fiscal year 2016 decreased by $24 million, or 50%. Realized gains on the sale of ARS securities decreased by $11 millionprimarily due to private equity valuation gains in the nonrecurringcurrent year, compared with valuation losses in the prior year, gain onwhich reflected the saleimpact of allchallenging market conditions at the onset of the COVID-19 pandemic. The current year included $74 million of private equity valuation gains, of which $25 million were attributable to noncontrolling interests and were offset within “Other” expenses. These valuation gains were primarily the result of an improvement in market conditions and an improved outlook for certain of our Jefferson County, Alabama Limited Obligation School Warrants ARS. Offsetting these decreases,investments. The prior year foreign exchangeincluded $28 million of private equity valuation losses, of $5which $20 million arising from certain Canadian denominated liabilities did not recur,were attributable to noncontrolling interests and interestwere offset within “Other” expenses. Interest income increased $5 million resulting fromearned on corporate cash balances decreased compared with the increase inprior year due to lower short-term interest rates, and higher corporate cash balances throughout most of fiscal year 2016.
Interestinterest expense increased $1 million, or 1%. The most significant component of the increase was the interest expense incurred on our senior notes, which increased by $2 million, or 3%primarily as the average outstanding balance increased due to our July 2016 issuance of $800 million of senior notes payable. The fiscal year 2016 issuances more than offset the impact of the April 2016 repayment of $250 million in maturing senior notes.
Compensation and other expense increased $20 million, or 49%. Of the increase, $6 million was due to increases in fiscal year 2016 expenses associated with certain corporate benefit plans provided to associates, $5 million was thea result of an increase in corporate charitable donations, and $4 million was the result of additional executive compensation expense resultingdebt arising from the favorable resultsissuance of operations$500 million of senior notes in March 2020.
Non-interest expenses increased $128 million, or 116%, primarily due to losses on extinguishment of debt of $98 million in the current year (refer to the “Executive overview” section of this MD&A), the aforementioned $25 million of gains attributable to noncontrolling interests compared with $20 million of losses in the prior year, and new personnel.
The acquisition-related expenses pertain to incrementalof $13 million in the current year, which primarily included professional and integration expenses incurred in fiscal year 2016 in connectionassociated with our acquisitions of Alex. Brown, 3MacsNWPS, Financo and Mummert. See Note 3Cebile during fiscal 2021 and our announced acquisitions of the Notes to Consolidated Financial Statements in this Form 10-K for information regarding the components of these expenses.Charles Stanley and TriState Capital. These increases
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis
were partially offset by the impact of $46 million of reduction in workforce expenses in the prior year, which did not recur in the current year.
Certain statistical disclosures by bank holding companies
Year ended September 30, 2020 compared to the year ended September 30, 2019
As
Refer to “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2020 Form 10-K for a financial holding company, wediscussion of our fiscal 2020 results compared to fiscal 2019.
CERTAIN STATISTICAL DISCLOSURES BY BANK HOLDING COMPANIES
We are required to provide certain statistical disclosures byas a bank holding companies pursuant tocompany under the SEC’s Industry Guide 3. The following table provides certain of those disclosures for the periods indicated below. The disclosures for years ended September 30, 2016 and 2015 have been revised from those previously reported to conform to our current presentation which includes the impact of the deconsolidation of certain VIEs (see Note 2 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information regarding the deconsolidation).disclosures.
| | | | | | | | | Year ended September 30, |
| | Year ended September 30, | | | 2021 | | 2020 | | 2019 |
| | 2017 | | 2016 | | 2015 | |
RJF return on average assets | | 1.9% | | 1.9% | | 2.0% | |
RJF return on average equity | | 12.2% | | 11.3% | | 11.5% | |
Return on assets | | Return on assets | | 2.5% | | 1.9% | | 2.7% |
Return on equity | | Return on equity | | 18.4% | | 11.9% | | 16.2% |
Average equity to average assets | | 15.9% | | 16.6% | | 17.7% | Average equity to average assets | | 13.8% | | 15.5% | | 16.7% |
Dividend payout ratio | | 20.3% | | 21.9% | | 21.0% | Dividend payout ratio | | 15.7% | | 25.4% | | 19.0% |
RJF returnReturn on average assets is computed asby dividing net income attributable to RJF for the year indicated, divided by average assets for each respectiveindicated fiscal year. Average assets is computed by adding the total assets as of each quarter-end date during the indicated fiscal year plusto the beginning of the year total dividedand dividing by five.
RJF returnReturn on average equity is computed by utilizing thedividing net income attributable to RJF for the year indicated, divided by the average equity attributable to RJF for each respectiveindicated fiscal year. Average equity is computed by adding the total equity attributable to RJF as of each quarter-end date during the indicated fiscal year plusto the beginning of the year total dividedand dividing by five.
Average equity to average assets is computed asby dividing average equity divided by average assets for each indicated fiscal year, as calculated in accordance with the aboveprevious explanations.
Dividend payout ratio is computed asby dividing dividends declared per common share during the fiscal year as a percentage of dilutedby earnings per diluted common share.share for each indicated fiscal year.
Refer to the RJ Bank“Net interest analysis” and Risk Management“Risk management - Credit risk” sections of this MD&A and to the Notes to Consolidated Financial Statements inof this Form 10-K for the other required disclosures.
STATEMENT OF FINANCIAL CONDITION ANALYSIS
The assets on our 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, and other assets. A significant portion of our assets were liquid in nature, providing us with flexibility in financing our business.
Total assets of $61.89 billion as of September 30, 2021 were $14.41 billion, or 30%, greater than our total assets as of September 30, 2020. The increase in assets was primarily due to a $7.10 billion increase in assets segregated for regulatory purposes and restricted cash, primarily due to a significant increase in client cash balances. Bank loans, net increased by $3.80 billion, primarily due to an increase in securities-based loans to PCG clients and an increase in corporate loans. In addition, cash and cash equivalents increased $1.81 billion, available-for-sale securities increased $665 million, and brokerage client receivables, net increased $396 million. Goodwill and identifiable intangible assets, net increased $282 million due to the acquisitions of NWPS, Financo, and Cebile during fiscal 2021.
As of September 30, 2021, our total liabilities of $53.59 billion were $13.28 billion, or 33%, greater than our total liabilities as of September 30, 2020. The increase in total liabilities was primarily related to the significant increase in client cash balances as of September 30, 2021, resulting in a $7.20 billion increase in brokerage client payables, primarily due to an increase in client cash held in our CIP, and a $5.69 billion increase in bank deposits, reflecting higher RJBDP balances held at Raymond James Bank. Our accrued compensation, commissions and benefits increased $441 million, primarily due to an increase in accrued bonuses and benefits resulting from higher net revenues and pre-tax earnings compared with the prior year.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources
Liquidity iscapital 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 framework. Thisframeworks. 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 monthly 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 capitalresources to our business units consider, among other factors, projected profitability, and cash flow, risk, and impact on 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 capital structure andalso maintains our relationships with various lenders. The objective of thisour liquidity management framework is to support the successful execution of our business strategies while ensuring ongoing and sufficient liquidity.
Liquidity is provided primarily throughOur capital planning and capital risk management processes are governed by the Capital Planning Committee (“CPC”), a senior management committee that provides oversight on our business operationscapital planning and financing activities. Financing activities could include bank borrowings, repurchase agreement transactions or additionalensures 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 activitiescapital. 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 our universal shelf registration statement.multiple scenarios, including stressed scenarios.
Cash provided by operating activitiesflows
Cash and cash equivalents increased $1.81 billion to $7.20 billion during the year ended September 30, 2017 was $1.31 billion. In addition to operating cash flows related to net income, other increases in cash from operations included:
A $1.43 billion decrease in assets segregated pursuant to regulations and other segregated assets, primarily resulting from the decrease in client cash balances in part due to a significant number of client accounts from the September 2016 Alex. Brown acquisition electing into our RJBDP program during the current fiscal year.
$189 million of proceeds from sales of securitizations and loans held for sale, net of purchases and originations of loans and securitizations.
Accrued compensation, commissions and benefits increased $160 million as a result of the increased financial results we achieved in fiscal year 2017.
Management's Discussion and Analysis
Offsetting these, decreases in cash used in operations resulted from:
A decrease of $1.13 billion in brokerage client payables and other accounts payable, primarily reflecting a decrease in client cash balances in our client interest program.
Securities loaned, net of securities borrowed decreased $262 million, primarily as a result of a decline in securities lending activity.
$146 million in Jay Peak settlement payments.
Investing activities resulted in the use of $3.38 billion of cash during2021. During the year ended September 30, 2017.
The primary investing2021, cash provided by our operations (including significant net income) and proceeds from our $750 million of 3.75% senior notes offering (net of debt issuance costs), were offset by cash used for the early-redemption of $750 million of our pre-existing senior notes and the related make-whole premiums, dividend payments, share repurchases, and investments in future growth with our acquisitions of NWPS, Financo, and Cebile. We also had significant increases in client cash balances, which increased both our brokerage client payables and our bank deposits. However, this cash was largely used to increase our assets segregated for regulatory purposes, including through the purchase of U.S. Treasuries, as part of our brokerage activities, were:
A netand to increase in RJ Bank loans used $1.92 billion.
Purchases ofour bank loan portfolio and available-for-sale securities held at RJ Bank, netas part of proceeds from maturations, repayments and sales within the portfolio, used $1.34 billion.our banking activities.
We used $190 million to fund property investments. Of this total, $52 million was used for our December 2016 purchase of three office buildings which are located adjacent to our existing corporate headquarters in St. Petersburg, Florida. The remainder was invested, in large part, in software and computer equipment.
Financing activities provided $4.06 billion of cash during the year ended September 30, 2017.
Increases in cash from financing activities resulted from:
An increase in RJ Bank deposit balances of $3.47 billion.
Net proceeds of $508 million from the issuance of 4.95% senior notes due 2046.
Net proceeds of $905 million arising from FHLB borrowings and other borrowed funds.
Offsetting these, decreases in cash from financing activities resulted from:
Repayment of $350 million of 6.90% senior notes due 2042, $300 million of 8.60% senior notes due 2019 and an associated $37 million debt extinguishment premium payment.
Payment of dividends to our shareholders of $127 million.
We believe our existing assets, most of which are liquid in nature, together with funds generated from operations and committed and uncommitted financing facilities provide adequate funds for continuing operations at current levels of activity.
Sources of Liquidityliquidity
Approximately $1.29$1.16 billion of our total September 30, 20172021 cash and cash equivalents (a portionincluded cash held directly at the parent, or parent cash loaned to RJ&A. This parent cash balance does not include $400 million of which residescash set aside by RJF in depository accounts at RJ Bank) was availablea restricted account during the fiscal fourth quarter of 2021 to us without restrictions. The cash and cash equivalents held were as follows:
|
| | | | |
$ in thousands | | September 30, 2017 |
RJF | | $ | 528,397 |
|
RJ&A | | 1,178,683 |
|
RJ Bank | | 1,175,722 |
|
RJ Ltd. | | 439,012 |
|
RJFS | | 128,903 |
|
RJFSA | | 56,089 |
|
Other subsidiaries | | 162,866 |
|
Total cash and cash equivalents | | $ | 3,669,672 |
|
RJF maintains depository accounts at RJ Bankbe used to fund our closing obligations associated with a balancethe pending acquisition of $192 million asCharles Stanley. As of September 30, 2017. The portion2021, this restricted cash was included in “Assets segregated for regulatory purposes and restricted cash” on our Consolidated Statements of this total thatFinancial Condition and is available on demand without restrictions, which amounted to $152 million atnot included in the amounts presented in the following table. As of September 30, 2017, is reflected in the RJF total and is excluded from the RJ Bank total.
2021, RJF had loaned $783$649 million to RJ&A as of September 30, 2017 (such amount is included in the RJ&A cash balance presented in the table above)following table), which RJ&A has invested on behalf of RJF in cash and cash equivalents or
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
otherwise deployed in its normal business activities. The following table presents our holdings of cash and cash equivalents.
| | | | | | | | | |
$ in millions | | September 30, 2021 | |
RJF | | $ | 527 | | |
RJ&A | | 2,799 | | |
Raymond James Bank | | 2,359 | | |
RJ Ltd. | | 853 | | |
RJFS | | 142 | | |
Carillon Tower Advisers | | 98 | | |
Other subsidiaries | | 423 | | |
Total cash and cash equivalents | | $ | 7,201 | | |
RJF maintained depository accounts at Raymond James Bank with a balance of $229 million as of September 30, 2021. The portion of this total that was available on demand without restrictions, which amounted to $152 million as of September 30, 2021, is reflected in the RJF total (and is excluded from the Raymond James Bank cash balance in the preceding table).
A large portion of the RJ Ltd. cash and cash equivalents balance as of September 30, 2021 was held to meet regulatory requirements and was not available for use by the parent.
In addition to the cash balances described, above, we have various other various potential sources of cash available to the parent from subsidiaries, which areas described in the following section.
Management's Discussion and Analysis
Liquidity Availableavailable from Subsidiariessubsidiaries
Liquidity is principally available to RJF, the parent company, from RJ&A and RJRaymond 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 FINRA, RJ&A is requiredsubject to maintainFINRA’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$1.5 million or 2% of aggregate debit balancesitems arising from client transactions. CovenantsIn addition, covenants in RJ&A’s committed secured financing facilities require its net capital to be a minimum of 10% of aggregate debit items. At September 30, 2017,2021, RJ&A significantly exceeded both the minimum regulatory requirements, and the covenants in its financing arrangements pertaining to net capital. At that date, RJ&A hadcapital, as well as its internally-targeted net capital tolerances and intends to use a portion of its excess net capital to remit dividends to RJF in fiscal 2022, in conformity with all required regulatory rules or approvals. FINRA may impose certain restrictions, such as restricting withdrawals of approximately $534 million, of which $176 million was available for dividend while still maintaining the internally targetedequity capital, if a member firm were to fall below a certain threshold or fail to meet minimum net capital ratio of 15% of aggregate debit items. There are also limitations onrequirements 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 dividends that may be declared by a broker-dealer without FINRA approval.liquidity available to RJF from RJ&A.
RJRaymond James Bank may pay dividends to the parent companyRJF without the prior approval of its regulator as long as the dividend doesdividends do not exceed the sum of RJRaymond James Bank’s current calendar year and the previous two calendar years’ retained net income, and RJRaymond James Bank maintains its targeted regulatory capital ratios. At September 30, 2017, RJDividends from Raymond James Bank had $184 million ofmay be limited to the extent that capital in excess of the amount it would need at September 30, 2017is needed to maintainsupport its targeted total capital to risk-weighted assets ratio of 12.5%, and could pay a dividend of such amount without requiring prior approval of its regulator.balance sheet growth.
Although we have liquidity available to us from our other subsidiaries, the available amounts are not as significant as the amountsthose previously described above and, in certain instances, may be subject to regulatory requirements.
Borrowings and Financing Arrangementsfinancing arrangements
Committed financing arrangements
Our ability to borrow is dependent upon compliance with the conditions in theour various loan agreements and, in the case of secured borrowings, collateral eligibility requirements. Our committed financing arrangements are in the formconsist of eithera tri-party repurchase agreement (i.e., securities sold under agreements or,to repurchase) and, in the case of the RJF Credit Facility,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 committed secured facilitiestri-party repurchase agreement ranges from 102%105% to 125% of the amount financed.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The following table presents our committed financing arrangements with third partythird-party lenders, which we generally utilize to finance a portion of our fixed income securities trading instruments, held, and the outstanding balances related thereto:thereto.
| | | | | | | | | | | | | | | September 30, 2021 |
| | As of September 30, 2017 | |
$ in thousands | | RJ&A | | RJ Ltd. | | RJF | | Total | | Total number of arrangements | |
$ in millions | | $ in millions | | RJ&A | | | RJF | | Total | | Total number of arrangements |
Financing arrangement: | | | | | | | | | | | Financing arrangement: | | | | | | | | | |
Committed secured | | $ | 200,000 |
| | $ | — |
| | $ | — |
| | $ | 200,000 |
| | 2 |
| Committed secured | | $ | 100 | | | | $ | — | | | $ | 100 | | | 1 | |
Committed unsecured | | — |
| | — |
| | 300,000 |
| | 300,000 |
| | 1 |
| Committed unsecured | | 200 | | | | 300 | | | 500 | | | 1 | |
Total committed financing arrangements | | $ | 200,000 |
| | $ | — |
| | $ | 300,000 |
| | $ | 500,000 |
| | 3 |
| Total committed financing arrangements | | $ | 300 | | | | $ | 300 | | | $ | 600 | | | 2 | |
| | | | | | | | | | | | | | | | | | | |
Outstanding borrowing amount: | | | | | | | | | | | Outstanding borrowing amount: | | | |
Committed secured | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | | Committed secured | | $ | — | | | | $ | — | | | $ | — | | |
Committed unsecured | | — |
| | — |
| | — |
| | — |
| | | Committed unsecured | | — | | | | — | | | — | | |
Total outstanding borrowing amount | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | | 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 this Form 10-K. In April 2021, we amended our Credit Facility, maintaining the $500 million maximum borrowing amount, but extending the term through April 2026 and incorporating a lower cost of borrowing under the facility and certain favorable covenant modifications.
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 partythird-party lenders are generally utilized to finance a portion of our fixed income securities or for cash management purposes. Our uncommitted secured financing arrangements generally require us to post collateral in excess of the amount borrowed.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 September 30, 2017,2021, we had outstanding borrowings under fivetwo uncommitted secured borrowing arrangements with lenders out of a total of 1511 uncommitted financing arrangements (nine(seven uncommitted secured and sixfour uncommitted unsecured). However, lenders are under no contractual obligation to lend to us under uncommitted credit facilities.
Management's Discussion and Analysis
The following table presents our borrowings on uncommitted financing arrangements.arrangements, all of which were in the form of repurchase agreements in RJ&A and were included in “Collateralized financings” on our Consolidated Statements of Financial Condition.
| | | | | | | | |
$ in millions | | September 30, 2021 |
Outstanding borrowing amount: | | |
Uncommitted secured | | $ | 205 | |
Uncommitted unsecured | | — | |
Total outstanding borrowing amount | | $ | 205 | |
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 |
September 30, 2021 | | $ | 220 | | | $ | 234 | | | $ | 205 | | | $ | 269 | | | $ | 286 | | | $ | 279 | |
June 30, 2021 | | $ | 194 | | | $ | 185 | | | $ | 185 | | | $ | 283 | | | $ | 339 | | | $ | 289 | |
March 31, 2021 | | $ | 226 | | | $ | 260 | | | $ | 222 | | | $ | 242 | | | $ | 280 | | | $ | 224 | |
December 31, 2020 | | $ | 211 | | | $ | 236 | | | $ | 233 | | | $ | 204 | | | $ | 259 | | | $ | 162 | |
September 30, 2020 | | $ | 140 | | | $ | 165 | | | $ | 165 | | | $ | 199 | | | $ | 260 | | | $ | 207 | |
|
| | | | | | | | | | | | | | | | |
| | As of September 30, 2017 |
$ in thousands | | RJ&A | | RJ Ltd. | | RJF | | Total |
Outstanding borrowing amount: | | | | | | | | |
Uncommitted secured | | $ | 480,942 |
| | $ | — |
| | $ | — |
| | $ | 480,942 |
|
Uncommitted unsecured | | 350,000 |
| | — |
| | — |
| | 350,000 |
|
Total outstanding borrowing amount | | $ | 830,942 |
| | $ | — |
| | $ | — |
| | $ | 830,942 |
|
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Other borrowings and collateralized financings
RJ BankWe had $875$850 million in FHLBFederal Home Loan Bank (“FHLB”) borrowings outstanding at September 30, 2017,2021, comprised of floating-rate advances. The interest rates on the floating-rate advances, totaling $850 millionwhich mature in December 2022, reset quarterly and are generally based on LIBOR. We use interest rate swaps to manage the risk of increases in interest rates associated with these floating-rate advances by converting the balances subject to variable interest rates to a $25 million fixed-rate advance, all of which arefixed interest rate. The interest rates on the FHLB borrowings will transition to a SOFR-based rate in December 2021. These FHLB borrowings were secured by a blanket lien on RJRaymond James Bank’s residential mortgage loan portfolio (see Note 14 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information regarding these borrowings). RJportfolio. Raymond James Bank had an additional $916 million$3.31 billion in immediate credit available from the FHLB as of September 30, 20172021 and, with the pledge of additional eligible collateral to the FHLB, total available credit of 30% of total assets. See Note 16 of the Notes to Consolidated Financial Statements of this Form 10-K for additional information regarding these borrowings.
RJRaymond James Bank is eligible to participate in the Fed’s discount-windowFederal Reserve’s discount window program; however, we do not view borrowings from the FedFederal 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 Fed,Federal Reserve, and would beis secured by pledged C&I loans.
From timeWe act as an intermediary between broker-dealers and other financial institutions whereby we borrow securities from one broker-dealer and then lend them to timeanother. Where permitted, we purchasehave also loaned, to broker-dealers and other financial institutions, securities under agreements to resell (“reverse repurchase agreements”) and sell securities under agreements to repurchase (“repurchase agreements”).owned by clients or the firm. We account for each of these types of transactions as collateralized agreements and financings, with the outstanding balances onbalance of $72 million as of September 30, 2021 related to the repurchase agreementssecurities loaned included in “Securities sold under agreements to repurchase”“Collateralized financings” on our Consolidated Statements of Financial Condition included inof this Form 10-K. See Notes 2 and 7 of the Notes to Consolidated Financial Statements of this Form 10-K for more information on our collateralized agreements and financings.
Senior notes payable
In April 2021, we sold $750 million in aggregate principal amount of 3.75% senior notes due April 2051 in a registered underwritten public offering. We utilized the amount $221proceeds from the offering and cash on hand to early-redeem our $250 million aspar 5.625% senior notes due 2024 and our $500 million par 3.625% senior notes due 2026. See Note 17 of the Notes to Consolidated Financial Statements of this Form 10-K for additional information.
After the issuance of the 3.75% senior notes due April 2051 and repurchase and redemption of the 5.625% senior notes due 2024 and 3.625% senior notes due 2026, at September 30, 2017 (which are reflected in the table of financing arrangements above). Such financings are generally collateralized by non-customer, RJ&A owned securities or by securities that we have received as collateral under reverse repurchase agreements.
The average daily balance outstanding during the five most recent successive quarters, the maximum month-end balance outstanding during the quarter and the period-end balances for repurchase agreements and reverse repurchase agreements were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Repurchase transactions | | Reverse repurchase transactions |
For the quarter ended ($ in thousands) | | 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 |
September 30, 2017 | | $ | 241,365 |
| | $ | 247,048 |
| | $ | 220,942 |
| | $ | 463,618 |
| | $ | 503,462 |
| | $ | 404,462 |
|
June 30, 2017 | | $ | 231,378 |
| | $ | 226,972 |
| | $ | 226,972 |
| | $ | 479,653 |
| | $ | 540,823 |
| | $ | 483,820 |
|
March 31, 2017 | | $ | 204,623 |
| | $ | 222,476 |
| | $ | 222,476 |
| | $ | 410,678 |
| | $ | 535,224 |
| | $ | 535,224 |
|
December 31, 2016 | | $ | 219,095 |
| | $ | 241,773 |
| | $ | 203,378 |
| | $ | 424,548 |
| | $ | 445,646 |
| | $ | 358,493 |
|
September 30, 2016 | | $ | 202,687 |
| | $ | 195,551 |
| | $ | 193,229 |
| | $ | 412,513 |
| | $ | 470,222 |
| | $ | 470,222 |
|
At September 30, 2017, in addition to the financing arrangements described above,2021, we had $29 millionaggregate outstanding on a mortgage loan for our St. Petersburg, Florida home-office complex, that is included in “Other borrowings” in our Consolidated Statements of Financial Condition included in this Form 10-K.
At September 30, 2017 we had senior notes payable of $1.55 billion. Our senior notes payable,$2.04 billion, which, exclusive of any unaccreted premiums or discounts and debt issuance costs, iswas comprised of $250$500 million par 5.625%4.65% senior notes due 2024, $500 million par 3.625% senior notes due 2026, and2030, $800 million par 4.95% senior notes due 2046. See Note 152046, and $750 million par 3.75% senior notes due 2051. At September 30, 2021, estimated future contractual interest payments on our senior notes were approximately $2 billion, of which $91 million is payable in fiscal 2022, with the Notes to the Consolidated Financial Statements in this Form 10-K for additional information.remainder extending through 2051.
Management's Discussion and Analysis
Our issuer and senior long-term debt ratings as of the most current report are:
are detailed in the following table. |
| | | | | | | | | | | | | |
Rating Agency | Rating | Rating | | Outlook |
Fitch Ratings, Inc.(1) | | A- | | Stable |
Moody’s Investors Services (2) | | Baa1 | | Review for Upgrade |
Standard & Poor’s Ratings Services (“S&P”) | BBB+ | Stable |
Moody’s Investors Services (“Moody’s”)BBB+ | Baa1 | Stable |
(1) In March 2021, Fitch Ratings, Inc. assigned its first issuer and senior long-term debt rating for Raymond James Financial, Inc.
(2) In November 2021, Moody’s Investor Services placed our senior debt and issuer rating on review for upgrade.
Our current long-term debt 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 management, our capital structure, our overall risk management, business diversification and market share, and competitive position in the markets in which we operate. DeteriorationsDeterioration 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
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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 (see Note 6 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information).positions. A credit downgrade could create a reputational issuedamage our reputation and could also result in certain counterparties limiting their business with us, result in negative comments by analysts, and potentially negatively impact investorinvestors’ and/or clients’ perception of us, and resultantly impactcause a decline in our stock price and/price. None of our borrowing arrangements contains a condition or event of default related to our clients’ perception of us. Acredit ratings. However, a credit downgrade would result in RJFthe firm incurring a higher commitmentfacility fee on any unused balance on one of its borrowing arrangements, the $300 million revolving credit facility,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 commitmentfacility fee, as well as the interest rate applicable to any borrowings on such line. None of our credit agreements contain a condition or event of default related to our credit ratings.
Other sources and uses of liquidity
We have company-owned life insurance (“COLI”) 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 self-directedemployee-directed while others are company-directed. The COLIOf 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 against havehad a cash surrender value of approximately $405$835 million as of September 30, 20172021, comprised of $520 million related to employee-directed plans and $315 million related to company-directed plans, and we arewere able to borrow up to 90%, or $365$751 million, of the September 30, 20172021 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 self-directedemployee-directed plans. There arewere no borrowings outstanding against any of these policies as of September 30, 2017.2021.
On May 22, 201512, 2021, we filed a “universal” shelf registration statement with the SEC pursuant to be in a position to access thewhich we can issue debt, equity and other capital marketsinstruments 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.
On November 17, 2017July 29, 2021, we acquired 100%announced our firm intention to make an offer for the entire issued and to be issued share capital of U.K.-based Charles Stanley Group PLC (“Charles Stanley”) at a price of £5.15 per share, or approximately £279 million ($387 million as of July 28, 2021). Under the terms of the outstanding sharesintended offer, a loan note alternative will be available to Charles Stanley shareholders which will enable eligible Charles Stanley shareholders to elect to receive a loan note in lieu of part or all of the Scout Group (seecash consideration to which they would otherwise be entitled under the terms of the offer. The initial interest rate for the loan note alternative for the first year is 0.1%. The note bears interest at a variable rate which resets annually, calculated as the Bank of England’s base rate plus a differential defined in the loan note, with the interest rate not to exceed 1.5% in any period. The transaction, which is subject to FCA approval, is expected to close in the first half of fiscal 2022. We have segregated $400 million in cash to fund the acquisition on the closing date, which is included in “Assets segregated for regulatory purposes and restricted cash” on our Consolidated Statements of Financial Condition as of September 30, 2021. See Note 3 of the Notes to Consolidated Financial Statements of this Form 10‑K for additional information.
On October 20, 2021, we announced we had entered into a definitive agreement to acquire TriState Capital Holdings, Inc. (“TriState Capital”) in a combination cash and stock transaction, valued at approximately $1.1 billion. Under the terms of the agreement, TriState Capital common stockholders will receive $6.00 cash and 0.25 RJF shares for each share of TriState Capital common stock, which represents per share consideration of $31.09 based on the closing price of RJF common stock on October 19, 2021. We have entered into an agreement with the sole holder of the TriState Capital Series C Perpetual Non-Cumulative Convertible Non-Voting Preferred Stock (“Series C Convertible Preferred”) pursuant to which the Series C Convertible Preferred will be converted to common shares at the prescribed exchange ratio and cashed out at $30 per share. The TriState Capital Series A Non-Cumulative Perpetual Preferred Stock and Series B Non-Cumulative Perpetual Preferred Stock will remain outstanding and will be converted into equivalent preferred stock of RJF. The transaction, which is subject to customary closing conditions, including regulatory approvals and approval by TriState Capital shareholders, is expected to close in fiscal 2022. We currently have the ability to utilize our cash on hand to fund the acquisition. See Note 3 of the Notes to Consolidated Financial Statements of this Form 10-K for more information) for a purchase price considerationadditional information.
As part of $173 million. We utilized our ongoing operations, we also enter into contractual arrangements that may require future cash on-hand to fund the purchase.
See the “Contractual obligations” section below for information regarding our contractual obligations.
Statementpayments, including certificates of financial condition analysis
The assets on our consolidated statements of financial condition consist primarily of cash and cash equivalents (a large portion of which is segregated for the benefit of clients), receivables including bank loans, financial instruments held for either trading purposes or as investments,deposit, lease obligations and other assets. A significant portion of our assets were liquid in nature, providing us with flexibility in financing our business.
Total assets of $34.88 billion at September 30, 2017 were $3.40 billion, or 11%, greater than our total assetscontractual arrangements, such as of September 30, 2016. Our cashfor software and cash equivalents balances increased $2.02 billion; refer to the discussion of the components of this increase in the “Liquidity and Capital Resources” section within this Item 7. Net bank loans receivable increased $1.80 billion primarily due to the growth of RJ Bank’s CRE, tax-exempt, residential and securities-based loan portfolios. Our available-for-sale securities portfolio increased by $1.33 billion, as RJ Bank increased their investments in such securities in line with our growth plan for this portfolio.
Management's Discussion and Analysis
Offsetting these increases, assets segregated pursuant to federal regulations (for the benefit of our clients) decreased $1.41 billion, in part due to a significant number of client accounts from the September 2016 Alex. Brown acquisition electing into our RJBDP program during the first quarter of fiscal 2017.
As of September 30, 2017, our total liabilities of $29.19 billion were $2.77 billion, or 10%, greater than our total liabilities as of September 30, 2016. Bank deposit liabilities increased $3.47 billion as RJ Bank received a higher allocation of RJBDP balances which was utilized to fund a portion of their increased securities portfolio and net loan growth. Other borrowings increased by $905 million due to the increased utilization of short-term financings for cash management purposes, the financing of our fixed income securities trading inventory, as well as increased borrowings by RJ Bank from the FHLB. Offsetting these increases, brokerage client payable balances decreased $1.03 billion, reflecting a decrease in client cash balances in our client interest program (refer to the discussion of the decrease in assets segregated pursuant to federal regulations above). Securities loaned balances decreased $294 million as a result of decreased activity. Our outstanding balance of senior notes payable decreased $132 million due to the extinguishment of $350 million of 6.90% senior notes due 2042 and $300 million of 8.60% senior notes due 2019, offset by the issuance of $500 million of 4.95% senior notes due 2046.
Contractual obligations
The following table sets forth our contractual obligations and payments due thereunder by fiscal year:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Year ended September 30, |
$ in thousands | | Total | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter |
Long-term debt obligations: | | | | | | | | | | | | | | |
Senior notes payable | | $ | 1,550,000 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,550,000 |
|
Long-term portion of other borrowings | | 898,967 |
| | — |
| | 855,130 |
| | 5,430 |
| | 30,748 |
| | 6,084 |
| | 1,575 |
|
Sub-total long-term debt obligations | | 2,448,967 |
| | — |
| | 855,130 |
| | 5,430 |
| | 30,748 |
| | 6,084 |
| | 1,551,575 |
|
Estimated interest on long-term debt | | 1,449,995 |
| | 92,059 |
| | 87,230 |
| | 74,194 |
| | 73,043 |
| | 72,430 |
| | 1,051,039 |
|
Operating lease obligations | | 448,927 |
| | 96,756 |
| | 89,711 |
| | 78,164 |
| | 61,959 |
| | 42,846 |
| | 79,491 |
|
Purchase obligations | | 317,877 |
| | 152,082 |
| | 73,794 |
| | 31,715 |
| | 14,835 |
| | 9,308 |
| | 36,143 |
|
Other long-term liabilities: | | | | | | | | | | | | | | |
Certificates of deposit (including interest) | | 328,503 |
| | 72,055 |
| | 62,423 |
| | 78,659 |
| | 36,250 |
| | 79,116 |
| | — |
|
Deferred compensation programs | | 484,609 |
| | 72,348 |
| | 74,028 |
| | 74,961 |
| | 61,009 |
| | 61,643 |
| | 140,620 |
|
Guaranteed LIHTC fund obligation | | 15,786 |
| | 5,247 |
| | 5,388 |
| | 2,373 |
| | 1,682 |
| | 1,096 |
| | — |
|
Sub-total long-term liabilities | | 828,898 |
| | 149,650 |
| | 141,839 |
| | 155,993 |
| | 98,941 |
| | 141,855 |
| | 140,620 |
|
Total contractual obligations | | $ | 5,494,664 |
| | $ | 490,547 |
| | $ | 1,247,704 |
| | $ | 345,496 |
| | $ | 279,526 |
| | $ | 272,523 |
| | $ | 2,858,868 |
|
Estimated interest on long-term debt includes scheduled interest on our senior notes, our mortgage note payable and our FHLB advances (assuming no change in the variable interest rate from that as of September 30, 2017, but factoring into the computation the effect of the related interest rate hedges that swap variable interest rate payments to fixed interest payments).various services. See Notes 14 and 15 of the Notes to the Consolidated Financial Statements inof this Form 10-K for information regarding our senior notes payablelease obligations and other borrowings.
In the normal coursecertificates of our business, we enter into contractual arrangements whereby we commit to future purchases of products or services from unaffiliated parties. Purchase obligations for purposes of this table include amounts associated with agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms including: minimum quantities to be purchased, fixed, minimum or variable price provisions, and the approximate timing of the transaction. Our most significant purchase obligations are vendor contracts for data services, communication services, processing services, computer software contracts and our stadium naming rights contract which goes through 2027. Most of our contracts have provisions for early termination. For purposes of this table we have assumed we would not pursue early termination of such contracts.
See Note 20 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information regarding our deferred compensation plans. Investments utilized to fund certain of these obligations are not presented in the table above.
Raymond James Tax Credit Funds, Inc. has provided a guaranteed return on investment to a third party investor in the Guaranteed LIHTC Fund. Amounts presented in the table above represent the gross liability associated with this guarantee obligation and do not reflect the related and offsetting financing asset. See Notes 9 and 17 of the Notes to Consolidated Financial Statements in this Form 10-K for further information.
Management's Discussion and Analysis
The table above does not include any amounts for uncertain tax positions because we are unable to reasonably predict the timing of future payments, if any, to respective taxing authorities. See Note 16 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information.
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 Notes 17 and 22Note 19 of the Notes to Consolidated Financial Statements inof this Form 10-K for further information.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
REGULATORY
Refer to the discussion of the regulatory environment in which RJF and its subsidiarieswe operate and the impact on our operations of certain rules and regulations resulting from the DOL Rule and the Dodd-Frank Act, including the Volcker Rule, in Item“Item 1 - Business Regulation in- Regulation” of this Form 10-K.
RJF and many of its subsidiaries are each subject to various regulatory capital requirements. As of September 30, 2017,2021, all of our active regulated domestic and international subsidiaries had net capital in excess of minimum requirements. In addition, RJF and RJRaymond James Bank were categorized as “well capitalized”“well-capitalized” as of September 30, 2017.
2021. The maintenance of certain risk-based and other regulatory capital levels could impactinfluence various capital allocation decisions impacting one or more of our businesses. However, due to the strongcurrent capital position of RJF and its regulated subsidiaries, we do not anticipate these capital requirements will have anya negative impact on our future business activities.
See Note 2124 of the Notes to Consolidated Financial Statements inof this Form 10-K for further information on regulatory and capital requirements.
Critical accounting estimatesCRITICAL ACCOUNTING ESTIMATES
The consolidated financial statements are prepared in accordance with GAAP, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during any reporting period in our consolidated financial statements. 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 inof this Form 10-K.
We believe that of our accounting estimates and assumptions, those described below involve a high degree of judgment and complexity. 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 theour reported results of our operations and our 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.
Valuation of financial instruments
The use of fair value to measure financial instruments, with related gains or losses recognized inon our Consolidated Statements of Income and Comprehensive Income, is fundamental to our financial statements and our risk management processes.
“Financial “Financial instruments” and “Financial instruments sold but not yet purchased”instrument liabilities” are reflected inon the Consolidated Statements of Financial Condition at fair value. Unrealized gains and losses related to these financial instruments are reflected in our net income or our other comprehensive income/(loss) (“OCI”), depending on the underlying purpose of the instrument.
We measure the fair value of our financial instruments in accordance with GAAP, which defines fair value, establishes a framework that we use to measure fair value, and provides for certain disclosures we provide about our fair value measurements included in our financial statements. Fair value is defined by GAAP as the price that would be received forto sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for the asset or liability. These fair value determination processes also apply to any of our impairment tests or assessments performed for nonfinancial instruments such as goodwill, identifiable intangible assets, certain real estate owned and other long-lived assets.
Management's Discussion and Analysis
In determining the fair value of our financial instruments, in accordance with GAAP, we use various valuation approaches, including market and/or income approaches. Fair value is a market-based measuremeasurement considered from the perspective of a market participant. As such, our fair value measurements reflect assumptions that we believe market participants would use in pricing the asset or liability at the measurement date. In determiningA hierarchy for inputs is used in measuring fair value GAAP provides forthat maximizes the following three levels touse of observable inputs and minimizes the use of unobservable inputs by requiring that the relevant observable inputs be used to classify our fair value measurements:
when available. The hierarchy is broken down into three levels: Level 1-Inputs are1 represents unadjusted quoted prices in active markets for identical assets or liabilities.
instruments; Level 2-Inputs that are2 represents valuations based on inputs other than unadjusted quoted prices in active markets, but for which all significant inputs are either directlyobservable; and Level 3 consists of valuation techniques that incorporate one or indirectly observable as ofmore significant unobservable inputs and, therefore, requires the reporting date (i.e., prices for similar instruments).
Level 3-Inputs that cannot be observed in market activity.
GAAP requires that we maximize thegreatest use of observable inputs and minimize the use of unobservable inputs when performing our fair value measurements.judgment. The availability of observable inputs can vary from instrument to instrument and, in certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement of an instrument requires judgment and consideration of factors specific to the instrument.
See Notes 2, 4, 5 and 6 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information on our financial instruments.
Investments in private equity measured at net asset value per share
As a practical expedient, we utilize net asset value (“NAV”) or its equivalent to determine the recorded value of a portion of our private equity portfolio. We utilize NAV when the fund investment does not have a readily determinable fair value and the NAV of the fund is calculated in a manner consistent with the measurement principles of investment company accounting, including measurement of the investments at fair value. Our investments in private equity measured at NAV amounted to $110 million and $111 million at September 30, 2017 and 2016, respectively. See Note 4 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information on our private equity investments measured at NAV.
Level 3 assets and liabilities
As of September 30, 2017, 10% of our total assets and 2% of our total liabilities are financial instruments measured at fair value on a recurring basis. In comparison as of September 30, 2016, financial instruments measured at fair value on a recurring basis represented 8% of our total assets and 3% of our total liabilities.
Financial instruments measured at fair value on a recurring basis categorized as Level 3 amounted to $201 million as of September 30, 2017 and represent 6% of our assets measured at fair value. Of the Level 3 assets as of September 30, 2017, our ARS positions comprise $106 million, or 53%, and our private equity investments not measured at NAV comprise $89 million, or 44%, of the total. Our Level 3 assets decreased $14 million, or 6%, as compared to the September 30, 2016 level. Our ARS portfolio decreased approximately $19 million compared to September 30, 2016, due to sales within the portfolio (see Notes 4 and 5 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information). Offsetting this decrease, our private equity investments not measured at NAV increased $6 million, as valuation increases more than offset the net impact of capital contributed/distributions received. Level 3 assets represent 4% of total equity as of September 30, 2017.
Valuation techniques
The fair valuevalues for certain of our financial instruments isare derived using pricing models and other valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of our financial instruments. Financial instruments for which are actively quoted prices or pricing parameters are availabletraded will
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
generally have a higher degree of price transparency than financial instruments that are thinly traded or not quoted. In accordance with GAAP, the criteria used to determine whether the market for a financial instrument is active or inactive is based on the particular asset or liability. We have determined the market for certain other types of financial instruments, including certain private equity investments, ARS, CMOs, ABS and certain collateralized debt obligations to be volatile, uncertain or inactive as of both September 30, 2017 and 2016.less frequently traded. As a result, the valuation of thesecertain financial instruments which are less frequently traded included significant management judgment in determining the relevance and reliability of market information available. We considered the inactivityavailable and are generally classified in Level 3 of the market tofair value hierarchy.
Management's Discussion and Analysis
be evidenced by several factors, including a continued decreased price transparency caused by decreased volume of trades relative to historical levels, stale transaction prices and transaction prices that varied significantly either over time or among market makers.
See Notes 2 and 4 of the Notes to Consolidated Financial Statements inof this Form 10-K for further information about the level within the fair value hierarchy, specific valuation techniques and inputs, and other significant accounting policies pertaining to financial instruments at fair value.
Loss provisions
Loss provisions arising fromfor 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 inof this Form 10-K. In addition, refer to Note 1719 of the Notes to the Consolidated Financial Statements inof this Form 10-K for information regarding legal and regulatory matter contingencies as of September 30, 2017.2021.
Loss provisions arising from operationsAllowance for credit losses
We evaluate certain of our Broker-Dealers
The recorded amounts of loss provisions associated with brokerage client receivables andfinancial assets, including bank loans, to financial advisors and certain key revenue producers are subject to significant management judgment. For a description of the significant estimates and judgments associated with establishing these broker-dealer related loss provisions and the related allowances for doubtful accounts, see the “Brokerage client receivables, net” and “Loans to financial advisors, net” sections of Note 2 of the Notes to Consolidated Financial Statements in this Form 10-K.
Loan loss provisions arising from operations of RJ Bank
RJ Bank providesestimate an allowance for loan lossescredit losses. Effective October 1, 2020, we adopted the CECL accounting guidance which reflects our continuing evaluation ofchanged the probable losses inherent in the loan portfolio. Refermethodology used to Note 2 of the Notes to Consolidated Financial Statements in this Form 10-K for discussion of RJ Bank’s policies regardingmeasure the allowance for loancredit losses from an allowance based on incurred losses to an allowance 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 refer to Note 8 of the Notes to Consolidated Financial Statementsexpected prepayments, among other factors. We employ multiple methodologies in this Form 10-K for quantitative information regarding the allowance balances as of September 30, 2017.
At September 30, 2017, the amortized cost of all RJ Bank loans was $17.2 billion andestimating an allowance for loancredit losses and our approaches differ by type of $190 million was recorded against that balance. The totalfinancial asset and the risk characteristics within each financial asset type. Our estimates are based on ongoing evaluations of the portfolio, the related credit risk characteristics, and the overall economic and environmental conditions affecting the financial assets. Our process for determining the allowance for loan losses is equal to 1.11% of the amortized cost of the loan portfolio.
RJ Bank’s process of evaluating its probable loancredit losses includes a complex analysis of several quantitative and qualitative factors requiring a substantial amount of judgment. As a result,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 loancredit 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 at RJ Bank.
Recent accounting developments
For informationcapital. See the discussion regarding our recent accounting developments, seemethodology in estimating the allowance for credit losses in Note 2 of the Notes to Consolidated Financial Statements inof this Form 10-K.
Off-Balance sheet arrangementsRECENT ACCOUNTING DEVELOPMENTS
For information regarding our off-balance sheet arrangements, see Note 22 of the NotesThe FASB has issued certain accounting updates which were assessed and either determined to Consolidated Financial Statements in this Form 10-K.
Effects of inflation
Our assets are primarily liquid in nature andbe not applicable or are not significantly affected by inflation. However, the rate of inflation affectsexpected to have a significant impact on our expenses, including employee compensation, communications and occupancy, which may not be readily recoverable through charges for services we provide to our clients.financial statements.
Management's Discussion and Analysis
RISK MANAGEMENT
Risk Management
Risks are an inherent part of our business and activities. Management of these risksrisk 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 results of this process are extensively documented and reported to executive management and the RJF Audit and Risk Committee of the Board of Directors.
The principal risks related to our business activities are market, credit, liquidity, operational, model, and regulatorycompliance.
Governance
Our Board of Directors, including its Audit and legal.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 helping to identify, escalate, and mitigate risks arising from its day-to-day activities. The second line of risk management, which includes the Compliance, Legal, and Risk Management departments, supports and provides guidance and oversight to client-facing businesses and other first-line risk management functions in identifying and mitigating risk. The second line of risk management also tests and monitors the effectiveness of controls, escalates risks when appropriate, and reports on these
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
risks. 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.
Market risk
Market risk is our risk of loss resulting from the impact of changes in market prices on our trading inventory, derivativederivatives and investment positions. We have exposure to market risk primarily through our broker-dealer trading operations and to a lesser extent, through our banking operations. Our broker-dealer subsidiaries, primarily RJ&A, trade taxableact as market makers and tax-exempttrade debt obligations and act as an active market maker in over-the-counter equity securities. In connection with these activities, wesecurities and maintain inventories in order to ensure availability of securities and to facilitate client transactions. Inventory levels may fluctuate daily as a result of client demand. We also hold investments in agency-backed MBS residential mortgage-backed securities,and agency-backed CMOs and equity securities within RJRaymond James Bank’s available-for-sale securities portfolio, and also from time-to-time may hold SBA loan securitizations not yet transferred. Additionally, we hold certain ARSOur primary market risks relate to interest rates, equity prices, and foreign exchange rates. Interest rate risk results from changes in a non-broker-dealer subsidiarylevels of RJF.interest rates, the volatilities 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 volatilities of foreign exchange rates.
See Notes 2, 4, 5 and 6 of the Notes to Consolidated Financial Statements inof this Form 10-K for fair value and other information regarding our trading inventories, derivativesavailable-for-sale securities and available-for-sale securities.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, assetinvestor expectations or risk appetites, liquidity, andas well as dynamic relationships among these factors. We actively manage interest rate risk arising from our fixed income trading inventory by product typesecurities through the use of hedging strategies utilizing U.S. Treasury securities, futures contracts, liquid spread products and have established trading divisions with responsibility for particular product types. derivatives.
Our primary method offor controlling risk in ourrisks within trading inventoryinventories is through the establishmentuse of dollar-based and monitoring of risk-based limits and limits on the dollar amount of securities positions held overnight in inventory.exposure-based limits. A hierarchy of limits exists at multiple levels, including firm, division, asset type (organized as trading desks, e.g.business unit, desk (e.g., for OTC equities, corporate bonds, municipal bonds), assetproduct sub-type (e.g., below-investment-grade positions) and, at times, at the individual trader. Position limits in trading inventory accounts are monitored on a daily basis. Consolidated position and exposure reports are prepared and distributed daily to senior management. Trading positions are carefully monitored for potential limit violations. Management likewise monitors inventory levels and trading results, as well as inventory aging, pricing, concentration and securities ratings.position. For our derivativesderivative positions, which are composed primarily comprised of interest rate swaps, but include futures contracts and forward foreign exchange contracts, we monitor daily their exposure againsthave established limits with respect tobased on a number of factors, including interest rate, foreign exchange spot and forward rates, spread, ratio, basis, and volatility risk. These derivativeDerivative exposures are also monitored both on afor the total portfolio basis and separately for each agreement for selectedby maturity periods.
In the normal course of business, Trading positions and derivatives are monitored against these limits through daily reports that are distributed to senior management.During volatile markets, we enter into underwriting commitments. RJ&A and RJ Ltd., as a lead may temporarily reduce limits and/or co-lead manager or syndicate member in the underwriting deal, may be subjectchoose to market risk on any unsold shares issued in the offering to which we are committed. Risk exposure is controlled by limiting participation, the deal size or through the syndication process.
Interest rate risk
Trading activities
We are exposed to interest rate risk as a result ofpare our trading inventories (primarily comprised of fixed income instruments) in our Capital Markets segment. We actively manage the interest rate risk arising from our fixed income trading securities through the use of hedging strategies that involve U.S. Treasury securities and futures contracts, liquid spread products and derivatives.to reduce risk.
We monitor daily, the Value-at-Risk (“VaR”) for all of our trading portfolios. VaR is an appropriate statistical techniqueportfolios on a daily basis for estimating potential losses in trading portfolios due to typical adverse market movements overrisk management purposes and as a specified time horizon with a suitable confidence level. We applyresult 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 OCC and the FDIC, requires us to calculate VaR numbers 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 derivative instruments.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
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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. The simulationSimulation is based on daily market data for the previous twelve
Management's Discussion and Analysis
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 the “Model risk” section that follows 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.
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, 2021 | | Period-end VaR | | | | For the year ended September 30, |
$ in millions | | High | | Low | | September 30, 2021 | | September 30, 2020 | | $ in millions | | 2021 | | 2020 |
Daily VaR | | $ | 11 | | | $ | 1 | | | $ | 1 | | | $ | 8 | | | Average daily VaR | | $ | 4 | | | $ | 3 | |
Average daily VaR was higher during fiscal 2021 compared to the prior year due to the impact of scenarios of elevated volatility as a result of the COVID-19 pandemic (which commenced in March 2020) on our VaR model during the first half of the year. However, during our fiscal third quarter of 2021, the remaining COVID-19 pandemic-related scenarios fell outside of the VaR model’s 12-month historical simulation period, resulting in period-end VaR decreasing to $1 million as of September 30, 2021 from $8 million as of September 30, 2020.
The Fed’s MRR requires us to perform daily back testingback-testing procedures offor 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 twelve monthsyear ended September 30, 2017,2021, our regulatory-defined daily losslosses in our trading portfolios exceededdid not exceed our predicted VaR once.VaR.
The following table sets forth the high, low, and daily average VaR for all of our trading portfolios, including fixed income, equity, and derivative instruments, for the period and dates indicated:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, 2017 | | Period end VaR | | Daily average VaR |
$ in thousands | | High | | Low | | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
Daily VaR | | $ | 2,952 |
| | $ | 938 |
| | $ | 1,427 |
| | $ | 1,804 |
| | $ | 1,827 |
| | $ | 1,584 |
|
The modeling of the risk characteristics of trading positions involves a number of assumptions and approximations. While management believes that its assumptions and approximations are reasonable, there is no uniform industry methodology for estimating VaR, and different assumptions or approximations could produce materially different VaR estimates. As a result, VaR statistics 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.
Separately, RJF provides additional market risk disclosures to comply with the MRR. The results of the application of this market risk capital ruleMRR, including 10-day VaR and 10-day Stressed VaR, which are available on our website under at https://www.raymondjames.com/investor-relations/financial-report under “Market Risk Rule Disclosure.financial-information/filings-and-reports within “Other Reports and Information.”
Should markets suddenly become more volatile, actual trading losses may exceed VaR results presented on a single day and might accumulate over a longer time horizon, such as a number of consecutive trading days. Accordingly, management applies additional controls including position limits, a daily review of trading results, review of the status of aged inventory, independent controls on pricing, monitoring of concentration risk, review of issuer ratings and stress testing. We utilize stress testing to complement our VaR analysis so as to measure risk under historical and hypothetical adverse scenarios. During volatile markets we may choose to pare our trading inventories to reduce risk.
As a part of our fixed income public finance operations, we enter into forward commitments to purchase GNMA or FNMA MBS which are issued on behalf of various state and local housing finance agencies. These activities result in exposure to interest rate risk. In order to hedge the interest rate risk to which we would otherwise be exposed between the date of the commitment and the date of sale of the MBS, we enter into to be announced (“TBA”) security contracts with investors for generic MBS securities at specific rates and prices to be delivered on settlement dates in the future. See Notes 2 and 17 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information regarding these activities.
Banking operations
RJRaymond James Bank maintains an earninginterest-earning asset portfolio that is comprised of cash, C&I loans, tax-exempt loans, SBL, and commercial and residential real estate loans, REIT loans, tax-exempt loans and SBL and other loans, as well as agency-backed MBS and agency-backed CMOs (both of which are held(held in the available-for-sale securities portfolio), and SBA loan securitizations and a trading portfolio of corporate loans. Those earningsecuritizations. These interest-earning assets are primarily funded by client deposits. Based on its current earning asset portfolio, RJRaymond James Bank is subject to interest rate risk. During the year, RJ Bank has focused its interest rate risk analysis on the risk of market interest rates rising given the Federal Reserve Bank’s increases in short-term interest rates since December 2015. RJRaymond James Bank analyzes 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 inacross a range of interest rate scenarios.
One of the objectives of RJRaymond James Bank’s Asset and Liability Management 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 RJRaymond James Bank’s interest rate risk, including scenario analysis and economic value of equity.
RJ Bank uses simulation models and estimation techniques to assess the sensitivity of the net interest income stream to movements in interest rates. To ensure that RJRaymond James Bank remains within its 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
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
estimation techniques to assess the sensitivity of net interest income to movements in interest rates. The model estimates the sensitivity by calculating
Management's Discussion and Analysis
interest income and interest expense in a dynamic balance sheet environment using current repricing, prepayment, and reinvestment of cash flow assumptions over a twelve month12-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. Scenarios presented include
The following table is an analysis of Raymond James Bank’s estimated net interest income over a 12-month period based on instantaneous shifts in interest rate shocks of up 100 and 200rates (expressed in basis points and down 100 basis points.points) using our asset/liability model, which assumes 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. RJ BankWe also performsperform simulations on time horizons of up to five years to assess longer termlonger-term impacts to various interest rate scenarios. On a quarterly basis, RJ Bank testswe test expected model results to actual performance. Additionally, any changes made to key assumptions in the model are documented and approved by RJRaymond James Bank’s Asset and Liability Management Committee.
| | | | | | | | | | | | | | |
Instantaneous changes in rate | | Net interest income ($ in millions) | | Projected change in net interest income |
+200 | | $974 | | 35% |
+100 | | $918 | | 28% |
0 | | $720 | | — |
-25 | | $693 | | (4)% |
We
Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Net interest analysis” of this Form 10-K for a discussion of the impact changes in short-term interest rates could have on the firm’s operations. In addition, we utilize a hedging strategy using interest rate swaps as a result of RJRaymond James Bank’s asset and liability management process described above.process. For further information regarding this risk management objective, see the discussion of this hedging strategy, insee Note 2 and Note 6 of the Notes to Consolidated Financial Statements inof this Form 10-K.
The following table is an analysis of RJ Bank’s estimated net interest income over a 12 month period based on instantaneous shifts in interest rates (expressed in basis points) using RJ Bank’s own asset/liability model:
|
| | | | |
Instantaneous changes in rate | | Net interest income ($ in thousands) | | Projected change in net interest income |
+200 | | $655,668 | | (4.16)% |
+100 | | $671,707 | | (1.81)% |
0 | | $684,104 | | — |
-100 | | $553,977 | | (19.02)% |
Refer to “Management’s Discussion and Analysis - Net Interest Analysis” within this Form 10-K, for a discussion of the impact that an increase in short-term interest rates could have on RJF’s operations.
The following table shows the contractual maturities of RJ Bank’sour bank loan portfolio at September 30, 2017,2021, including contractual principal repayments. This table does not however, include any estimates of prepayments. These 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 following table. Loan amounts in the table below exclude unearned income and deferred expenses.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Due in |
$ in millions | | One year or less | | > One year – five years | | > Five years | | Total |
C&I loans | | $ | 257 | | | $ | 4,663 | | | $ | 3,520 | | | $ | 8,440 | |
CRE loans | | 727 | | | 1,637 | | | 508 | | | 2,872 | |
REIT loans | | 168 | | | 924 | | | 20 | | | 1,112 | |
Tax-exempt loans | | — | | | 59 | | | 1,262 | | | 1,321 | |
Residential mortgage loans | | — | | | 6 | | | 5,312 | | | 5,318 | |
SBL and other | | 6,067 | | | 39 | | | — | | | 6,106 | |
Total loans held for investment | | 7,219 | | | 7,328 | | | 10,622 | | | 25,169 | |
Held for sale loans | | — | | | 14 | | | 131 | | | 145 | |
Total loans | | $ | 7,219 | | | $ | 7,342 | | | $ | 10,753 | | | $ | 25,314 | |
|
| | | | | | | | | | | | | | | | |
| | Due in |
$ in thousands | | One year or less | | > One year – five years | | > 5 years | | Total |
Loans held for sale | | $ | — |
| | $ | 36,030 |
| | $ | 31,861 |
| | $ | 67,891 |
|
Loans held for investment: | | |
| | |
| | |
| | |
|
C&I loans | | 114,443 |
| | 4,098,767 |
| | 3,172,700 |
| | 7,385,910 |
|
CRE construction loans | | — |
| | 112,681 |
| | — |
| | 112,681 |
|
CRE loans | | 546,414 |
| | 2,001,057 |
| | 558,819 |
| | 3,106,290 |
|
Tax-exempt loans | | — |
| | 4,295 |
| | 1,013,496 |
| | 1,017,791 |
|
Residential mortgage loans | | 1,662 |
| | 2,668 |
| | 3,144,400 |
| | 3,148,730 |
|
SBL | | 2,383,183 |
| | 3,514 |
| | — |
| | 2,386,697 |
|
Total loans held for investment | | 3,045,702 |
| | 6,222,982 |
| | 7,889,415 |
| | 17,158,099 |
|
Total loans | | $ | 3,045,702 |
| | $ | 6,259,012 |
| | $ | 7,921,276 |
| | $ | 17,225,990 |
|
Management'sManagement’s Discussion and Analysis
The following table shows the distribution of the recorded investment of those RJ Bankbank loans that mature in more than one year between fixed and adjustable interest rate loans at September 30, 2017. Loan amounts in the table below exclude unearned income and deferred expenses.2021.
| | | | | | | | | | | | | | | | | | | | |
| | Interest rate type |
$ in millions | | Fixed | | Adjustable | | Total |
C&I loans | | $ | 303 | | | $ | 7,880 | | | $ | 8,183 | |
CRE loans | | 90 | | | 2,055 | | | 2,145 | |
REIT loans | | — | | | 944 | | | 944 | |
Tax-exempt loans | | 1,321 | | | — | | | 1,321 | |
Residential mortgage loans | | 198 | | | 5,120 | | | 5,318 | |
SBL and other | | — | | | 39 | | | 39 | |
Total loans held for investment | | 1,912 | | | 16,038 | | | 17,950 | |
Held for sale loans | | 1 | | | 144 | | | 145 | |
Total loans | | $ | 1,913 | | | $ | 16,182 | | | $ | 18,095 | |
|
| | | | | | | | | | | | |
| | Interest rate type |
$ in thousands | | Fixed | | Adjustable | | Total |
Loans held for sale | | $ | 3,593 |
| | $ | 64,298 |
| | $ | 67,891 |
|
Loans held for investment: | | |
| | |
| | |
|
C&I loans | | 1,700 |
| | 7,269,767 |
| | 7,271,467 |
|
CRE construction loans | | — |
| | 112,681 |
| | 112,681 |
|
CRE loans | | 44,181 |
| | 2,515,695 |
| | 2,559,876 |
|
Tax-exempt loans | | 1,017,791 |
| | — |
| | 1,017,791 |
|
Residential mortgage loans | | 230,816 |
| | 2,916,252 |
| | 3,147,068 |
|
SBL | | 3,514 |
| | — |
| | 3,514 |
|
Total loans held for investment | | 1,298,002 |
| | 12,814,395 |
| | 14,112,397 |
|
Total loans | | $ | 1,301,595 |
| | $ | 12,878,693 |
| | $ | 14,180,288 |
|
Contractual loan terms for C&I, CRE, CRE constructionREIT 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 Riskrisk - Risk Monitoringmonitoring process” section of this Form 10-K for additional information regarding RJRaymond James Bank’s interest-only residential mortgage loan portfolio.
In our available-for-sale securities portfolio, we hold primarily fixed-rate agencyagency-backed MBS and agency-backed CMOs which wereare carried at fair value inon our Consolidated Statements of Financial Condition, at September 30, 2017 with changes in the fair value of the portfolio recorded through “Other comprehensive income” inOCI on our Consolidated Statements of Income and Comprehensive Income. At September 30, 2017,2021, our available-for-sale securities portfolio had a fair value of $2.08$8.32 billion with a weighted-average yield of 1.94%1.14% and average expected durationa weighted-average life of 3approximately four years. See Note 5 in the Notes to Consolidated Financial Statements for additional information.
Other
We hold ARS, which are long-term variable rate securities tied to short-term interest rates, that are accounted for as available-for-sale and are carried at fair value on our Consolidated Statements of Financial Condition. As short-term interest rates rise, due to the variable nature of the penalty interest rate provisions embedded in most of these securities in the event auctions fail to set the security’s interest rate, then a penalty rate that is specified in the security increases. These penalty rates are based upon a stated interest rate spread over what is typically a short-term base interest rate index. Changes in interest rates impact the fair value as we estimate that at some level of increase in short-term interest rates, issuers of the securities will have the economic incentive to refinance (and thus prepay) the securities. The faster and steeper short-term interest rates rise, the earlier prepayments will likely occur and the higher the fair value of the security. See Notes 2 and 4 of the Notes to Consolidated Financial Statements inof this Form 10-K for additional information on the fair value of these securities.information.
Equity price risk
We are exposed to equity price risk as a consequenceresult of makingour capital markets in equity securities.activities. Our broker-dealer activities are primarilygenerally client-driven, withand we carry equity securities as part of our trading inventory to facilitate such activities, although the objective of meeting clients’ needs while earning aamounts are not as significant as our fixed income trading profit to compensate for the risk associated with carrying inventory. We attempt to reduce the risk of loss inherent in our inventory of equity securities by monitoring those security positions throughout 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 Consolidated Statements of Financial Condition, which is comprised of various direct investments, as well as investments in third-party private equity funds and various legacy private equity funds which we sponsor. Of the total private equity investments may be impacted by equity prices.at September 30, 2021 of $169 million, the portion we owned was $120 million. See Note 4 of the Notes to Consolidated Financial Statements of this Form 10-K 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 $1.29 billion and $1.05 billion at September 30, 2021 and 2020, respectively, when converted to the U.S. dollar. A majority of such loans are held by Raymond James Bank’s Canadian subsidiary, which is discussed in the following sections.
Management's Discussion and Analysis
Investments in foreign subsidiaries
RJRaymond James Bank has an investment in a Canadian subsidiary, resulting in foreign exchange risk. To mitigate thisits foreign exchange risk, RJRaymond James Bank utilizes short-term, forward foreign exchange contracts. These derivative agreementsderivatives are primarily accounted for as net investment hedges in the consolidated financial statements. See Notes 2 and 6 of the Notes to Consolidated Financial Statements inof this Form 10-K for further information regarding these derivative contracts.derivatives.
We havehad foreign exchange risk in our investment in RJ Ltd. of CDN $340CAD 346 million at September 30, 2017,2021, which iswas not hedged. Foreign exchange gains/losses related to this investment are primarily reflected in other comprehensive income/(loss) (“OCI”)OCI on our Consolidated Statements of
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Income and Comprehensive Income. See Note 1820 of the Notes to Consolidated Financial Statements inof this Form 10-K for further information regarding all of our components of OCI.
We also have foreign exchange risk associated with our investments in subsidiaries located in the United Kingdom, France and Germany.Europe. These investments are not hedged and we do not believe we havehad material foreign exchange risk either individually, or in the aggregate, pertaining to these subsidiaries.subsidiaries as of September 30, 2021. As previously noted, on July 29, 2021 we announced our intention to make an offer for the entire issued and to be issued share capital of U.K.-based Charles Stanley at a price of £5.15 per share, or approximately £279 million. Prior to closing, we will use U.S. dollars to purchase the required British pounds sterling (“GBP”) to be used at closing. Upon closing, this transaction will increase our foreign exchange exposure associated with investments in subsidiaries located in Europe.
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 relatedcurrency-related gains/losses arising from these foreign currency denominated balances are reflected in “Other revenues”“Other” revenues in our 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 associated with these contracts are included in “Other revenues”“Other” revenues in our Consolidated Statements of Income and Comprehensive Income. See Note 6 of the Notes to Consolidated Financial Statements inof this Form 10-K for information regarding our derivative contracts.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 uponagreed-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.
The initial decline in economic activity as a result of the COVID-19 pandemic caused increased credit risk particularly with regard to companies in sectors that were most significantly impacted by the economic disruption. The speed and magnitude in which various sectors have recovered since the onset of the pandemic has been continually evolving. Given the stresses on certain of our clients’ liquidity, we enhanced our credit monitoring activities, with an increased focus on monitoring our credit exposures and counterparty credit risk. In addition, since the onset of the COVID-19 pandemic, Raymond James Bank has enacted risk mitigation strategies including, but not limited to, the sale of loans in those sectors with a high likelihood of adverse impact arising from the pandemic. Although economic conditions have generally improved, we have maintained our increased focus on monitoring our credit exposures and counterparty credit risk.
Brokerage activities
We are engaged in various trading and brokerage activities in which our counterparties primarily include broker-dealers, banks 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 manage this riskseek 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 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 Notes 2, 6 and 7 of the Notes to Consolidated Financial Statements of this Form 10-K 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 accounts,loans, which are monitored daily and are collateralized.collateralized by the securities in the clients’ accounts. We monitor exposure to industry sectors and individual securities and perform analysis on a regulardaily 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
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
purchase, we are at some risk that the client will renegedefault on their financial obligation associated with the trade. If this occurs, we may have to liquidate the position at a loss. However, most private clients have available funds in the account before the trade is executed.
We offer loans to financial advisors and certain other key revenue producers, primarily for recruiting transitional cost assistance and retention purposes. We have credit risk and may incur a loss primarily in the event that such borrower declares bankruptcy or is no longer affiliated with us. Historically, such losses have not been significant due to our strong advisor retentionSee Notes 2 and successful collection efforts.
We are subject to concentration risk if we hold large positions, extend large loans to, or have large commitments with a single counterparty, borrower, or group of similar counterparties or borrowers (e.g., in the same industry). Securities purchased under agreements to resell consist primarily of securities issued by the U.S. government or its agencies. Receivables from and payables to clients and securities borrow and lending activities are conducted with a large number of clients and counterparties and potential concentration is carefully monitored. Inventory and investment positions taken and commitments made, including underwritings, may involve exposure to individual issuers and businesses. We seek to limit this risk through careful review of the underlying business and the use of limits
Management's Discussion and Analysis
established by senior management, taking into consideration factors including the financial strength of the counterparty, the size of the position or commitment, the expected duration of the position or commitment and other positions or commitments outstanding.
ARS held by a non-broker-dealer subsidiary of RJF is impacted by the credit worthiness of the ARS issuer. See Note 59 of the Notes to Consolidated Financial Statements inof this Form 10-K for more information.further information about our loans to financial advisors.
TheBanking activities
Raymond James Bank has a substantial C&I, CRE, tax-exempt, SBL and residential mortgage loan portfolios. Aportfolio. While our bank loan portfolio is diversified, a significant downturn in the overall economy, such as that experienced in our fiscal year 2020 as a result of the COVID-19 pandemic, deterioration in real estate values or a significant issue within any sector or sectors where RJ Bank haswe have a concentration couldwill generally result in large provisions for loancredit losses and/or charge-offs. Conversely, should the economy recover at a faster pace than initially forecasted, or the negative impact of the significant downturn event be less than originally projected, we may experience a benefit for credit losses and/or recovery of amounts previously charged off, the timing and magnitude of which can be uncertain. We determine the allowance required for specific loan grades 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.
RJ Bank’sOur 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 corporate, tax-exempt, residential, SBL and SBLother credit exposures. The strategy also includes diversification on a geographic, industry and customerclient 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 an annual independent review of the credit risk monitoring process that performs assessments of compliance with credit policies, risk ratings, and other critical credit information. RJ Bank seeksWe seek to identify potential problem loans early, record any necessary risk rating changes and charge-offs promptly, and maintain appropriate reserve levels for probable inherentexpected losses. RJ Bank utilizesWe utilize a comprehensive credit risk rating system to measure the credit quality of individual corporate and tax-exempt loans and related unfunded lending commitments, including the probability of default and/or loss given default of each corporate and tax-exempt loan and commitment outstanding. For itsour SBL and residential mortgage loans, RJ Bank utilizeswe utilize the credit risk rating system used by bank regulators in measuring the credit quality of each homogeneous class of loans.
RJ Bank’sOur allowance for loancredit losses methodology is described in Note 2 of the Notes to Consolidated Financial Statements inof this Form 10-K. As RJ Bank’sour bank loan portfolio is segregated into six portfolio segments, likewise, the allowance for loancredit losses is segregated by these same segments. The risk characteristics relevant to each portfolio segment are as follows:follows.
C&I: Loans in this segment are made to businesses and are generally secured by all assets of the business. Repayment is expected from the cash flows of the respective business. Unfavorable economic and political conditions, including the resultant decrease in consumer or business spending, may have an adverse effect on the credit quality of loans in this segment.
CRE: Loans in this segment are primarily secured by income-producing properties. For owner-occupied properties, the cash flows are derived from the operations of the business, and the underlying cash flows may be adversely affected by the deterioration in the financial condition of the operating business. The underlying cash flows generated by non-owner-occupied properties may be adversely affected by increased vacancy and rental rates, which are monitored on a quarterly basis. Adverse developments in either of these areas may have a negative effect on the credit quality ofThis portfolio segment includes CRE construction loans in this segment.
CRE construction: Loans in this segment have similar risk characteristics of loans in the CRE segmentwhich also look at other risks such as described above. In addition, project budget overruns and performance variables related to the contractor and subcontractors may affect the credit quality of loans in this segment.subcontractors. With respect to commercial construction of residential developments, there is also the risk that the builder has a geographical concentration of developments. Adverse developments in allinformation arising from any of these areasfactors may significantly affecthave a negative effect on the credit quality of loans in this segment.
REIT: Loans in this segment are made to businesses that own or finance income-producing real estate across various property sectors. This portfolio segment may include extensions of credit to companies that engage in real estate development. Repayment of these loans is dependent on income generated from real estate properties or the sale of real estate. A portion of this segment may consist of loans secured by residential product types (single-family residential, including condominiums and land held for residential development) within a range of markets. Deterioration in the financial condition of the operating business, reductions in the value of real estate, as well as increased vacancy and rental rates may all adversely affect the loans in this segment.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Tax-exempt: Loans in this segment are made to governmental and nonprofit entities and are generally secured by a pledge of revenue and, in some cases, by a security interest in or a mortgage on the asset being financed. For loans to governmental entities, repayment is expected from a pledge of certain revenues or taxes. For nonprofit entities, repayment is expected from revenues which may include fundraising proceeds. These loans are subject to demographic risk, therefore much of the credit assessment of tax-exempt loans is driven by the entity’s revenue base and the general economic environment. Adverse developments in either of these areas may have a negative effect on the credit quality of loans in this segment.
Residential mortgage (includes home equity loans/lines): All of RJ Bank’sour residential mortgage loans adhere to stringent underwriting parameters pertaining to credit score and credit history, debt-to-income ratio of borrower, loan-to-value (“LTV”), and combined LTV (including second mortgage/home equity loans). RJ Bank doesWe do not originate or purchase option adjustable rate mortgage (“ARM”) loans with negative amortization, reverse mortgages, or other types of non-traditional loan products.loans to subprime borrowers. Loans with deeply discounted teaser rates are also not originated or purchased. All loans in this segment are collateralized by residential real estate and repayment is primarily dependent on the credit quality of the individual borrower. A decline in the strength of the economy, particularly unemployment rates and housing prices, among other factors, could have a significant effect on the credit quality of loans in this segment.
Management's DiscussionSBL and Analysis
SBL:other: Loans in this segment are securedcollateralized generally by the borrower’s marketable securities at advance rates consistent with industry standards. These loans are monitored daily for adherence to LTV guidelines and when a loan exceeds the required LTV, a collateral call is issued. Past due loans are minimal as any past due amounts result in a notice to the client for payment or the potential sale of securitiesthe collateral which will bring the loan to a current and may bring the loan within the prescribed LTV guidelines.status.
In evaluating credit risk, RJ Bank considerswe consider trends in loan performance, the level of allowance coverage relative to similar banking institutions, industry or customerclient concentrations, the loan portfolio composition and macroeconomic factors. Retail sales continue to be sluggishfactors (both current and credit quality trends, while improved in some sectors, remain somewhat tenuous. There also continue to be concerns over the energy sector as well as ongoing uncertainty in the healthcare sector in regard to the status of the Patient Protection and Affordable Care Act.forecasted). These factors have a potentially negative impact on loan performance and net charge-offs. However, during fiscal year 2017, corporate borrowers have continued
Our allowance for credit losses as of September 30, 2021 was determined under the CECL model due to accessour October 1, 2020 adoption of the marketsstandard. See Notes 2 and 8 of the Notes to Consolidated Financial Statements of this Form 10-K for new equityfurther information. Our allowance for credit losses, as well as our methodologies and debt.
assumptions used in estimating the allowance, are regularly evaluated to determine if our methods and estimates continue to be appropriate for each class of loans, with adjustments made on a quarterly basis. Several factors were taken into consideration in evaluating the allowance for loancredit losses at September 30, 2017,2021, including loan and borrower characteristics, such as internal risk ratings, delinquency status, collateral type and the risk profileremaining term of the portfolios,loan adjusted for expected prepayments. In addition, the estimate of credit losses considered the relatively small amount of net charge-offs during the period, the level of nonperforming loans, and delinquency ratios. RJ Bankthe impact of the COVID-19 pandemic. We also considered the uncertainty related to certain industry sectors, including commercial real estate, and the extent of credit exposure to specific borrowers within the portfolio. Finally, RJ Bankwe considered current economic conditions that might impact the portfolio. RJ Bank determined the allowance that was required for specific loan grades based on relative risk characteristics of the loan portfolio. On an ongoing basis, RJ Bank evaluates its methods for determining the allowance for each class of loans and makes enhancements it considers appropriate. There was no material change in RJ Bank’s methodology for determining the allowance for loan losses during the twelve months ended September 30, 2017.
Changes in the allowance for loan losses of RJ Bank were as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| | For the year ended September 30, |
$ in thousands | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Allowance for loan losses, beginning of year | | $ | 197,378 |
| | $ | 172,257 |
| | $ | 147,574 |
| | $ | 136,501 |
| | $ | 147,541 |
|
Provision for loan losses | | 12,987 |
| | 28,167 |
| | 23,570 |
| | 13,565 |
| | 2,565 |
|
Charge-offs: | | |
| | |
| | |
| | |
| | |
|
C&I loans | | (26,088 | ) | | (2,956 | ) | | (1,191 | ) | | (1,845 | ) | | (813 | ) |
CRE loans | | — |
| | — |
| | — |
| | (16 | ) | | (9,599 | ) |
Residential mortgage loans | | (918 | ) | | (1,470 | ) | | (1,667 | ) | | (2,015 | ) | | (7,025 | ) |
Total charge-offs | | (27,006 | ) | | (4,426 | ) | | (2,858 | ) | | (3,876 | ) | | (17,437 | ) |
Recoveries: | | |
| | |
| | |
| | | | |
C&I loans | | 340 |
| | — |
| | 611 |
| | 16 |
| | 117 |
|
CRE loans | | 5,013 |
| | — |
| | 3,773 |
| | 80 |
| | 1,680 |
|
Residential mortgage loans | | 1,001 |
| | 1,417 |
| | 1,231 |
| | 2,033 |
| | 2,331 |
|
Total recoveries | | 6,354 |
| | 1,417 |
| | 5,615 |
| | 2,129 |
| | 4,128 |
|
Net (charge-offs)/recoveries | | (20,652 | ) | | (3,009 | ) | | 2,757 |
| | (1,747 | ) | | (13,309 | ) |
Foreign exchange translation adjustment | | 729 |
| | (37 | ) | | (1,644 | ) | | (745 | ) | | (296 | ) |
Allowance for loan losses, end of year | | $ | 190,442 |
| | $ | 197,378 |
| | $ | 172,257 |
| | $ | 147,574 |
| | $ | 136,501 |
|
| | | | | | | | | | |
Allowance for loan losses to total bank loans outstanding | | 1.11 | % | | 1.30 | % | | 1.32 | % | | 1.33 | % | | 1.52 | % |
The primary factor resulting in the decreased provision as comparedWe continue to fiscal 2016 was significantly lower C&I loan growth during fiscal 2017, which has higher allowance percentages, andassess the impact of higher growth inboth the residential mortgage, securities-basedCOVID-19 pandemic and tax-exempt loan portfolios, which have lowerthe economic recovery therefrom, as new information becomes available regarding the financial repercussions to our borrowers, the risk ratings for individual loans will be updated and the allowance percentages. This positive impact was partially offset by additional provision during the current year for C&I and CRE loans in specific industry sectors. Reflecting this change in loan portfolio mix and an overall improvement in credit quality, the total allowance for loan losses to total bank loans outstanding declined to 1.11% at September 30, 2017 from 1.30% at September 30, 2016.will be adjusted accordingly.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis
The following table presents our changes in the allowance for credit losses related to our bank loan portfolio.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 |
Allowance for credit losses beginning of year | | $ | 354 | | | $ | 218 | | | $ | 203 | | | $ | 190 | | | $ | 197 | |
Impact of CECL Adoption | | 9 | | | — | | | — | | | — | | | — | |
Provision/(benefit) for credit losses | | (32) | | | 233 | | | 22 | | | 20 | | | 13 | |
Charge-offs: | | | | | | | | | | |
C&I loans | | (4) | | | (96) | | | (2) | | | (10) | | | (26) | |
CRE loans | | (10) | | | (2) | | | (5) | | | — | | | — | |
REIT loans | | — | | | (2) | | | — | | | — | | | — | |
| | | | | | | | | | |
Residential mortgage loans | | — | | | — | | | (1) | | | — | | | (1) | |
| | | | | | | | | | |
Total charge-offs | | (14) | | | (100) | | | (8) | | | (10) | | | (27) | |
Recoveries: | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
CRE loans | | — | | | — | | | — | | | — | | | 5 | |
| | | | | | | | | | |
Residential mortgage loans | | 1 | | | 2 | | | 2 | | | 2 | | | 1 | |
| | | | | | | | | | |
Total recoveries | | 1 | | | 2 | | | 2 | | | 2 | | | 6 | |
Net charge-offs | | (13) | | | (98) | | | (6) | | | (8) | | | (21) | |
Foreign exchange translation adjustment | | 2 | | | 1 | | | (1) | | | 1 | | | 1 | |
Allowance for credit losses end of year (1) | | $ | 320 | | | $ | 354 | | | $ | 218 | | | $ | 203 | | | $ | 190 | |
Allowance for credit losses as a % of total bank loans held for investment | | 1.27 | % | | 1.65 | % | | 1.04 | % | | 1.04 | % | | 1.11 | % |
(1) The allowance for credit losses at September 30, 2021 was computed under the CECL methodology, while the prior years were computed under the incurred loss methodology.
See further explanation of the current year benefit for credit losses in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Raymond James Bank” of this Form 10-K.
The level of charge-off activity is a factor that is considered in evaluating the potential severity of future credit losses. The following tables present net loan (charge-offs)/recoveries and the percentage of net loan (charge-offs)/recoveries to the average outstanding loan balances by loan portfolio segment: segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
| | 2021 | | 2020 | | 2019 |
$ in millions | | Net loan (charge-off)/recovery amount (1) | | % of avg. outstanding loans | | Net loan (charge-off)/recovery amount (1) | | % of avg. outstanding loans | | Net loan (charge-off)/recovery amount (1) | | % of avg. outstanding loans |
C&I loans | | $ | (4) | | | 0.05 | % | | $ | (96) | | | 1.22 | % | | $ | (2) | | | 0.02 | % |
CRE loans | | (10) | | | 0.37 | % | | (2) | | | 0.08 | % | | (5) | | | 0.22 | % |
REIT loans | | — | | | — | % | | (2) | | | 0.15 | % | | — | | | — | % |
Residential mortgage loans | | 1 | | | 0.02 | % | | 2 | | | 0.04 | % | | 1 | | | 0.02 | % |
Total | | $ | (13) | | | 0.06 | % | | $ | (98) | | | 0.45 | % | | $ | (6) | | | 0.03 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
| | 2018 | | 2017 |
$ in millions | | Net loan (charge-off)/recovery amount (1) | | % of avg. outstanding loans | | Net loan (charge-off)/recovery amount (1) | | % of avg. outstanding loans |
C&I loans | | $ | (10) | | | 0.13 | % | | $ | (26) | | | 0.36 | % |
CRE loans | | — | | | — | % | | 5 | | | 0.30 | % |
Residential mortgage loans | | 2 | | | 0.06 | % | | — | | | — | % |
Total | | $ | (8) | | | 0.04 | % | | $ | (21) | | | 0.13 | % |
(1) Charge-offs related to loan sales amounted to $4 million, $87 million, $2 million, $9 million and $26 million for the years ended September 30, 2021, 2020, 2019, 2018, and 2017, respectively.
|
| | | | | | | | | | | | | | | | | | | | | |
| | For the year ended September 30, |
| | 2017 | | 2016 | | 2015 |
$ in thousands | | Net loan (charge-off)/recovery amount | | % of avg. outstanding loans | | Net loan (charge-off)/recovery amount | | % of avg. outstanding loans | | Net loan (charge-off)/recovery amount | | % of avg. outstanding loans |
C&I loans | | $ | (25,748 | ) | | 0.35 | % | | $ | (2,956 | ) | | 0.04 | % | | $ | (580 | ) | | 0.01 | % |
CRE loans | | 5,013 |
| | 0.18 | % | | — |
| | — |
| | 3,773 |
| | 0.22 | % |
Residential mortgage loans | | 83 |
| | — |
| | (53 | ) | | — |
| | (436 | ) | | 0.02 | % |
Total | | $ | (20,652 | ) | | 0.13 | % | | $ | (3,009 | ) | | 0.02 | % | | $ | 2,757 |
| | 0.02 | % |
|
| | | | | | | | | | | | | | |
| | For the year ended September 30, |
| | 2014 | | 2013 |
$ in thousands | | Net loan (charge-off)/recovery amount | | % of avg. outstanding loans | | Net loan (charge-off)/recovery amount | | % of avg. outstanding loans |
C&I loans | | $ | (1,829 | ) | | 0.03 | % | | $ | (696 | ) | | 0.01 | % |
CRE loans | | 64 |
| | — |
| | (7,919 | ) | | 0.73 | % |
Residential mortgage loans | | 18 |
| | — |
| | (4,694 | ) | | 0.27 | % |
Total | | $ | (1,747 | ) | | 0.02 | % | | $ | (13,309 | ) | | 0.15 | % |
70
The level of charge-off activity is a factor that is considered in evaluating the potential for severity of future credit losses. Net charge-offs during fiscal 2017 increased $18 million as compared to the prior year, driven by the resolution of one C&I loan which resulted in a significant charge-off during fiscal 2017.
The tables below presents the nonperforming loans balance and total allowance for loan losses balance as of the period presented:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2017 | | 2016 | | 2015 |
$ in thousands | | Nonperforming loans | | Allowance for loan losses | | Nonperforming loans | | Allowance for loan losses | | Nonperforming loans | | Allowance for loan losses |
Loans held for investment: | | |
| | |
| | |
| | |
| | |
| | |
|
C&I loans | | $ | 5,221 |
| | $ | (119,901 | ) | | $ | 35,194 |
| | $ | (137,701 | ) | | $ | — |
| | $ | (117,623 | ) |
CRE construction loans | | — |
| | (1,421 | ) | | — |
| | (1,614 | ) | | — |
| | (2,707 | ) |
CRE loans | | — |
| | (41,749 | ) | | 4,230 |
| | (36,533 | ) | | 4,796 |
| | (30,486 | ) |
Tax-exempt loans | | — |
| | (6,381 | ) | | — |
| | (4,100 | ) | | — |
| | (5,949 | ) |
Residential mortgage loans | | 33,749 |
| | (16,691 | ) | | 41,783 |
| | (12,664 | ) | | 47,823 |
| | (12,526 | ) |
SBL | | — |
| | (4,299 | ) | | — |
| | (4,766 | ) | | — |
| | (2,966 | ) |
Total | | $ | 38,970 |
| | $ | (190,442 | ) | | $ | 81,207 |
| | $ | (197,378 | ) | | $ | 52,619 |
| | $ | (172,257 | ) |
Total nonperforming loans as a % of RJ Bank total loans | | 0.23 | % | | | | 0.53 | % | | | | 0.40 | % | | |
|
| | | | | | | | | | | | | | | | |
| | September 30, |
| | 2014 | | 2013 |
$ in thousands | | Nonperforming loans | | Allowance for loan losses | | Nonperforming loans | | Allowance for loan losses |
Loans held for investment: | | |
| | |
| | |
| | |
|
C&I loans | | $ | — |
| | $ | (103,179 | ) | | $ | 89 |
| | $ | (95,994 | ) |
CRE construction loans | | — |
| | (1,594 | ) | | — |
| | (1,000 | ) |
CRE loans | | 18,876 |
| | (25,022 | ) | | 25,512 |
| | (19,266 | ) |
Tax-exempt loans | | — |
| | (1,380 | ) | | — |
| | — |
|
Residential mortgage loans | | 61,789 |
| | (14,350 | ) | | 76,357 |
| | (19,126 | ) |
SBL | | — |
| | (2,049 | ) | | — |
| | (1,115 | ) |
Total | | $ | 80,665 |
| | $ | (147,574 | ) | | $ | 101,958 |
| | $ | (136,501 | ) |
Total nonperforming loans as a % of RJ Bank total loans | | 0.73 | % | | | | 1.14 | % | | |
Management'sManagement’s Discussion and Analysis
The level of nonperforming loans is another indicator of potential future credit losses. The amountfollowing tables present the nonperforming loans balance and total allowance for credit losses for the periods presented.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2021 | | 2020 | | 2019 |
$ in millions | | Nonperforming loan balance | | Allowance for credit losses balance (1) | | Nonperforming loan balance | | Allowance for credit losses balance (1) | | Nonperforming loan balance | | Allowance for credit losses balance (1) |
C&I loans | | $ | 39 | | | $ | 191 | | | $ | 2 | | | $ | 200 | | | $ | 19 | | | $ | 139 | |
CRE loans | | 20 | | | 66 | | | 14 | | | 81 | | | 8 | | | 34 | |
REIT loans | | — | | | 22 | | | — | | | 36 | | | — | | | 15 | |
Tax-exempt loans | | — | | | 2 | | | — | | | 14 | | | — | | | 9 | |
Residential mortgage loans | | 15 | | | 35 | | | 14 | | | 18 | | | 16 | | | 16 | |
SBL and other | | — | | | 4 | | | — | | | 5 | | | — | | | 5 | |
Total nonperforming loans held for investment (2) | | $ | 74 | | | $ | 320 | | | $ | 30 | | | $ | 354 | | | $ | 43 | | | $ | 218 | |
Total nonperforming loans as a % of total bank loans | | 0.29 | % | | | | 0.14 | % | | | | 0.21 | % | | |
(1) The allowance for credit losses at September 30, 2021 was computed under the CECL methodology, while the prior years were computed under the incurred loss methodology.
(2) Total nonperforming loans held for investment at September 30, 2021 included $61 million of nonperforming loans decreased $42which were current pursuant to their contractual terms, including a $39 million during the year endedC&I loan.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2018 | | 2017 |
$ in millions | | Nonperforming loan balance | | Allowance for credit losses balance (1) | | Nonperforming loan balance | | Allowance for credit losses balance (1) |
C&I loans | | $ | 2 | | | $ | 123 | | | $ | 5 | | | $ | 120 | |
CRE loans | | — | | | 33 | | | — | | | 28 | |
REIT loans | | — | | | 17 | | | — | | | 15 | |
Tax-exempt loans | | — | | | 9 | | | — | | | 6 | |
Residential mortgage loans | | 23 | | | 17 | | | 34 | | | 17 | |
SBL and other | | — | | | 4 | | | — | | | 4 | |
Total nonperforming loans held for investment | | $ | 25 | | | $ | 203 | | | $ | 39 | | | $ | 190 | |
Total nonperforming loans as a % of total bank loans | | 0.12 | % | | | | 0.23 | % | | |
(1) The allowance for credit losses at September 30, 2017, due to a $30 million decrease in nonperforming C&I loans, an $8 million decrease in nonperforming residential mortgage loans and a $4 million decrease in nonperforming CRE loans. Included in nonperforming residential mortgage loans are $31 million of loans for which $15 million in charge-offs2021 was computed under the CECL methodology, while the prior years were previously recorded, resulting in less exposure withincomputed under the remaining balance.incurred loss methodology.
The nonperforming loan balances abovein the preceding table exclude $14$8 million, $14$10 million, $15$12 million, $14$12 million and $10$14 million as of September 30, 2017, 2016, 2015, 20142021, 2020, 2019, 2018, and 20132017, respectively, of residential troubled debt restructurings (“TDR”)TDRs which were returned to accrual status in accordance with our policy.
The following table presents total nonperforming assets, including the nonperforming loans in the preceding table and other real estate acquired in the settlement of residential mortgages, as a percentage of Raymond James Bank’s total assets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 |
| | | | | | | | | | |
| | | | | | | | | | |
Total nonperforming assets (1) | | $ | 74 | | | $ | 32 | | | $ | 46 | | | $ | 28 | | | $ | 44 | |
Total nonperforming assets as a % of Raymond James Bank’s total assets | | 0.20 | % | | 0.10 | % | | 0.18 | % | | 0.12 | % | | 0.21 | % |
(1) Total nonperforming assets at September 30, 2021 included $61 million of nonperforming loans which were current pursuant to their contractual terms, including a $39 million C&I loan.
Although our nonperforming assets as a percentage of Raymond James Bank’s assets remained low as of September 30, 2021, prolonged 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 will depend on future developments that are highly uncertain.
See Note 8 in the Notes to the Consolidated Financial Statements of this Form 10-K for loan categories as a percentage of total bank loans.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
We have received requests from certain borrowers for forbearance, which is generally a short-term deferral of their loan payments or modification of certain covenant terms driven or exacerbated by the economic impacts of the COVID-19 pandemic. Based on the amortized costs, approximately $13 million and $3 million of our corporate and residential loans, respectively, were in active forbearance as of September 30, 2021. As certain borrowers exit forbearance, we have received requests for loan modifications, including repayment plans. In accordance with the CARES Act and the Consolidated Appropriations Act, 2021, we are not applying TDR classification to any COVID-19 related loan modifications performed from March 1, 2020 through December 31, 2021, to borrowers who were current as of December 31, 2019. As of September 30, 2021, we had residential loans of $10 million for which the borrower had requested a loan modification, where the request had been initiated but not completed or approved. As the delinquency status is not affected for loans that are in active forbearance or for loan modifications that have not yet been approved, the recognition of charge-offs, delinquencies, and nonaccrual status could be delayed for those borrowers who would have otherwise moved into past due or nonaccrual status. Forbearance and modification requests have continued to decline and the majority of the borrowers that have exited forbearance but have not requested loan modifications, have become current on their principal and interest payments.
Loan underwriting policies
A component of RJRaymond James Bank’s credit risk management strategy is conservative, well-defined policies and procedures. RJRaymond James Bank’s underwriting policies for the major types of loans are described below.in the following sections.
Residential mortgage and SBL and residential mortgageother loan portfolios
RJ Bank’sOur residential mortgage loan portfolio consists of first mortgage loans originated by RJ Bankus via referrals from our PCG financial advisors and the general public, as well as first mortgage loans purchased by RJ Bank.us. All of RJ Bank’sour residential mortgage loans adhere to strict underwriting parameters pertaining to credit score and credit history, debt-to-income ratio of the borrower, LTV and combined LTV (including second mortgage/home equity loans). As of September 30, 2017, approximately 80% of the residential loans were fully documented loans to industry standards and2021, 96% of the residential mortgage loan portfolio consisted of owner-occupant borrowers (80%(75% for their primary residences and 20%21% for second home residences). Approximately 20%37% of the first lien residential mortgage loans were ARMs withARM loans, which receive interest-only payments based on a fixed rate for an initial period of the loan typically five to seven years,and then become fully amortizing, subject to annual and lifetime interest rate caps. A significant portion of our originated 15 or 30-year fixed-rate mortgage loans are sold in the secondary market. RJ Bank’s
Our SBL and other portfolio is primarily comprised of loans fully collateralized by client’s marketable securities and represented 14%24% of RJ Bank’sour total loan portfolio as of September 30, 2017.2021. The underwriting policy for RJ Bank’sthe SBL and other portfolio primarily includes a review of collateral, including LTV, withand a limited review of repayment history.
While RJ Bank haswe have chosen not to participate in any government-sponsored loan modification programs, itsour loan modification policy does taketakes into consideration some of the programs’ parameters and supports every effort to assist borrowers within the guidelines of safety and soundness. In general, RJ Bank considerswe consider the qualification terms outlined in the government-sponsored programs as well as the affordability test and other factors. RJ Bank retainsWe retain flexibility to determine the appropriate modification structure and required documentation to support the borrower’s current financial situation before approving a modification. Short sales are also used by RJ Bankus to mitigate credit losses.
Corporate and tax-exempt loan portfolios
RJ Bank’sOur corporate and tax-exempt loan portfolios were comprised of approximately 500 borrowers, the majority of which are underwritten, managed and reviewed at our corporate headquarters location, which facilitates close monitoring of the portfolio by credit risk personnel, relationship officers and senior RJ Bankbank executives. RJ Bank’sOur corporate loan portfolio is diversified among a number of industries in both the U.S. and Canada and is comprised of project finance real estate loans, commercial lines of credit and term loans, the majority of which are participations in Shared National Credit (“SNC”) or other large syndicated loans, and tax-exempt loans. RJ Bank isWe are sometimes involved in the syndication of the loan at inception and some of these loans have been purchased in the secondary trading markets. The remainder of the corporate loan portfolio is comprised of smaller participations and direct loans. There are no subordinated loans or mezzanine financings in the corporate loan portfolio. RJ Bank’sOur tax-exempt loans are long-term loans to governmental and nonprofit entities. These loans generally have lower overall credit risk, but are subject to other risks that are not usually present with corporate clients, including the risk associated with the constituency served by a local government and the risk in ensuring an obligation has appropriate tax treatment.
Regardless of the source, all corporate and tax-exempt loans are independently underwritten to RJ Bankour credit policies and are subject to approval by a loan committee, and credit quality is monitored on an on-goingongoing basis by RJ Bank’sour lending staff. RJ BankOur credit policies include criteria related to LTV limits based upon property type, single borrower loan limits, loan term and structure parameters (including guidance on leverage, debt service coverage ratios and debt repayment ability), industry concentration
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
limits, secondary sources of repayment, municipality demographics, and other criteria. A large portion of RJ Bank’sour corporate loans are to borrowers in industries in which we have expertise through coverage provided by our Capital Markets research analysts. More thanApproximately half of RJ Bank’sour corporate borrowers are public companies. RJ Bank’sOur corporate loans are generally secured by all assets of the borrower, in
Management's Discussion and Analysis
some instances are secured by mortgages on specific real estate, and with respect to tax-exempt loans, are generally secured by a pledge of revenue. In a limited number of transactions, loans in the portfolio are extended on an unsecured basis. In addition, all corporate and tax-exempt loans are subject to RJ Bank’s regulatory review.
Risk monitoring process
Another component of the credit risk strategy at RJ Bankfor our bank loan portfolio is the ongoing risk monitoring and review processes, including our internal loan review process, for all residential, SBL, corporate and tax-exempt credit exposures, 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.
Residential mortgage and SBL and residential mortgage loansother loan portfolios
The marketable collateral securing RJ Bank’sour SBL and other portfolio is monitored on a recurring basis, with marketable collateral monitored on a daily basis. Collateral adjustments, as triggered by our monitoring procedures, are made by the borrower as necessary to ensure RJ Bank’sour loans are adequately secured, resulting in minimizing itsour credit risk. Collateral calls have been minimal relative to our SBL and other portfolio with no losses incurred to date.
We track and review many factors to monitor credit risk in RJ Bank’sour residential mortgage loan portfolio. The qualitative factors include, but are not limited to: loan performance trends, loan product parameters and qualification requirements, borrower credit scores, occupancy (i.e., owner-occupied, second home or investment property), level of documentation, loan purpose, geographic concentrations, average loan size, loan policy exceptionsrisk rating and updated LTV ratios. These qualitative measures, while considered and reviewed in establishing the allowance for loan losses, have not resulted in any material quantitative adjustments to RJ Bank’s historical loss rates.
RJ Bank obtains the most recently available information (generally updated every six months) to estimate current LTV ratios on the individual loansSee Note 8 in the performing residential mortgage loan portfolio. Current LTV ratios are estimated based on the initial appraisal obtained at the timeNotes to Consolidated Financial Statements of origination, adjusted using relevant market indicesthis Form 10-K for housing price changes that have occurred since origination. The value of the homes could vary from actual market values due to change in the condition of the underlying property, variations in housing price changes within current valuation indices and other factors.additional information.
At September 30, 2017, the average estimated LTV was 53% for the total residential mortgage loan portfolio. Residential mortgage loans with estimated LTVs in excess of 100% represent much less than 1% of the residential mortgage loan portfolio as of September 30, 2017. Credit risk management considers this data in conjunction with delinquency statistics, loss experience and economic circumstances to establish appropriate allowance for loan losses for the residential mortgage loan portfolio.
At September 30, 2017, loans over 30 days delinquent (including nonperforming loans) decreased to 0.73% of residential mortgage loans outstanding, compared to 1.20% over 30 days delinquent at September 30, 2016. Additionally, our September 30, 2017 percentage compares favorably to the national average for over 30 day delinquencies of 4.05% as most recently reported by the Fed. RJ Bank’s significantly lower delinquency rate as compared to its peers is the result of our uniform underwriting policies, the lack of subprime loans and the limited amount of non-traditional loan products.
The following table presents a summary of delinquent residential mortgage loans, the vast majority of which isare 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. Amounts in the following table do not include residential loans to borrowers who were granted forbearance as a result of the COVID-19 pandemic and whose loans were not considered delinquent prior to the forbearance. Such loans may be considered delinquent after the forbearance period or completion of loss mitigation efforts, depending on their payment status. As a result, the amount of residential loans considered delinquent may increase significantly in the future.
|
| | | | | | | | | | | | | | | | | | | | | |
| | Amount of delinquent residential loans | | Delinquent residential loans as a percentage of outstanding loan balances |
$ in thousands | | 30-89 days | | 90 days or more | | Total | | 30-89 days | | 90 days or more | | Total |
September 30, 2017 | | | | | | | | | | | | |
Residential mortgage loans: | | | | | |
|
| | | | | | |
First mortgage loans | | $ | 3,061 |
| | $ | 19,823 |
| | $ | 22,884 |
| | 0.10 | % | | 0.63 | % | | 0.73 | % |
Home equity loans/lines | | 248 |
| | 18 |
| | 266 |
| | 0.91 | % | | 0.07 | % | | 0.98 | % |
Total residential mortgage loans | | $ | 3,309 |
| | $ | 19,841 |
| | $ | 23,150 |
| | 0.10 | % | | 0.63 | % | | 0.73 | % |
| | | | | | | | | | | | |
September 30, 2016 | | | | | | | | | | | | |
Residential mortgage loans: | | | | | | | | | | | | |
First mortgage loans | | $ | 3,950 |
| | $ | 25,429 |
| | $ | 29,379 |
| | 0.16 | % | | 1.05 | % | | 1.21 | % |
Home equity loans/lines | | — |
| | 20 |
| | 20 |
| | — |
| | 0.10 | % | | 0.10 | % |
Total residential mortgage loans | | $ | 3,950 |
| | $ | 25,449 |
| | $ | 29,399 |
| | 0.16 | % | | 1.04 | % | | 1.20 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount of delinquent residential loans | | Delinquent residential loans as a percentage of outstanding loan balances |
$ in millions | | 30-89 days | | 90 days or more | | Total | | 30-89 days | | 90 days or more | | Total |
September 30, 2021 | | $ | 4 | | | $ | 6 | | | $ | 10 | | | 0.08 | % | | 0.11 | % | | 0.19 | % |
September 30, 2020 | | $ | 3 | | | $ | 7 | | | $ | 10 | | | 0.06 | % | | 0.14 | % | | 0.20 | % |
Management's Discussion and AnalysisOur September 30, 2021 percentage compares favorably to the national average for over 30 day delinquencies of 2.67%, as most recently reported by the Fed.
To manage and limit credit losses, we maintain a rigorous process to manage our loan delinquencies. With all residential first mortgages serviced by a third party, the primary collection effort resides with the servicer. RJ BankOur personnel direct and actively monitor the servicers’ efforts through extensive communications regarding individual loan status changes and requirements of timely and appropriate collection or property management actions and reporting, including management of third parties used in the collection process (appraisers,(e.g., appraisers, attorneys, etc.). Additionally, every residential mortgage loan over 60 days past due is reviewed by RJ Bankour personnel monthly and documented in a written report detailing delinquency information, balances, collection status, appraised value, and other data points. RJ BankOur senior management meets monthlyquarterly to discuss the status, collection strategy and charge-off/write-downcharge-off recommendations on every residential mortgage loan over 60 days past due. Updated collateral valuations are obtained for loans over 90 days past due and charge-offs are taken on individual loans based on these valuations.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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 RJ Bank’sour one-to-four family residential mortgage loans are as follows:loans.
| | | | | | | | | | | | | | |
| | September 30, 2021 |
| | Loans outstanding as a % of total residential mortgage loans | | Loans outstanding as a % of total bank loans |
CA | | 25.6% | | 5.4% |
FL | | 17.6% | | 3.7% |
TX | | 8.8% | | 1.9% |
NY | | 7.9% | | 1.7% |
CO | | 4.0% | | 0.8% |
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| | | | | | | | |
September 30, 2017 | | September 30, 2016 |
| Loans outstanding as a % of RJ Bank total residential mortgage loans | | Loans outstanding as a % of RJ Bank total loans | | | Loans outstanding as a % of RJ Bank total residential mortgage loans | | Loans outstanding as a % of RJ Bank total loans |
CA | 23.8% | | 4.4% | | CA | 24.3% | | 3.9% |
FL | 18.9% | | 3.5% | | FL | 18.1% | | 2.9% |
TX | 7.8% | | 1.4% | | TX | 6.8% | | 1.1% |
NY | 6.8% | | 1.3% | | NY | 5.3% | | 0.8% |
CO | 3.4% | | 0.6% | | IL | 3.5% | | 0.6% |
Loans where borrowers may be subject to payment increases include adjustable rate mortgageARM 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 September 30, 20172021 and 2016,2020, these loans totaled $683 million$1.97 billion and $308 million,$1.67 billion, respectively, or approximately 20%37% and 10%34% of the residential mortgage portfolio, respectively. At September 30, 2017, the balance of amortizing, former interest-only, loans totaled $426 million. The weighted averageweighted-average number of years before the remainder of the loans, which were still in their interest-only period at September 30, 2017,2021, begins amortizing is 6.96 years.
A component of credit risk management for the residential portfolio is the LTV and borrower credit score at origination or purchase. The most recent weighted-average LTV/FICO scores at origination of RJ Bank’s residential first mortgage loan portfolio are as follows:
|
| | | |
| September 30, 2017 | | September 30, 2016 |
Residential first mortgage loan weighted-average LTV/FICO | 65%/758 | | 65%/760 |
Corporate and tax-exempt loans
Credit risk in RJ Bank’sour corporate and tax-exempt loan portfolios areis monitored on an individual loan basis for trends in borrower operating performance, payment history, credit ratings, collateral performance, loan covenant compliance, semi-annual SNC exam results, municipality demographics and other factors including industry performance and concentrations. As part of the credit review process, the loan grade is reviewed at least quarterly to confirm the appropriate risk rating for each credit. The individual loan ratings resulting from the SNC exams are incorporated in RJ Bank’sour internal loan ratings when the ratings are received and ifreceived. If the SNC rating is lower on an individual loan than RJ Bank’sour internal rating, the loan is downgraded. While RJ Bank considerswe consider historical SNC exam results in itsour loan ratings methodology, differences between the SNC exam and internal ratings on individual loans typically arise due to subjectivity of the loan classification process. TheseDowngrades resulting from these differences may result in additional provisionprovisions for loancredit losses in periods when SNC exam results are received. The majority of our tax-exempt loan portfolio is comprised of loans to investment-grade borrowers. See Note 2 of the Notes to Consolidated Financial Statements inof this Form 10-K specifically the “Bank loans, net” section, for additional information on RJ Bank’sour allowance for loan losscredit losses policies.
Other than loans classified as nonperforming, the amount of loans that were delinquent greater than 30 days was not significant at September 30, 2017.
Management's Discussion and Analysis
Credit risk is also managed by diversifying the corporate bank loan portfolio. RJ Bank’sOur 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 RJ Bank’sour corporate bank loans.
| | | | | | | | | | | | | | |
| | September 30, 2021 |
| | Loans outstanding as a % of total corporate bank loans | | Loans outstanding as a % of total bank loans |
Office real estate | | 7.4% | | 3.6% |
Consumer products and services | | 6.8% | | 3.4% |
Business systems and services | | 6.7% | | 3.3% |
Automotive/transportation | | 6.3% | | 3.1% |
Multi-family | | 5.9% | | 2.9% |
The COVID-19 pandemic negatively impacted our corporate loan portfolio in fiscal 2020. Although economic conditions have improved and we reduced our exposure and revised our credit limits related to sectors that we believe to be most vulnerable to the COVID-19 pandemic, such as the energy, airlines, entertainment and leisure, restaurant and gaming sectors, we may experience further losses on our remaining loans to borrowers in these sectors, particularly if economic conditions do not continue to improve in the future. In addition, we continue to monitor our exposure to office real estate, where trends have changed rapidly and possibly permanently as a result of the COVID-19 pandemic, and may experience additional losses on loans in this sector in the future. We may also experience further losses on corporate loans arein other industries as follows:a direct or indirect result of the pandemic, including on our CRE loans secured by retail and hospitality properties.
|
| | | | | | | | |
September 30, 2017 | | September 30, 2016 |
| Loans outstanding as a % of RJ Bank total corporate loans | | Loans outstanding as a % of RJ Bank total loans | | | Loans outstanding as a % of RJ Bank total corporate loans | | Loans outstanding as a % of RJ Bank total loans |
Office (real estate) | 5.9% | | 4.0% | | Office (real estate) | 5.6% | | 4.0% |
Retail real estate | 5.3% | | 3.6% | | Hospitality | 5.2% | | 3.7% |
Power & infrastructure | 5.3% | | 3.6% | | Consumer products and services | 5.0% | | 3.6% |
Consumer products and services | 5.2% | | 3.5% | | Retail real estate | 4.6% | | 3.3% |
Hospitality | 4.7% | | 3.2% | | Power & infrastructure | 4.6% | | 3.3% |
Liquidity risk
See the section entitled “Liquidity and capital resources” in Item“Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations in- Liquidity and capital resources” of this Form 10-K for more information regarding our liquidity and how we manage liquidity risk.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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 cyber securitycybersecurity incidents (see Item“Item 1A - Risk Factors inFactors” of this reportForm 10-K for a discussion of certain cyber securitycybersecurity risks). We operate different businesses in diverse markets and are reliant on the ability of our employees and systems to process a large number of transactions. These risks are less direct than credit and market risk, but managing them is critical, particularly in a rapidly changing environment with increasing transaction volumes and complexity. We operate different businesses in diverse markets and are reliant on the ability of our employees and systems to process a large number of transactions. In the event of a breakdown or improper operation of systems or improper action by employees, we could suffer financial loss, regulatory sanctions and damage to our reputation. In order to mitigate and control operational risk, we have developed and continue to enhance specific policies and procedures that are designed to identify and manage operational risk at appropriate levels throughout the organization and within such departments as Accounting,Finance, Operations, Information Technology, Legal, Compliance, Risk Management and Internal Audit. These control mechanisms attempt to ensure that operational policies and procedures are being followed and that our various businesses are operating within established corporate policies and limits. BusinessIn addition, we have created business continuity plans exist for critical systems, and redundancies are built into the systems as deemed appropriate.
We have an Operational Risk Management Committee (comprisedcomprised of members of senior management),management, which reviews and addresses operational risks across our businesses. The committee establishes and from time-to-time will reassess, risk appetite levels for major operational risks, monitors operating unit performance for adherence to defined risk tolerances, and establishes policies for risk management at the enterprise level.
In response to the COVID-19 pandemic, we activated and successfully executed on our business continuity protocols and continue to monitor the COVID-19 pandemic under such protocols. We have endeavored to protect the health and well-being of our associates and our clients while ensuring the continuity of business operations for our clients. As a result, a substantial portion of our associates continue to work remotely. The firm continues to monitor conditions and has developed and is implementing a phased approach to reopening our offices which complies with all applicable laws, regulations, and CDC guidelines. As of September 30, 2021, we had reopened most of our offices in a limited capacity and have been operating under strict public health and safety protocols in such locations. We are planning for a full return to office in the second quarter of our fiscal 2022, which will include more work location flexibility for our associates; however, disruptions caused by variants may impact the timing of the implementation of these plans. Periods of severe market volatility, such as those that arose most notably in fiscal 2020 in response to the onset of the COVID-19 pandemic, can result in a significantly higher level of transactions on specific days and other activity 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 year ended September 30, 2021.
As more fully described in the discussion of our business technology risks included in various risk factors presented in Item 1A:“Item 1A - Risk Factors inFactors” of this report,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, spam attacks, unauthorized access, distributed denial of service attacks, computer virusescyber-attacks and other malicious codeinformation security breaches, and other events that could have an impact on the security and stability of our operations. Notwithstanding the precautions we take, if one or more of these events were to occur, this could jeopardize the information we confidentially maintain, including that of our clients and counterparties, which is processed, stored in and transmitted through our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations or the operations of our clients or counterparties. To-date, we have not experienced any material losses relating to cyberattacks or other information security breaches; however, there can be no assurances that we will not suffer such losses in the future.
Model Riskrisk
Model risk refers to the possibility of unintended business outcomes arising from the design, implementation or use of models. Models are used throughout the firm for a variety of purposes such as the valuation of financial instruments, the calculation of our allowance for credit losses, assessing risk, stress testing, and to assist in the making ofcertain business decisions. Model risk includes the potential risk that management makes incorrect decisions based upon either incorrect model results or incorrect understanding and use of model results. Model risk may also occur when model output
Management's Discussion and Analysis
experiences a deviationoutputs differ from the expected result. Model risk canerrors or misuse could result in significant financial loss, inaccurate financial or regulatory reporting, misaligned business strategies or damage to our reputation.
Model Risk Management (MRM)(“MRM”) is a separate department within our Risk Management department and is independent of model owners, users, and developers. Our model risk management framework consists primarily of model governance, maintaining the firm-widefirmwide model inventory, validating and approving all models used across the firm, and on-goingongoing monitoring. Results of validations and issues identified are reported to the ERMEnterprise Risk Management Committee and RJFthe Audit and Risk
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Committee of the Board of Directors. MRM assumes responsibility for the independent and effective challenge of model completeness, integrity and design based on intended use.
Regulatory and legalCompliance 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.
We have comprehensive procedures addressing regulatory capital requirements, salesestablished a framework to oversee, manage, and trading practices, usemitigate compliance risk throughout the firm, both within and across businesses, functions, legal entities, and jurisdictions. The framework includes roles and responsibilities for the Board of Directors, senior management, and safekeepingall three lines of client funds, extensionrisk management. This framework also includes programs and processes through which the firm identifies, assesses, controls, measures, monitors, and reports on compliance risk and provides compliance-related training throughout the firm. The Compliance department plays a key leadership role in the oversight, management, and mitigation of credit, collectioncompliance risk throughout the firm. It does this by conducting an annual compliance risk assessment, carrying out compliance monitoring and testing activities, money launderingimplementing compliance policies, training associates on compliance-related topics, and record keeping. We have designated Anti-Money Laundering (“AML”) Officers in each of our subsidiaries who monitorreporting compliance with regulations adopted under the Patriot Act.
Compliance with the DOL Rule, reliance on the BIC Exemptionrisk-related issues and the Principal Transactions Exemption, and addressing any amendmentsmetrics to the DOL Rule or other new regulations establishing a fiduciary duty or heightened standardBoard of care will require us to incur increased legal, complianceDirectors and information technology costs. In addition, we may face enhanced legal risks. Refer to the “Regulation” section of Item 1 in this Form 10-K for a discussion of the DOL Rule.
We act as an underwriter or selling group member in both equity and fixed income product offerings. Particularly when acting as lead or co-lead manager, we have financial and legal exposure. To manage this exposure, a committee of senior executives review proposed underwriting commitments to assess the quality of the offering and the adequacy of our due diligence investigation.
A Compliance and Standards Committee comprised of senior executives meets monthly to consider policy issues. The committee reviews material client or customer complaints and litigation, as well as issues in operating departments, for the purpose of identifying issues that present risk exposure to either us or our customers. The committee adopts policies to address these issues and disseminates such policies throughout our operations.
A Quality of Markets Committee meets regularly to monitor the best execution activities of our trading departments as they relate to customer orders. This committee is comprised of representatives from the OTC Trading, Listed Trading, Options, Municipal Trading, Taxable Trading, Compliance and Legal Departments and is under the direction of one of our senior officers. This committee reviews reports from the departments listed above and recommends action when necessary.
Our major business units have compliance departments that are responsible for regularly reviewing and revising compliance and supervisory procedures to conform to changes in applicable regulations.
Our banking activities are highly regulated and are subject to changes in banking laws and regulations, including unanticipated rulings. Over the past several years we have experienced the rapid introduction of significant new regulatory programs or changes affecting consumer protection and disclosure requirements, financial reporting and regulatory restructuring. We closely monitor these regulatory developments and strive to ensure that our compliance is timely. See the further discussion of our risks associated with regulations, including the Dodd-Frank Act, in Item 1A, “Risk Factors” within this report.
The periodic examination of our banking and broker-dealer operations by various regulators has expanded in scope and reflects a heightened level of scrutiny of financial services entities. We continue to incur costs to support these reviews, and we continuously evaluate and implement changes to our processes and procedures to maintain compliance with the regulations applicable to our businesses. Given this environment, we cannot predict the impact that periodic examinations by one or more of our regulators could have on our future costs or results of operations.
Legal risk includes the risk of PCG client claims, the possibility of sizable adverse legal judgments, exposure to pre-closing date litigation matters of Morgan Keegan in the event that Regions fails to honor its indemnification obligations (see Item 3 Legal Proceedings and Note 17 of the Notes to Consolidated Financial Statements in this Form 10-K for further discussion of the Regions indemnification for such matters) and non-compliance with applicable legal and regulatory requirements. We are generally subject to extensive regulation in the different jurisdictions in which we conduct business. Regulatory oversight of the financial services industry has become increasingly demanding in recent years and we, as well as other financial services firms, have been directly affected by this increased regulatory scrutiny.
Management's Discussion and Analysis
We have and will continue to devote significant resources to the expansion and support of our risk management, legal and compliance frameworks, including our AML program. We have significantly increased the number of associates dedicated to risk and compliance, expanded training for our associates and continue to invest in technology to support these functions, including implementation of a leading AML software solution. All of these activities allow us to increase our monitoring and detection of suspicious and reportable activities.
We maintain a number of private equity investments, some of which meet the definition of covered funds under the Volcker Rule. The conformance period for compliance with the rule with respect to investments in covered funds was July 2017; however, banking entities were able to apply for an extension to provide up to an additional five years to conform investments in certain illiquid funds. The majority of our covered fund investments meet the criteria to be considered an illiquid fund under the Volcker Rule and we received approval from the Fed to continue to hold such investments until July 2022. The extension of the conformance deadline provides us with additional time to realize the value of these investments in due course and to execute appropriate strategies to comply with the Volcker Rule at such time. Our current focus is on the divestiture of our existing portfolio.
We have a number of outstanding claims resulting from, among other reasons, market conditions. While these claims may not be the result of any wrongdoing, we do, at a minimum, incur costs associated with investigating and defending against such claims. See the further discussion of our accounting policy regarding such matters in the loss provisions arising from legal proceedings section of “Critical Accounting Estimates” contained in Item 7, “Management’s Discussion of Analysis of Financial Condition and Results of Operations” and in Note 2 of our Notes to Consolidated Financial Statements within this Form 10-K.activities.
ItemITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item“Item 7 “Management’s- Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management” inmanagement” of this Form 10-K for our quantitative and qualitative disclosures about market risk.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Table of Contents
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| PAGE |
| PAGE |
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Report of Independent Registered Public Accounting Firm | |
Consolidated Statements of Financial Condition | |
Consolidated Statements of Income and Comprehensive Income | |
Consolidated Statements of Changes in Shareholders’ Equity | |
Consolidated Statements of Cash Flows | |
| |
Notes to Consolidated Financial Statements | |
Note 1 - Organization and basis of presentation | |
Note 2 - Summary of significant accounting policies | |
Note 3 - Acquisitions | |
Note 4 - Fair value | |
Note 5 - Available-for-sale securities | |
Note 6 - Derivative financial instrumentsassets and derivative liabilities | |
Note 7 - Collateralized agreements and financings | |
Note 8 - Bank loans, net | |
Note 9 - Other assetsLoans to financial advisors, net | |
Note 10 - Variable interest entities | |
Note 11 - Property and equipment | |
Note 12 - Goodwill and identifiable intangible assets, net | |
Note 12 - Other assets | |
Note 13 - Bank depositsProperty and equipment, net | |
Note 14 - Other borrowingsLeases | |
Note 15 - Bank deposits | |
Note 16 - Other borrowings | |
Note 17 - Senior notes payable | |
Note 1618 - Income taxes | |
Note 1719 - Commitments, contingencies and guarantees | |
Note 1820 - Accumulated other comprehensive income/(loss) | |
Note 1921 - Revenues | |
Note 22 - Interest income and interest expense | |
Note 2023 - Share-based and other compensation | |
Note 2124 - Regulatory capital requirements | |
Note 22 - Financial instruments with off-balance sheet risk | |
Note 2325 - Earnings per share | |
Note 2426 - Segment information | |
Note 2527 - Condensed financial information (parent company only) | |
| |
Supplementary data | |
Report of Independent Registered Public Accounting Firm
TheTo the Shareholders and Board of Directors and Shareholders
Raymond James Financial, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial condition of Raymond James Financial, Inc. and subsidiaries (the “Company” or “Raymond James”)Company) as of September 30, 20172021 and 2016, and2020, the related consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-yearthree‑year period ended September 30, 2017. 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three‑year period ended September 30, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of September 30, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated November 23, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion,Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements referredthat was communicated or required to above present fairly,be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in all material respects,any way our opinion on the consolidated financial positionstatements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of Raymond Jamesthe allowance for credit losses related to the commercial and industrial (C&I), real estate investment trust (REIT) and the commercial real estate (CRE) portfolio segments that are collectively evaluated for impairment
As discussed in Note 2 and Note 8 to the consolidated financial statements, the Company’s allowance for credit losses on Bank loans was $320 million as of September 30, 20172021, a portion of which related to the allowance for credit losses (ACL) on C&I, REIT and 2016,CRE portfolio segments evaluated on a collective basis (the collective ACL). The Company estimates the collective ACL using a current expected credit losses methodology which is based on relevant information about historical losses, current conditions, and reasonable and supportable forecasts of economic conditions that affect the collectability of loan balances. The collective ACL is a product of multiplying the Company’s estimates of probability of default (PD), loss given default (LGD) and exposure at default. The Company uses third-party historical information
combined with macroeconomic variables over the reasonable and supportable forecast periods based on a single economic forecast scenario to estimate the PDs and LGDs. After the reasonable and supportable forecast periods, for C&I and REIT portfolio segments, the Company reverts to historical loss information over a one-year period using a straight-line reversion approach. For the CRE portfolio segment, the Company incorporates a reasonable and supportable forecast of various macroeconomic variables over the remaining life of the assets. The estimated PDs and LGDs are applied to estimated exposure at default considering the contractual loan term adjusted for expected prepayments to estimate expected losses. Adjustments are made to the collective ACL to reflect certain qualitative factors that are not incorporated into the quantitative models and related estimate.
We identified the assessment of the September 30, 2021 collective ACL on Bank loans related to the C&I, REIT and CRE portfolio segments as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the September 30, 2021 collective ACL methodology, including the methods and models used to estimate the PDs and LGDs and their significant assumptions. Such significant assumptions included portfolio segmentation, risk ratings, the selection of the single economic forecast scenario and macroeconomic variables, the reasonable and supportable forecast periods and the results of its operationsreversion periods, and its cash flows for eachthird-party historical information. The assessment also included the evaluation of the yearsqualitative factors by portfolio segment. The assessment also included an evaluation of the conceptual soundness and performance of the PD and LGD models. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the September 30, 2021 collective ACL estimate on Bank loans related to the C&I, REIT and CRE portfolio segments, including controls over the:
•development of the collective ACL methodology on Bank loans related to the C&I, REIT and CRE portfolio segments
•development of the PD and LGD models
•identification and determination of the significant assumptions used in the three-year period endedPD and LGD models
•development of the qualitative methodology and factors
•performance monitoring of the PD and LGD models
•analysis of the collective ACL on Bank loans related to the C&I, REIT and CRE portfolio segments results, trends, and ratios.
We evaluated the Company’s process to develop the September 30, 2017, in conformity2021 collective ACL estimate on Bank loans related to the C&I, REIT and CRE portfolio segments by testing certain sources of data, factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors, and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in:
•evaluating the Company’s collective ACL methodology for compliance with U.S. generally accepted accounting principles.principles
•evaluating judgments made by the Company relative to the development and performance testing of the PD and LGD models by comparing them to relevant Company-specific metrics and trends and the applicable industry and regulatory practices
•assessing the conceptual soundness and performance of the PD and LGD models by inspecting the model documentation to determine whether the models are suitable for their intended use
•evaluating the selection of the economic forecast scenario and underlying macroeconomic variables by comparing it to the Company’s business environment and relevant industry practices
•evaluating the length of the reasonable and supportable forecast periods and the reversion periods by comparing them to specific portfolio segment risk characteristics and trends
•determining whether the loan portfolio is segmented by similar risk characteristics by comparing to the Company’s business environment and relevant industry practices
•evaluating the relevance of third-party historical information by comparing to specific portfolio segment risk characteristics
•performing credit file reviews on a selection of loans to assess loan characteristics or risk ratings by evaluating the financial performance of the borrower, sources of repayment, and any relevant guarantees or underlying collateral and
•evaluating the methodology used to develop the qualitative factors and the effect of those factors on the allowance for credit losses on Bank loans compared with relevant credit risk factors and consistency with credit trends and identified limitations of the underlying quantitative models.
We also have audited, in accordance withassessed the standardssufficiency of the Public Company Accounting Oversight Board (United States), Raymond James’ internal control over financial reporting as ofaudit evidence obtained related to the September 30, 2017, based2021 collective ACL estimate on criteria established in Internal Control - Integrated Framework(2013) issuedBank loans related to the C&I, REIT and CRE portfolio segments by the Committee of Sponsoring Organizationsevaluating the:
•cumulative results of the Treadway Commission, and our report dated November 21, 2017 expressed an unqualified opinion on the effectivenessaudit procedures
•qualitative aspects of the Company’s internal control over financial reporting.accounting practices and
•potential bias in the accounting estimate.
/s/ KPMG LLP
We have served as the Company’s auditor since 2001.
Tampa, Florida
November 21, 2017
Certified Public Accountants
23, 2021
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION |
| | | | | | | | |
| | September 30, |
$ in thousands, except per share amounts | | 2017 | | 2016 |
Assets: | | | | |
Cash and cash equivalents | | $ | 3,669,672 |
| | $ | 1,650,452 |
|
Assets segregated pursuant to regulations and other segregated assets | | 3,476,085 |
| | 4,884,487 |
|
Securities purchased under agreements to resell and other collateralized financings | | 404,462 |
| | 470,222 |
|
Securities borrowed | | 138,319 |
| | 170,860 |
|
Financial instruments, at fair value: | | |
| | |
|
Trading instruments (includes $357,099 and $418,141 pledged as collateral) | | 564,263 |
| | 713,550 |
|
Available-for-sale securities | | 2,188,282 |
| | 859,398 |
|
Derivative assets | | 318,775 |
| | 480,106 |
|
Private equity investments | | 198,779 |
| | 194,634 |
|
Other investments (includes $6,640 and $22,501 pledged as collateral) | | 220,980 |
| | 326,353 |
|
Brokerage client receivables, net | | 2,766,771 |
| | 2,714,782 |
|
Receivables from brokers, dealers and clearing organizations | | 268,021 |
| | 380,764 |
|
Other receivables | | 652,769 |
| | 610,417 |
|
Bank loans, net | | 17,006,795 |
| | 15,210,735 |
|
Loans to financial advisors, net | | 873,272 |
| | 838,721 |
|
Investments in real estate partnerships held by consolidated variable interest entities | | 111,743 |
| | 116,133 |
|
Property and equipment, net | | 437,374 |
| | 321,457 |
|
Deferred income taxes, net | | 313,486 |
| | 322,024 |
|
Goodwill and identifiable intangible assets, net | | 493,183 |
| | 503,046 |
|
Other assets | | 780,425 |
| | 718,835 |
|
Total assets | | $ | 34,883,456 |
| | $ | 31,486,976 |
|
| | | | |
Liabilities and equity: | | |
| | |
|
Bank deposits | | $ | 17,732,362 |
| | $ | 14,262,547 |
|
Securities sold under agreements to repurchase | | 220,942 |
| | 193,229 |
|
Securities loaned | | 383,953 |
| | 677,761 |
|
Financial instruments sold but not yet purchased, at fair value | | | | |
Trading instruments | | 221,449 |
| | 320,103 |
|
Derivative liabilities | | 356,964 |
| | 475,608 |
|
Brokerage client payables | | 5,411,829 |
| | 6,444,671 |
|
Payables to brokers, dealers and clearing organizations | | 172,714 |
| | 306,119 |
|
Accrued compensation, commissions and benefits | | 1,059,996 |
| | 898,185 |
|
Other payables | | 567,045 |
| | 556,532 |
|
Other borrowings | | 1,514,012 |
| | 608,658 |
|
Senior notes payable | | 1,548,839 |
| | 1,680,587 |
|
Total liabilities | | 29,190,105 |
| | 26,424,000 |
|
Commitments and contingencies (see Note 17) | |
|
| |
|
|
Equity | | |
| | |
|
Preferred stock; $.10 par value; 10,000,000 shares authorized; -0- shares issued and outstanding | | — |
| | — |
|
Common stock; $.01 par value; 350,000,000 shares authorized; 154,228,235 and 151,424,947 shares issued as of September 30, 2017 and 2016, respectively. Shares outstanding of 144,096,521 and 141,544,511 as of September 30, 2017 and 2016, respectively | | 1,542 |
| | 1,513 |
|
Additional paid-in capital | | 1,645,397 |
| | 1,498,921 |
|
Retained earnings | | 4,340,054 |
| | 3,834,781 |
|
Treasury stock, at cost; 10,084,038 and 9,766,846 common shares as of September 30, 2017 and 2016, respectively | | (390,081 | ) | | (362,937 | ) |
Accumulated other comprehensive loss | | (15,199 | ) | | (55,733 | ) |
Total equity attributable to Raymond James Financial, Inc. | | 5,581,713 |
| | 4,916,545 |
|
Noncontrolling interests | | 111,638 |
| | 146,431 |
|
Total equity | | 5,693,351 |
| | 5,062,976 |
|
Total liabilities and equity | | $ | 34,883,456 |
| | $ | 31,486,976 |
|
| | | | | | | | | | | | | | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION |
|
| | September 30, |
$ in millions, except per share amounts | | 2021 | | 2020 |
Assets: | | | | |
Cash and cash equivalents | | $ | 7,201 | | | $ | 5,390 | |
Assets segregated for regulatory purposes and restricted cash ($2,100 and $0 at fair value) | | 11,348 | | | 4,244 | |
Collateralized agreements | | 480 | | | 422 | |
Financial instruments, at fair value: | | | | |
Trading assets ($326 and $265 pledged as collateral) | | 610 | | | 513 | |
Available-for-sale securities ($20 and $23 pledged as collateral) | | 8,315 | | | 7,650 | |
Derivative assets | | 255 | | | 438 | |
Other investments ($22 and $37 pledged as collateral) | | 357 | | | 334 | |
Brokerage client receivables, net | | 2,831 | | | 2,435 | |
Other receivables, net | | 999 | | | 927 | |
Bank loans, net | | 24,994 | | | 21,195 | |
Loans to financial advisors, net | | 1,057 | | | 1,012 | |
| | | | |
Deferred income taxes, net | | 305 | | | 262 | |
Goodwill and identifiable intangible assets, net | | 882 | | | 600 | |
Other assets | | 2,257 | | | 2,060 | |
Total assets | | $ | 61,891 | | | $ | 47,482 | |
| | | | |
Liabilities and shareholders’ equity: | | | | |
Bank deposits | | $ | 32,495 | | | $ | 26,801 | |
Collateralized financings | | 277 | | | 250 | |
Financial instrument liabilities, at fair value: | | | | |
Trading liabilities | | 176 | | | 240 | |
Derivative liabilities | | 228 | | | 393 | |
Brokerage client payables | | 13,991 | | | 6,792 | |
Accrued compensation, commissions and benefits | | 1,825 | | | 1,384 | |
Other payables | | 1,701 | | | 1,513 | |
Other borrowings | | 858 | | | 888 | |
Senior notes payable | | 2,037 | | | 2,045 | |
Total liabilities | | 53,588 | | | 40,306 | |
Commitments and contingencies (see Note 19) | | 0 | | 0 |
Shareholders’ equity | | | | |
Preferred stock; $.10 par value; 10,000,000 shares authorized; -0- shares issued and outstanding | | — | | | — | |
Common stock; $.01 par value; 350,000,000 shares authorized; 239,062,254 and 238,510,737 shares issued as of September 30, 2021 and 2020, respectively, and 205,738,821 and 204,834,839 shares outstanding as of September 30, 2021 and 2020, respectively | | 2 | | | 2 | |
Additional paid-in capital | | 2,088 | | | 2,007 | |
Retained earnings | | 7,633 | | | 6,484 | |
Treasury stock, at cost; 33,323,433 and 33,675,898 common shares as of September 30, 2021 and 2020, respectively | | (1,437) | | | (1,390) | |
Accumulated other comprehensive income/(loss) | | (41) | | | 11 | |
Total equity attributable to Raymond James Financial, Inc. | | 8,245 | | | 7,114 | |
Noncontrolling interests | | 58 | | | 62 | |
Total shareholders’ equity | | 8,303 | | | 7,176 | |
Total liabilities and shareholders’ equity | | $ | 61,891 | | | $ | 47,482 | |
See accompanying Notes to Consolidated Financial Statements
Statements.
81
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
in millions, except per share amounts | | 2021 | | 2020 | | 2019 |
Revenues: | | | | | | |
Asset management and related administrative fees | | $ | 4,868 | | | $ | 3,834 | | | $ | 3,451 | |
Brokerage revenues: | | | | | | |
Securities commissions | | 1,651 | | | 1,468 | | | 1,450 | |
Principal transactions | | 561 | | | 488 | | | 357 | |
Total brokerage revenues | | 2,212 | | | 1,956 | | | 1,807 | |
Account and service fees | | 635 | | | 624 | | | 738 | |
Investment banking | | 1,143 | | | 650 | | | 596 | |
Interest income | | 823 | | | 1,000 | | | 1,281 | |
Other | | 229 | | | 104 | | | 150 | |
Total revenues | | 9,910 | | | 8,168 | | | 8,023 | |
Interest expense | | (150) | | | (178) | | | (283) | |
Net revenues | | 9,760 | | | 7,990 | | | 7,740 | |
Non-interest expenses: | | | | | | |
Compensation, commissions and benefits | | 6,583 | | | 5,465 | | | 5,087 | |
Non-compensation expenses: | | | | | | |
Communications and information processing | | 429 | | | 393 | | | 373 | |
Occupancy and equipment | | 232 | | | 225 | | | 218 | |
Business development | | 111 | | | 134 | | | 194 | |
Investment sub-advisory fees | | 130 | | | 101 | | | 94 | |
Professional fees | | 112 | | | 91 | | | 85 | |
Bank loan provision/(benefit) for credit losses | | (32) | | | 233 | | | 22 | |
Losses on extinguishment of debt | | 98 | | | — | | | — | |
Acquisition and disposition-related expenses | | 19 | | | 7 | | | 15 | |
Reduction in workforce expenses | | — | | | 46 | | | — | |
Other | | 287 | | | 243 | | | 277 | |
Total non-compensation expenses | | 1,386 | | | 1,473 | | | 1,278 | |
Total non-interest expenses | | 7,969 | | | 6,938 | | | 6,365 | |
Pre-tax income | | 1,791 | | | 1,052 | | | 1,375 | |
Provision for income taxes | | 388 | | | 234 | | | 341 | |
Net income | | $ | 1,403 | | | $ | 818 | | | $ | 1,034 | |
| | | | | | |
Earnings per common share – basic | | $ | 6.81 | | | $ | 3.96 | | | $ | 4.88 | |
Earnings per common share – diluted | | $ | 6.63 | | | $ | 3.88 | | | $ | 4.78 | |
Weighted-average common shares outstanding – basic | | 205.7 | | 206.4 | | 211.5 |
Weighted-average common and common equivalent shares outstanding – diluted | | 211.2 | | 210.3 | | 216.0 |
| | | | | | |
Net income | | $ | 1,403 | | | $ | 818 | | | $ | 1,034 | |
Other comprehensive income/(loss), net of tax: | | | | | | |
Available-for-sale securities | | (94) | | | 68 | | | 71 | |
Currency translations, net of the impact of net investment hedges | | 16 | | | — | | | (2) | |
Cash flow hedges | | 26 | | | (34) | | | (61) | |
Total other comprehensive income/(loss), net of tax | | (52) | | | 34 | | | 8 | |
Total comprehensive income | | $ | 1,351 | | | $ | 852 | | | $ | 1,042 | |
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands, except per share amounts | | 2017 | | 2016 | | 2015 |
Revenues: | | | | | | |
Securities commissions and fees | | $ | 4,020,910 |
| | $ | 3,498,615 |
| | $ | 3,443,038 |
|
Investment banking | | 398,675 |
| | 304,155 |
| | 323,654 |
|
Investment advisory and related administrative fees | | 462,989 |
| | 393,346 |
| | 386,376 |
|
Interest | | 802,126 |
| | 640,397 |
| | 543,282 |
|
Account and service fees | | 667,274 |
| | 511,326 |
| | 457,913 |
|
Net trading profit | | 81,880 |
| | 91,591 |
| | 58,512 |
|
Other | | 91,021 |
| | 81,690 |
| | 96,905 |
|
Total revenues | | 6,524,875 |
| | 5,521,120 |
| | 5,309,680 |
|
Interest expense | | (153,778 | ) | | (116,056 | ) | | (106,074 | ) |
Net revenues | | 6,371,097 |
| | 5,405,064 |
| | 5,203,606 |
|
Non-interest expenses: | | |
| | |
| | |
|
Compensation, commissions and benefits | | 4,228,387 |
| | 3,624,607 |
| | 3,525,250 |
|
Communications and information processing | | 310,961 |
| | 279,746 |
| | 266,396 |
|
Occupancy and equipment costs | | 190,737 |
| | 167,455 |
| | 163,229 |
|
Brokerage, clearing and exchange | | 48,586 |
| | 42,732 |
| | 42,748 |
|
Business development | | 154,926 |
| | 148,413 |
| | 158,966 |
|
Investment sub-advisory fees | | 78,656 |
| | 59,930 |
| | 59,569 |
|
Bank loan loss provision | | 12,987 |
| | 28,167 |
| | 23,570 |
|
Acquisition-related expenses | | 17,995 |
| | 40,706 |
| | — |
|
Losses on extinguishment of debt | | 45,746 |
| | — |
| | — |
|
Other | | 354,138 |
| | 201,364 |
| | 149,266 |
|
Total non-interest expenses | | 5,443,119 |
| | 4,593,120 |
| | 4,388,994 |
|
Income including noncontrolling interests and before provision for income taxes | | 927,978 |
| | 811,944 |
| | 814,612 |
|
Provision for income taxes | | 289,111 |
| | 271,293 |
| | 296,034 |
|
Net income including noncontrolling interests | | 638,867 |
| | 540,651 |
| | 518,578 |
|
Net income attributable to noncontrolling interests | | 2,632 |
| | 11,301 |
| �� | 16,438 |
|
Net income attributable to Raymond James Financial, Inc. | | $ | 636,235 |
| | $ | 529,350 |
| | $ | 502,140 |
|
| | | | | | |
Earnings per common share – basic | | $ | 4.43 |
| | $ | 3.72 |
| | $ | 3.51 |
|
Earnings per common share – diluted | | $ | 4.33 |
| | $ | 3.65 |
| | $ | 3.43 |
|
Weighted-average common shares outstanding – basic | | 143,275 |
| | 141,773 |
| | 142,548 |
|
Weighted-average common and common equivalent shares outstanding – diluted | | 146,647 |
| | 144,513 |
| | 145,939 |
|
| | | | | | |
Net income attributable to Raymond James Financial, Inc. | | $ | 636,235 |
| | $ | 529,350 |
| | $ | 502,140 |
|
Other comprehensive income/(loss), net of tax: (1) | | |
| | |
| | |
|
Unrealized gain/(loss) on available-for-sale securities and non-credit portion of other-than-temporary impairment losses | | 1,684 |
| | (5,576 | ) | | (3,325 | ) |
Unrealized gain/(loss) on currency translations, net of the impact of net investment hedges | | 15,618 |
| | 2,179 |
| | (30,640 | ) |
Unrealized gain/(loss) on cash flow hedges | | 23,232 |
| | (11,833 | ) | | (4,650 | ) |
Total comprehensive income | | $ | 676,769 |
| | $ | 514,120 |
| | $ | 463,525 |
|
| | | | | | |
Other-than-temporary impairment: | | |
| | |
| | |
|
Total other-than-temporary impairment, net | | $ | 2,279 |
| | $ | 1,305 |
| | $ | 2,489 |
|
Portion of recoveries recognized in other comprehensive income | | (2,279 | ) | | (1,305 | ) | | (2,489 | ) |
Net impairment losses recognized in other revenue | | $ | — |
| | $ | — |
| | $ | — |
|
| |
(1) | All components of other comprehensive income/(loss), net of tax, are attributable to Raymond James Financial, Inc. |
See accompanying Notes to Consolidated Financial Statements.
82
| | | | | | | | | | | | | | | | | | | | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY |
|
| | Year ended September 30, |
$ in millions, except per share amounts | | 2021 | | 2020 | | 2019 |
Common stock, par value $.01 per share: | | | | | | |
Balance beginning of year | | $ | 2 | | | $ | 2 | | | $ | 2 | |
Share issuances | | — | | | — | | | — | |
Issuance of shares for stock split | | 1 | | | — | | | — | |
Other | | (1) | | | — | | | — | |
Balance end of year | | 2 | | | 2 | | | 2 | |
| | | | | | |
Additional paid-in capital: | | | | | | |
Balance beginning of year | | 2,007 | | | 1,938 | | | 1,808 | |
Employee stock purchases | | 32 | | | 36 | | | 34 | |
Vesting of restricted stock units and exercise of stock options, net of forfeitures | | (77) | | | (80) | | | 21 | |
Restricted stock, stock option and restricted stock unit expense | | 126 | | | 113 | | | 107 | |
Acquisition of noncontrolling interest and other | | 1 | | | — | | | (32) | |
Issuance of shares for stock split | | (1) | | | — | | | — | |
Balance end of year | | 2,088 | | | 2,007 | | | 1,938 | |
| | | | | | |
Retained earnings: | | | | | | |
Balance beginning of year | | 6,484 | | | 5,874 | | | 5,032 | |
Cumulative adjustments for changes in accounting principles | | (35) | | | — | | | 4 | |
Net income attributable to Raymond James Financial, Inc. | | 1,403 | | | 818 | | | 1,034 | |
Cash dividends declared (see Note 25) | | (219) | | | (208) | | | (196) | |
Balance end of year | | 7,633 | | | 6,484 | | | 5,874 | |
| | | | | | |
Treasury stock: | | | | | | |
Balance beginning of year | | (1,390) | | | (1,210) | | | (447) | |
Purchases/surrenders | | (128) | | | (273) | | | (759) | |
Exercise of stock options and vesting of restricted stock units, net of forfeitures | | 81 | | | 93 | | | (4) | |
Balance end of year | | (1,437) | | | (1,390) | | | (1,210) | |
| | | | | | |
Accumulated other comprehensive income/(loss): | | | | | | |
Balance beginning of year | | 11 | | | (23) | | | (27) | |
Other comprehensive income/(loss), net of tax | | (52) | | | 34 | | | 8 | |
Other | | — | | | — | | | (4) | |
Balance end of year | | (41) | | | 11 | | | (23) | |
Total equity attributable to Raymond James Financial, Inc. | | $ | 8,245 | | | $ | 7,114 | | | $ | 6,581 | |
| | | | | | |
Noncontrolling interests: | | | | | | |
Balance beginning of year | | $ | 62 | | | $ | 62 | | | $ | 84 | |
Net income/(loss) attributable to noncontrolling interests | | 23 | | | (26) | | | (14) | |
| | | | | | |
| | | | | | |
| | | | | | |
Other | | (27) | | | 26 | | | (8) | |
Balance end of year | | 58 | | | 62 | | | 62 | |
Total shareholders’ equity | | $ | 8,303 | | | $ | 7,176 | | | $ | 6,643 | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY |
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands, except per share amounts | | 2017 | | 2016 | | 2015 |
Common stock, par value $.01 per share: | | | | | | |
Balance, beginning of year | | $ | 1,513 |
| | $ | 1,491 |
| | $ | 1,444 |
|
Share issuances | | 29 |
| | 22 |
| | 47 |
|
Balance, end of year | | 1,542 |
| | 1,513 |
| | 1,491 |
|
| | | | | | |
Additional paid-in capital: | | |
| | |
| | |
Balance, beginning of year | | 1,498,921 |
| | 1,344,779 |
| | 1,239,046 |
|
Employee stock purchases | | 26,277 |
| | 28,025 |
| | 23,847 |
|
Exercise of stock options and vesting of restricted stock units, net of forfeitures | | 28,258 |
| | 16,470 |
| | 21,351 |
|
Restricted stock, stock option and restricted stock unit expense | | 90,748 |
| | 73,871 |
| | 68,196 |
|
Excess tax benefit/(reduction of prior tax benefit) from share-based payments | | — |
| (1) | 35,121 |
| | (8,115 | ) |
Other | | 1,193 |
| | 655 |
| | 454 |
|
Balance, end of year | | 1,645,397 |
| | 1,498,921 |
| | 1,344,779 |
|
| | | | | | |
Retained earnings: (2) | | |
| | |
| | |
Balance, beginning of year | | 3,834,781 |
| | 3,422,169 |
| | 3,026,295 |
|
Net income attributable to Raymond James Financial, Inc. | | 636,235 |
| | 529,350 |
| | 502,140 |
|
Cash dividends declared | | (130,643 | ) | | (116,738 | ) | | (106,271 | ) |
Other | | (319 | ) | | — |
| | 5 |
|
Balance, end of year | | 4,340,054 |
| | 3,834,781 |
| | 3,422,169 |
|
| | | | | | |
Treasury stock: | | |
| | |
| | |
Balance, beginning of year | | (362,937 | ) | | (203,455 | ) | | (121,211 | ) |
Purchases/surrenders | | (9,404 | ) | | (153,137 | ) | | (64,780 | ) |
Exercise of stock options and vesting of restricted stock units, net of forfeitures | | (17,740 | ) | | (6,345 | ) | | (17,464 | ) |
Balance, end of year | | (390,081 | ) | | (362,937 | ) | | (203,455 | ) |
| | | | | | |
Accumulated other comprehensive loss: (3) | | |
| | |
| | |
Balance, beginning of year | | (55,733 | ) | | (40,503 | ) | | (1,888 | ) |
Net change in unrealized gain/(loss) on available-for-sale securities and non-credit portion of other-than-temporary impairment losses, net of tax | | 1,684 |
| | (5,576 | ) | | (3,325 | ) |
Net change in currency translations and net investment hedges, net of tax | | 15,618 |
| | 2,179 |
| | (30,640 | ) |
Net change in cash flow hedges, net of tax | | 23,232 |
| | (11,833 | ) | | (4,650 | ) |
Balance, end of year | | (15,199 | ) | | (55,733 | ) | | (40,503 | ) |
Total equity attributable to Raymond James Financial, Inc. | | $ | 5,581,713 |
| | $ | 4,916,545 |
| | $ | 4,524,481 |
|
| | | | | | |
Noncontrolling interests: (2) | | |
| | |
| | |
Balance, beginning of year | | $ | 146,431 |
| | $ | 154,454 |
| | $ | 162,634 |
|
Net income attributable to noncontrolling interests | | 2,632 |
| | 11,301 |
| | 16,438 |
|
Capital contributions | | 9,775 |
| | 917 |
| | — |
|
Distributions | | (43,568 | ) | | (18,312 | ) | | (23,540 | ) |
Derecognition resulting from sales | | (4,649 | ) | | — |
| | — |
|
Other | | 1,017 |
| | (1,929 | ) | | (1,078 | ) |
Balance, end of year | | 111,638 |
| | 146,431 |
| | 154,454 |
|
Total equity | | $ | 5,693,351 |
| | $ | 5,062,976 |
| | $ | 4,678,935 |
|
(1) During the twelve months ended September 30, 2017, we adopted new stock compensation simplification guidance. See Notes 1, 16 and 20 for additional information.
(2) Each respective prior period balance has been restated to reflect the impact of the deconsolidation of certain VIEs. See Note 1 for additional information.
(3) All components of other comprehensive loss, net of tax, are attributable to Raymond James Financial, Inc.
See accompanying Notes to Consolidated Financial Statements.
83
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2021 | | 2020 | | 2019 |
Cash flows from operating activities: | | | | | | |
Net income | | $ | 1,403 | | | $ | 818 | | | $ | 1,034 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | | 134 | | | 119 | | | 112 | |
Deferred income taxes | | (37) | | | (39) | | | (23) | |
Premium and discount amortization on available-for-sale securities and net gain/loss on other investments | | 15 | | | 57 | | | 14 | |
Provisions/(benefits) for credit losses and legal and regulatory proceedings | | (20) | | | 257 | | | 59 | |
Share-based compensation expense | | 132 | | | 120 | | | 112 | |
Unrealized gain on company-owned life insurance policies, net of expenses | | (150) | | | (46) | | | (10) | |
Losses on extinguishment of debt | | 98 | | | — | | | — | |
Goodwill impairment | | — | | | — | | | 19 | |
Other | | 66 | | | 92 | | | 51 | |
Net change in: | | | | | | |
Assets segregated for regulatory purposes excluding cash and cash equivalents | | (2,100) | | | — | | | — | |
Collateralized agreements, net of collateralized financings | | (29) | | | (55) | | | (101) | |
Loans provided to financial advisors, net of repayments | | (90) | | | (49) | | | (79) | |
Brokerage client receivables and other receivables, net | | (420) | | | 127 | | | 682 | |
Trading instruments, net | | (141) | | | 150 | | | 41 | |
Derivative instruments, net | | 53 | | | (51) | | | (144) | |
Other assets | | 16 | | | (13) | | | (71) | |
Brokerage client payables and other payables | | 7,284 | | | 2,486 | | | (1,231) | |
Accrued compensation, commissions and benefits | | 416 | | | 70 | | | 80 | |
Purchases and originations of loans held for sale, net of proceeds from sales of securitizations and loans held for sale | | (5) | | | 11 | | | 32 | |
Net cash provided by operating activities | | 6,625 | | | 4,054 | | | 577 | |
| | | | | | |
Cash flows from investing activities: | | | | | | |
Increase in bank loans, net | | (4,027) | | | (1,136) | | | (1,605) | |
Proceeds from sales of loans held for investment | | 287 | | | 634 | | | 235 | |
Purchases of available-for-sale securities | | (4,218) | | | (5,710) | | | (1,027) | |
Available-for-sale securities maturations, repayments and redemptions | | 2,181 | | | 1,188 | | | 644 | |
Proceeds from sales of available-for-sale securities | | 969 | | | 222 | | | — | |
Business acquisitions, net of cash acquired | | (266) | | | (5) | | | (5) | |
Additions to property and equipment | | (74) | | | (124) | | | (138) | |
Other investing activities, net | | 8 | | | (54) | | | (1) | |
Net cash used in investing activities | | (5,140) | | | (4,985) | | | (1,897) | |
| | | | | | |
| | | | | | |
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| | | | | | |
| | | | | | |
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS |
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | 2016 | | 2015 |
Cash flows from operating activities: | | | | | | |
Net income attributable to Raymond James Financial, Inc. | | $ | 636,235 |
| | $ | 529,350 |
| | $ | 502,140 |
|
Net income attributable to noncontrolling interests | | 2,632 |
| | 11,301 |
| | 16,438 |
|
Net income including noncontrolling interests | | 638,867 |
| | 540,651 |
| | 518,578 |
|
Adjustments to reconcile net income including noncontrolling interests to net cash provided by/(used in) operating activities: | | |
| | |
| | |
|
Depreciation and amortization | | 84,132 |
| | 72,383 |
| | 68,315 |
|
Deferred income taxes | | (11,617 | ) | | (58,798 | ) | | (23,462 | ) |
Premium and discount amortization on available-for-sale securities and unrealized gain on other investments | | (27,572 | ) | | (25,010 | ) | | (42,544 | ) |
Provisions for loan losses, legal and regulatory proceedings (excluding the Jay Peak matter) and bad debts | | 36,357 |
| | 42,394 |
| | 34,277 |
|
Share-based compensation expense | | 96,164 |
| | 78,528 |
| | 71,488 |
|
Compensation expense/(benefit) which is payable in common stock of an acquiree | | 13,301 |
| | (2,102 | ) | | — |
|
Unrealized (gain)/loss on company owned life insurance, net of expenses | | (43,385 | ) | | (24,586 | ) | | 10,724 |
|
Loss on extinguishment of senior notes payable | | 45,746 |
| | — |
| | — |
|
Other | | 29,532 |
| | 16,940 |
| | 5,681 |
|
Net change in: | | |
| | |
| | |
|
Assets segregated pursuant to regulations and other segregated assets | | 1,430,898 |
| | (1,942,429 | ) | | (476,909 | ) |
Securities purchased under agreements to resell and other collateralized financings, net of securities sold under agreements to repurchase | | 97,001 |
| | (134,085 | ) | | 41,101 |
|
Securities loaned, net of securities borrowed | | (261,659 | ) | | 152,380 |
| | 98,896 |
|
Loans provided to financial advisors, net of repayments | | (53,785 | ) | | (344,164 | ) | | (85,895 | ) |
Brokerage client receivables and other accounts receivable, net | | (50,917 | ) | | (609,952 | ) | | (115,841 | ) |
Trading instruments, net | | 57,106 |
| | 7,048 |
| | 32,408 |
|
Derivative instruments, net | | 57,889 |
| | (18,590 | ) | | (1,922 | ) |
Other assets | | 97,391 |
| | (47,094 | ) | | (3,922 | ) |
Brokerage client payables and other accounts payable | | (1,133,283 | ) | | 1,782,456 |
| | 792,657 |
|
Accrued compensation, commissions and benefits | | 160,038 |
| | 46,367 |
| | 34,702 |
|
Proceeds from sales of securitizations and loans held for sale, net of purchases and originations of loans held for sale | | 189,232 |
| | (101,155 | ) | | (59,638 | ) |
Jay Peak matter payments | | (145,500 | ) | | (4,500 | ) | | — |
|
Net cash provided by/(used in) operating activities | | 1,305,936 |
| | (573,318 | ) | | 898,694 |
|
| | | | | | |
Cash flows from investing activities: | | |
| | |
| | |
|
Additions to property, buildings and equipment, including software | | (189,994 | ) | | (121,733 | ) | | (74,111 | ) |
Increase in bank loans, net | | (2,253,574 | ) | | (2,400,247 | ) | | (2,176,698 | ) |
Purchases of Federal Home Loan Bank/Federal Reserve Bank stock, net | | (13,375 | ) | | (3,231 | ) | | (4,446 | ) |
Proceeds from sales of loans held for investment | | 333,130 |
| | 197,557 |
| | 111,731 |
|
Proceeds from sales of or distributions received from private equity and other investments, net of purchases or contributions to private equity or other investments | | 90,458 |
| | (39,617 | ) | | (62,416 | ) |
Purchases of available-for-sale securities | | (1,732,790 | ) | | (463,202 | ) | | (92,485 | ) |
Available-for-sale securities maturations, repayments and redemptions | | 299,343 |
| | 95,961 |
| | 69,757 |
|
Proceeds from sales of available-for-sale securities | | 93,774 |
| | 11,062 |
| | 84,785 |
|
Business acquisitions, net of cash acquired | | — |
| | (175,283 | ) | | (15,823 | ) |
Other investing activities, net | | (3,042 | ) | | (19,170 | ) | | (16,904 | ) |
Net cash used in investing activities | | $ | (3,376,070 | ) | | $ | (2,917,903 | ) | | $ | (2,176,610 | ) |
| | | | | | |
(continued on next page) |
| | | | | | |
| | | | | | |
| | | | | | |
See accompanying Notes to Consolidated Financial Statements. |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued from previous page) |
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | 2016 | | 2015 |
Cash flows from financing activities: | | | | | | |
Proceeds from/(repayments of) short-term borrowings, net | | $ | 610,000 |
| | $ | (115,000 | ) | | $ | (34,700 | ) |
Proceeds from Federal Home Loan Bank advances | | 950,000 |
| | 25,000 |
| | 550,299 |
|
Repayments of Federal Home Loan Bank advances and other borrowed funds | | (654,647 | ) | | (4,407 | ) | | (509,252 | ) |
Proceeds from senior note issuances, net of debt issuance costs paid | | 508,473 |
| | 792,221 |
| | — |
|
Extinguishment of senior notes payable | | (650,000 | ) | | (250,000 | ) | | — |
|
Premium paid on extinguishment of senior notes payable | | (36,892 | ) | | — |
| | — |
|
Acquisition-related contingent consideration received, net of payments | | 2,992 |
| | — |
| | — |
|
Exercise of stock options and employee stock purchases | | 57,462 |
| | 43,331 |
| | 47,964 |
|
Increase in bank deposits | | 3,469,815 |
| | 2,342,666 |
| | 1,890,957 |
|
Purchases of treasury stock | | (34,055 | ) | | (162,502 | ) | | (88,542 | ) |
Dividends on common stock | | (127,202 | ) | | (113,435 | ) | | (103,143 | ) |
Distributions to noncontrolling interests, net | | (31,383 | ) | | (17,395 | ) | | (23,540 | ) |
Net cash provided by financing activities | | 4,064,563 |
| | 2,540,479 |
| | 1,730,043 |
|
| | | | | | |
Currency adjustment: | | | | | | |
Effect of exchange rate changes on cash | | 24,791 |
| | 188 |
| | (50,184 | ) |
Net increase/(decrease) in cash and cash equivalents | | 2,019,220 |
| | (950,554 | ) | | 401,943 |
|
Cash and cash equivalents at beginning of year | | 1,650,452 |
| | 2,601,006 |
| | 2,199,063 |
|
Cash and cash equivalents at end of year | | $ | 3,669,672 |
| | $ | 1,650,452 |
| | $ | 2,601,006 |
|
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| | | | | | |
Supplemental disclosures of cash flow information: | | | | | | |
Cash paid for interest | | $ | 155,984 |
| | $ | 113,517 |
| | $ | 106,190 |
|
Cash paid for income taxes | | $ | 349,009 |
| | $ | 303,793 |
| | $ | 378,928 |
|
See accompanying Notes to Consolidated Financial Statements.
84
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS |
| | Year ended September 30, |
$ in millions | | 2021 | | 2020 | | 2019 |
Cash flows from financing activities: | | | | | | |
Increase in bank deposits | | 5,694 | | | 4,520 | | | 2,339 | |
Purchases of treasury stock | | (128) | | | (272) | | | (778) | |
Dividends on common stock | | (218) | | | (205) | | | (191) | |
Exercise of stock options and employee stock purchases | | 53 | | | 62 | | | 65 | |
Proceeds from senior notes issuances, net of debt issuance costs paid | | 737 | | | 494 | | | — | |
Extinguishment of senior notes payable | | (844) | | | — | | | — | |
Proceeds from Federal Home Loan Bank advances | | — | | | 850 | | | 850 | |
Repayments of Federal Home Loan Bank advances and other borrowed funds | | (31) | | | (855) | | | (855) | |
Proceeds from borrowings on the RJF Credit Facility | | — | | | — | | | 300 | |
Repayment of borrowings on the RJF Credit Facility | | — | | | — | | | (300) | |
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Other financing, net | | (9) | | | (1) | | | (57) | |
Net cash provided by financing activities | | 5,254 | | | 4,593 | | | 1,373 | |
| | | | | | |
Currency adjustment: | | | | | | |
Effect of exchange rate changes on cash | | 76 | | | 1 | | | (23) | |
Net increase in cash and cash equivalents, including those segregated for regulatory purposes and restricted cash | | 6,815 | | | 3,663 | | | 30 | |
Cash and cash equivalents, including those segregated for regulatory purposes and restricted cash at beginning of year | | 9,634 | | | 5,971 | | | 5,941 | |
Cash and cash equivalents, including those segregated for regulatory purposes and restricted cash at end of year | | $ | 16,449 | | | $ | 9,634 | | | $ | 5,971 | |
| | | | | | |
Cash and cash equivalents | | $ | 7,201 | | | $ | 5,390 | | | $ | 3,957 | |
Cash and cash equivalents segregated for regulatory purposes and restricted cash | | 9,248 | | | 4,244 | | | 2,014 | |
Total cash and cash equivalents, including those segregated for regulatory purposes and restricted cash at end of year | | $ | 16,449 | | | $ | 9,634 | | | $ | 5,971 | |
| | | | | | |
Supplemental disclosures of cash flow information: | | | | | | |
Cash paid for interest | | $ | 145 | | | $ | 164 | | | $ | 283 | |
Cash paid for income taxes, net | | $ | 437 | | | $ | 246 | | | $ | 390 | |
Cash outflows for lease liabilities | | $ | 110 | | | $ | 101 | | | N/A |
Non-cash right-of-use assets recorded for new and modified leases | | $ | 168 | | | $ | 74 | | | N/A |
See accompanying Notes to Consolidated Financial Statements.
85
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 20172021
NOTE 1–1 – ORGANIZATION AND BASIS OF PRESENTATION
Organization
Raymond James Financial, Inc. (“RJF” or the “Company”“firm”) is a financial holding company whose broker-dealerwhich, together with its subsidiaries, areis engaged in various financial services businesses,activities, including providing investment management services to retail and institutional clients, merger & acquisition and advisory services, the underwriting, distribution, trading and brokerage of equity and debt securities, and the sale of mutual funds and other investment products. In addition, other subsidiaries of RJF provide investment management services for retail and institutional clients,The firm also provides corporate and retail banking services, and trust services. For further information about our business segments, see Note 26 of this Form 10-K. As used herein, the terms “our,” “we,” “our” or “us” refer to RJF and/or one or more of its subsidiaries.
Principal subsidiaries
As of September 30, 2017, our principal subsidiaries, all wholly owned, include: Raymond James & Associates, Inc. (“RJ&A”), a domestic broker-dealer carrying client accounts; Raymond James Financial Services, Inc. (“RJFS”), an introducing domestic broker-dealer; Raymond James Financial Services Advisors, Inc. (“RJFSA”), a registered investment advisor (“RIA”); Raymond James Ltd. (“RJ Ltd.”), a broker-dealer headquartered in Canada; Eagle Asset Management, Inc. (“Eagle”), a registered investment advisor; and Raymond James Bank, N.A. (“RJ Bank”), a national bank.
Basis of presentation
The accompanying consolidated financial statements include the accounts of RJF and its consolidated subsidiaries that are generally controlled through a majority voting interest. We consolidate all of our 100% owned-owned subsidiaries. In addition, we consolidate any variable interest entity (“VIE”) in which we are the primary beneficiary. Additional information on these VIEs is provided in Note 2 and in Note 11.10 of this Form 10-K. When we do not have a controlling interest in an entity, but we exert significant influence over the entity, we apply the equity method of accounting. All material intercompany balances and transactions have been eliminated in consolidation.
On August 24, 2021, our Board approved a three-for-two stock split, effected in the form of a 50% stock dividend, paid on September 21, 2021. All share and per share information has been retroactively adjusted to reflect this stock split.
Accounting estimates and assumptions
The preparation of consolidated financial statements in conformity with United States of America (“U.S.”) generally accepted accounting principles ("GAAP"(“GAAP”) requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from those estimates and could have a material impact on the consolidated financial statements.
Adoption of new accounting guidance
We adopted accounting guidance related to the consolidation model as of October 1, 2016. As a result of this adoption we deconsolidated a number of low-income housing tax credit (“LIHTC”) fund VIEs that had previously been consolidated. We applied the new consolidation guidance on the full retrospective basis, meaning that we have reflected the adjustments arising from this adoption as of the beginning of our earliest comparative period presented. In addition, effective October 1, 2016 we also adopted amended guidance related to share-based compensation, which was applied on a prospective basis. The amended guidance involves several aspects of the accounting for share-based payment transactions, including the income tax consequences and classification on the statement of cash flows. See Note 2 for additional information.
Reclassifications
During the period, we made a number changes to the current and previously reported amounts in the Consolidated Statements of Cash Flows. These included cash flow reclassifications to conform with changes made in the Consolidated Statements of Financial Condition (including derivative balances and the Jay Peak legal settlement), required adjustments associated with the adoption of accounting principles (including the deconsolidation of certain VIEs and treatment of excess tax benefits related to share-based compensation), and immaterial adjustments between line items (including foreign exchange impact on cash adjustments and payments with noncontrolling interest holders).
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In addition to the reclassification discussed above, certain other prior periodCertain prior-period amounts have also been reclassified to conform to the current year’s presentation.
NOTE 2 –- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recent accounting developments
Accounting guidance recently adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance related to the measurement of credit losses on financial instruments (“ASU 2016-13”), which replaces the incurred credit loss and other models with the current expected credit loss (“CECL”) model. The guidance involves several aspects of the accounting for credit losses related to certain financial instruments, including assets measured at amortized cost, available-for-sale debt securities and certain off-balance-sheet commitments. The new guidance, and subsequent updates, broadens the information that an entity must consider in developing its estimated credit losses expected to occur over the remaining life of in-scope financial assets. The measurement of expected credit losses includes historical experience, current conditions and reasonable and supportable economic forecasts.
This new guidance was effective for our fiscal year beginning on October 1, 2020 and was adopted under a modified retrospective approach. The impact of adoption of this new standard resulted in an increase in our allowance for credit losses of $42 million (including $25 million related to loans to financial advisors, $9 million related to funded bank loans and $8 million related to unfunded lending commitments) and a corresponding reduction in the beginning balance of retained earnings of
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
$35 million, net of tax. Prior-period amounts were calculated under the incurred loss model and have not been restated. See Notes 8 and 9 for further information related to bank loans and loans to financial advisors and the related allowances for credit losses. Our significant accounting policies described below have been updated for adoption of this guidance where applicable.
Significant Accounting Policies
Recognition of non-interest revenues
Securities commissions and fees - The significant componentsRevenue from contracts with customers is recognized when promised services are delivered to our customers in an amount we expect to receive in exchange for those services (i.e., the transaction price). Contracts with customers can include multiple services, which are accounted for as separate “performance obligations” if they are determined to be distinct. Our performance obligations to our customers are generally satisfied when we transfer the promised service to our customer, either at a point in time or over time. Revenue from a performance obligation transferred at a point in time is recognized at the time that the customer obtains control over the promised service. Revenue from our performance obligations satisfied over time is recognized in a manner that depicts our performance in transferring control of the service, which is generally measured based on time elapsed, as our customers receive the benefit of our services as they are provided.
Payment for the majority of our services is considered to be variable consideration, as the amount of revenue we expect to receive is subject to factors outside of our control, including market conditions. Variable consideration is only included in revenue when amounts are not subject to significant reversal, which is generally when uncertainty around the amount of revenue to be received is resolved. We record deferred revenue from contracts with customers when payment is received prior to the performance of our obligation to the customer.
We involve third parties in providing services to the customer for certain of our contracts with customers. We are generally deemed to control the promised services before they are transferred to the customer. Accordingly, we present the related revenues gross of the related costs.
We have elected the practical expedient allowed by the accounting guidance to not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less. See Note 21 for additional information on our revenues.
Asset management and related administrative fees
We earn asset management and related administrative fees for performing asset management, portfolio management and related administrative services to retail and institutional clients. Such fees are generally calculated as a percentage of the value of client assets in fee-based accounts in our Private Client Group (“PCG”) segment or on the net asset value of assets managed by Carillon Tower Advisers and its affiliates (collectively “Carillon Tower Advisers”) in our Asset Management segment. The value of these assets is impacted by market fluctuations and net inflows or outflows of assets. Fees are generally collected quarterly and are based on balances either at the beginning of the quarter or the end of the quarter, or average balances throughout the quarter. Asset management and related administrative fees are recognized on a monthly basis (i.e., over time) as the services are performed.
Revenues related to fee-based accounts under administration in PCG are shared by the PCG and Asset Management segments, the amount of which depends on whether clients are invested in “managed programs” that are overseen by our Asset Management segment (i.e., included in financial assets under management (“AUM”) in the Asset Management segment) and the administrative services provided. Asset management revenues earned by Carillon Tower Advisers for retail accounts managed on behalf of third-party institutions, institutional accounts or proprietary mutual funds that we manage are recorded entirely in the Asset Management segment.
Brokerage revenues
Securities commissions
Mutual and other fund products and insurance and annuity products
We earn revenues for distribution and related support services performed related to mutual and other funds, fixed and variable annuities and insurance products. Depending on the product sold, we may receive an upfront fee for our services, a trailing commission, or some combination thereof. Upfront commissions received are generally based on a fixed rate applied, as a percentage, to amounts invested or the value of the contract at the time of sale and are generally recognized at the time of sale.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Trailing commissions are generally based on a fixed rate applied, as a percentage, to the net asset value of the fund, or the value of the insurance policy or annuity contract. Trailing commissions are generally received monthly or quarterly while our client holds the investment or holds the contract. As these trailing commissions are based on factors outside of our control, including market movements and client behavior (i.e., how long clients hold their investment, insurance policy or annuity contract), such revenue is recognized when it is probable that a significant reversal will not occur.
Equities, ETFs and fixed income products
We earn commissions for executing and clearing transactions for customers, primarily in listed and OTC equity securities, commissionsincluding exchange-traded funds (“ETFs”), and options. Such revenues primarily arise from transactions for retail clients in our PCG segment, as well as services related to sales and trading activities transacted on an agency basis in our Capital Markets segment. Commissions are recognized on trade date, generally received from the customer on settlement date, and we record a receivable between the trade date and the date collected from the customer.
Principal transactions
Principal transactions include revenues from clients’ purchases and sales of financial instruments, including fixed income and equity securities and derivatives, in which we transact on a principal basis. To facilitate such transactions, we carry inventories of financial instruments. The gains and losses on such inventories, both realized and unrealized, are reported as principal transactions revenues.
Account and service fees
Mutual fund and annuity service fees
We earn servicing fees for providing sales and marketing support to product partners and for supporting the availability and distribution of their products on our platforms. We also earn servicing fees for accounting and administrative services provided to such partners. These fees, which are received monthly or quarterly, are generally based on the market value of the related assets or a fixed annual fee or, in certain cases, the number of positions in such programs, and are recognized over time as the services are performed.
RJBDP fees
We earn servicing fees from various banks for administrative services we provide related to our clients’ deposits that are swept to such banks as part of the Raymond James Bank Deposit Program (“RJBDP”), our multi-bank sweep program. The amounts received from third-party banks 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 by the third-party banks on balances in the RJBDP. The fees are earned over time as the related administrative services are performed and are received monthly. Our PCG segment also earns servicing fees from Raymond James Bank, which are based on the number of accounts that are swept to Raymond James Bank. These fees, and the offsetting expense in the Raymond James Bank segment, are eliminated in consolidation.
Investment banking
We earn revenue include the following:
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a. | Commission revenues and related expenses from securities transactions are recorded on a trade date basis. Commission revenues are recorded at the amount charged to clients which, in certain cases, may include discounts. |
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b. | Fees earned by financial advisors who provide investment advisory services under various manners of affiliation with us. These fee revenues are computed as either a percentage of the assets in the client account, or a flat periodic fee charged to the client for investment advice and are recognized over the period in which the service is provided. Such fees are earned from the services provided by the financial advisors who affiliate with us. |
Financial advisors may choose to affiliate with us as either an employee,from investment banking transactions, including public and thus operate under our registered investment advisor (“RIA”) license, or as an independent contractor. If affiliated as an independent contractor, the financial advisor may choose to provide suchprivate equity and debt financing, merger & acquisition advisory services, either under their own RIA license,and other advisory services. Underwriting revenues, which are typically deducted from the proceeds remitted to the issuer, are recognized on trade date if there is no uncertainty or undercontingency related to the RIA license of one of our subsidiaries.
The revenue recognitionamount to be paid. Fees from merger & acquisition and related expense policies associated with the generation of advisory fees from each of these affiliation alternatives are as follows:
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i. | Investment advisory service fee revenues earned by employee financial advisors and independent contractors who offer such services under one of our subsidiary RIA licenses are presented in “Securities commissions and fees” revenue on a gross basis. These advisors’ compensation is calculated as a percentage of the revenues generated and is recorded as a component of “Compensation, commissions and benefits expense”. |
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ii. | Independent RIA firms owned and operated by a financial advisor who is an independent contractor, may receive administrative and custodial services from us. These firms operate under their own RIA license and pay a fee for services provided to the RIA and its clients. These fees are recorded in “Securities commissions and fees” revenue, net of the portion of the fees that are remitted to the independent RIA firm. |
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iii. | We may earn fees as a result of providing a custodial platform for unaffiliated independent RIA firms. These independent RIA firms operate under their own RIA license and pay for administrative and other services that we provide. These fees are recorded in “Securities commissions and fees” revenue, net of the portion of the fees that are remitted to the independent RIA firm. |
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c. | Certain asset-based fees, which are recorded over the period earned. |
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d. | Trailing commissions from mutual funds and variable annuities/insurance products, which are recorded over the period earned. |
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e. | Insurance commission revenues and related expenses are recognized when the delivery of the insurance policy is confirmed by the carrier, the premium is remitted to the insurance company and the policy requirements are met. |
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f. | Annuity commission revenues and related expenses are recognized when the signed annuity application and premium is submitted to the annuity carrier. |
Investment banking -Investment banking revenuesassignments are generally recordedrecognized at the time the services related to the transaction are completed under the terms of the engagement and the related income is reasonably determinable. Such investment banking revenues includeengagement. Fees for merger & acquisition and advisory services are typically received upfront, as non-refundable retainer fees, management fees and underwriting fees earned in connection with the distributionand/or upon completion of public offerings, private placement fees, and syndication fees on the sale of low-income housing tax credit fund interests.a transaction as a success fee. Expenses associated with suchrelated to investment banking transactions net of client reimbursements, are generally deferred until the related revenue is recognized or the assignment is otherwise concludedconcluded. Such expenses are included in “Professional fees” on our Consolidated Statements of Income and are presented net with the related revenues.Comprehensive Income.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Investment advisory and related administrative fees - We provide advice, research and administrative services for clients participating in both our managed and non-discretionary asset-based investment programs. These revenues are generated by our asset management businesses for administering and managing portfolios, funds and separately managed accounts for our clients, including individuals, mutual funds and managed programs. We earn investment advisory and related administrative fees based on the value of clients’ portfolios which are held in either managed or non-discretionary asset-based programs. Fees are computed based on balances either at the beginning of the quarter, the end of the quarter, or average assets. These fees are recorded over the period earned.
We may earn performance fees from various funds and separately managed accounts we manage when their performance exceeds certain specified rates of return. We record performance fee revenues in the period they are specifically quantifiable and are earned and are not subject to clawback or reversal.
In our low-income housing tax credit fund syndication activities, we provide oversight and management of the funds during the fifteen year tax credit compliance period of the funds’ underlying investments. We recognize these fees over the period the services are provided.
Account and service fees - Account and service fees primarily include transaction fees, annual account fees, service charges, exit fees, servicing fees, fees generated in lieu of interest income from a multi-bank sweep program with unaffiliated banks, money market processing and distribution fees and correspondent clearing fees. The annual account fees such as IRA fees and distribution fees are recognized as earned over the term of the contract. The transaction fees are earned and collected from clients as trades are executed. Servicing fees such as omnibus, education and marketing support fees, and no-transaction fee program revenues are paid to us for marketing and administrative services provided to mutual fund and insurance/annuity companies and are recognized as earned. Under clearing agreements, we clear trades for unaffiliated correspondent brokers and retain a portion of commissions as a fee for our services. Correspondent clearing revenues are recorded net of commissions remitted.
Cash and cash equivalents
Our cash equivalents include money market funds or highly liquid investments with original maturities of 90 days3 months or less as of our date of purchase, other than those used for trading purposes.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Assets segregated pursuant to regulationsfor regulatory purposes and other segregated assetsrestricted cash
In accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, Raymond James & Associates, Inc. (“RJ&A,&A”), as a broker-dealer carrying client accounts, is subject to requirements to maintain cash or qualified securities on deposit in a segregated reserve account for the exclusive benefit of its clients. Such amounts are included in “Assets segregated for regulatory purposes and restricted cash” on our Consolidated Statements of Financial Condition as of each respective period end. These amounts include cash and cash equivalents, which represent highly liquid investments with maturities of 3 months or less as of our date of purchase (amounts as of September 30, 2021 included $3.55 billion of U.S. Treasuries with maturities of 3 months or less as of our date of purchase), and highly liquid securities, such as U.S. Treasuries, which have maturities of greater than 3 months as of our date of purchase and are carried at fair value on our Consolidated Statements of Financial Condition ($2.10 billion as of September 30, 2021).
We may also from time-to-time be required to restrict cash for other corporate purposes, including cash contractually required to fund acquisition commitments (see Note 3 for further discussion). In addition, Raymond James Ltd. (“RJ Ltd. is required to hold”) holds client Registered Retirement Savings Plan funds in trust. Segregated assets consist of cash and cash equivalents or qualified securities, which are recorded at fair value.
RJ Bank maintains cash in an interest-bearing pass-through account at the Federal Reserve Banktrust in accordance with Regulation D of the Federal Reserve Act, which requires depository institutions to maintain minimum average reserve balances against its deposits.Canadian retirement plan regulations.
RepurchaseCollateralized agreements and other collateralized financings
Securities purchased under agreements to resell and securities sold under agreements to repurchase
We purchase securities under short-term agreements to resell (“reverse repurchase agreements”). Additionally, we sell securities under agreements to repurchase (“repurchase agreements”). Both reverseReverse repurchase agreements and repurchase agreements are accounted for as collateralized agreements and collateralized financings, respectively, and are carried at contractual amounts plus accrued interest. To mitigate credit exposure, weWe receive collateral with a fair value that is typically equal to or in excess of the principal amount loaned under the reverse repurchase agreements.agreements to mitigate credit exposure. To ensure that the market value of the underlying collateral remains sufficient, the securitiescollateral values are valuedevaluated on a daily basis, and collateral is obtained from or returned to the counterparty when contractually required. Under repurchase agreements, we are required to post collateral in an amount that typically exceeds the carrying value of these agreements. In the event that the market value of the securities we pledge as collateral declines, we may have to post additional collateral or reduce borrowing amounts. Reverse repurchase agreements and repurchase agreements are included in “Collateralized agreements” and “Collateralized financings,” respectively, on our Consolidated Statements of Financial Condition. See Note 7 for additional information regarding collateralized agreements and financings.
Securities borrowed and securities loaned
SecuritiesWe act as an intermediary between broker-dealers and other financial institutions whereby we borrow securities from one broker-dealer and then either lend them to another broker-dealer or use them in our broker-dealer operations to cover short positions. Where permitted, we have also loaned, to broker-dealers and other financial institutions, securities owned by the firm, our clients, or others we have received as collateral. Both securities borrowed and securities loaned transactions are reportedaccounted for as collateralized financings and are recorded at the amount of collateralcash advanced or received. In securities borrowed transactions, we are required to deposit cash with the lender.lender in an amount which is generally in excess of the market value of securities borrowed. With respect to securities loaned, we generally receive collateral in the form of cash in an amount in excess of the market value of securities loaned. We monitorevaluate the market value of securities borrowed and loaned on a daily basis, with additional collateral obtained or refunded as necessary (seenecessary. Securities borrowed and securities loaned are included in “Collateralized agreements” and “Collateralized financings,” respectively, on our Consolidated Statements of Financial Condition. See Note 7 for additional information regarding this collateral).collateralized agreements and financings.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Financial instruments, financial instruments sold but not yet purchasedinstrument liabilities, at fair value
“Financial instruments owned”instruments” and “Financial instruments sold, but not yet purchased”instrument liabilities” are recorded at fair value. Fair value is defined by GAAP as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for the asset or liability.
In determining the fair value of our financial instruments in accordance with GAAP, we use various valuation approaches, including market and/or income approaches. Fair value is a market-based measurement considered from the perspective of a market participant. As such, our fair value measurements reflect assumptions that we believe market participants would use in pricing the asset or liability at the measurement date. GAAP provides for the following three levels to be used to classify our fair value measurements:measurements.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Level 1-Financial1 - Financial instruments included in Level 1 are highly liquid instruments valued using unadjusted quoted prices in active markets for identical assets or liabilities. These include equity and corporate debt securities traded in active markets and certain U.S. Treasury securities and other governmental obligations.
Level 2-Financial2 - Financial instruments reported in Level 2 include those that have pricing inputs that are other than unadjusted quoted prices in active markets, but which are either directly or indirectly observable as of the reporting date (i.e., prices for similar instruments). Instruments that are generally included in this category are equity securities and corporate debt obligations that are not actively traded, certain government and municipal obligations, interest rate swaps, asset-backed securities (“ABS”), collateralized mortgage obligations (“CMOs”), most mortgage-backed securities (“MBS”), certain other derivative instruments, brokered certificates of deposit, corporate loans and nonrecurring fair value measurements for certain loans held for sale, impaired loans and other real estate owned (“OREO”).
Level 3-Financial3 - Financial instruments reported in Level 3 have little, if any, market activity and are measured using one or more inputs that are significant to the fair value measurement and unobservable. These valuations require significant judgment or estimation. Instruments in this categoryThese instruments are generally include: equity securities with unobservable inputs such as our private equity investments, pools of interest-only Small Business Administration 7(a) (“SBA”) loan strips (“I/O Strips”), certain municipal and corporate obligations which include auction rate securities (“ARS”), and nonrecurring fair value measurements for certain impaired loans.valued using discounted cash flow techniques, market multiples, or investment-specific events.
GAAP requires that we maximize the use of observable inputs and minimize the use of unobservable inputs when performing our fair value measurements. The availability of observable inputs can vary from instrument to instrument and, in certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement of an instrument requires judgment and consideration of factors specific to the instrument.
We offset our long and short positions for identical securities recorded at fair value as part of our trading instruments (long positions) and trading instruments sold but not yet purchased (short positions).
Valuation techniques and inputs -
The fair valuevalues for certain of our financial instruments isare derived using pricing models and other valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of our financial instruments. Financial instruments which are actively traded will generally have a higher degree of price transparency than financial instruments that are thinlyless frequently traded. In accordance with GAAP, the criteria used to determine whether the market for a financial instrument is active or inactive is based on the particular asset or liability. For equity securities, our definition of actively traded is based on average daily volume and other market trading statistics.volume. We have determined the market for certain other types of financial instruments, including private equity investments, ARS, certain CMOs, ABS and certain collateralized debt obligations, to be uncertain or inactive as of both September 30, 20172021 and 2016.2020. As a result, the valuation of these financial instruments included significant management judgment in determining the relevance and reliability of market information available. We considered the inactivity of the market to be evidenced by several factors, including low levels of price transparency caused by decreased volume of trades relative to historical levels, stale transaction prices and transaction prices that varied significantly either over time or among market makers.
The level within the fair value hierarchy, specific valuation techniques, and other significant accounting policies pertaining to financial instruments presented inat fair value on our Consolidated Statements of Financial Condition are described as follows:follows.
Level 1: Trading instrumentsassets and trading instruments sold but not yet purchasedliabilities
Trading assets and trading liabilities are comprised primarily of the financial instruments held by our broker-dealer subsidiaries. These instrumentssubsidiaries and include debt securities, equity securities, brokered certificates of deposit, and other financial instruments. Trading assets and trading liabilities are recorded at fair value with realized and unrealized gains and losses reflected in current period net income.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
When available, we use quoted prices in active markets to determine the fair value of our trading instruments.assets and trading liabilities. Such instruments are classified within Level 1 of the fair value hierarchy.
Level 2: When trading instruments are traded in secondary markets and quoted market prices for identical instruments do not exist, we utilize valuation techniques, including matrix pricing, to estimate fair value. Matrix pricing generally utilizes spread-based models periodically re-calibrated to observable inputs such as market trades or to dealer price bids in similar securities in order to derive the fair value of the instruments. Valuation techniques may also rely on other observable inputs such as yield curves, interest rates and expected principal repaymentsprepayments and default probabilities. We utilize prices from independentthird-party pricing services to corroborate our estimateestimates of fair value. Depending upon the type of security, the pricing service may provide a listed price, a matrix price or use other methods including broker-dealer price quotations.
A portion of our financial instruments classified on our Consolidated Statements of Financial Condition as a component of our available-for-sale securities are classified as Level 2 within the fair value hierarchy. The valuation methodologies of such financial instruments are discussed in the available-for-sale securities section that follows.
We are a party to various derivative contracts that are classified as Level 2 within the fair value hierarchy. The valuation methodologies of such financial instruments are discussed in the derivatives section that follows.
We also maintain certain loans held for sale, which Securities valued using these techniques are classified within Level 2 of the fair value hierarchy. The valuation methodologies of such financial instruments are discussed in the loans held for sale and allowances for losses section that follows.
Level 3: Positions in illiquid securities that do not have readily determinable fair values require significant judgment or estimation. For these securities we use pricing models, discounted cash flow methodologies or similar techniques. Assumptions utilized by these techniques include estimates of future delinquencies, loss severities, defaults and prepayments or redemptions. Securities valued using these techniques are classified within Level 3 of the fair value hierarchy.
A portion of our financial instruments classified on our Consolidated Statements of Financial Condition as a component of our available-for-sale securities are classified as Level 3 within the fair value hierarchy. The valuation methodologies of such financial instruments are discussed in the available-for-sale securities section that follows.
We hold private equity investments that are classified as Level 3 within theoffset our long and short positions for identical securities recorded at fair value hierarchy. The valuation methodologies of such financial instruments are discussed in the private equity investments section that follows.
I/O Strips do not trade in an active market with readily observable prices. Accordingly, we use valuation techniques that consider a number of factors including: (a) the original cost of the pooled underlying SBA loans from which the I/O Strip securities were created, and any changes from the original to the hypothetical cost of buying similar loans under current market conditions; (b) seasoning of the underlying SBA loans in the pool that back the I/O Strip securities; (c) the type and nature of the pooled SBA loans backing the I/O Strip securities; (d) actual and assumed prepayment rates on the underlying pools of SBA loans; and (e) market data for past trades in comparable I/O Strip securities. Prices from independent sources are used to corroborate our estimates of fair value. Our I/O Strip securities are recorded in other securities within our “Trading instruments” on our Consolidated Statements of Financial Condition. These fair value measurements use significant unobservable inputs and accordingly, we classify them as Level 3 of the fair value hierarchy.
Included within trading instruments are to be announced (“TBA”) security contracts with investors for generic MBS at specific rates and prices to be delivered on settlement dates in the future. We enter into these TBAs to hedge interest rate risk that arises as part of a program our fixed income public finance operations offers to certain state and local housing finance agencies (“HFA”). Under this program, we enter into forward commitments to purchase Government National Mortgage Association (“GNMA”) or Federal National Home Mortgage Association (“FNMA”) MBS. The MBS are issued on behalf of various HFA clients and consist of the mortgages originated through their lending programs. Our forward GNMA or FNMA MBS purchase commitments arise at the time of the loan reservation for a borrower in the HFA lending program. The underlying terms of the GNMA or FNMA MBS purchase, including the price for the MBS (which is dependent upon the interest rates associated with the underlying mortgages) are also fixed at loan reservation. We typically sell such MBS upon acquisition as part of our fixed income operations. The TBA securities used to hedge these transactions are accounted for at fair valuetrading assets (long positions) and are classified within Level 1 of the fair value hierarchy. The TBA securities may aggregate to either a net asset or net liability at any reporting date, depending upon market conditions. The offsetting purchase commitment is accounted for at fair value and is included in “Trading instruments” or “Trading instruments sold but not yet purchased,” depending upon whether the TBA securities aggregate to a net asset or net liability. The fair value of the purchase commitment is classified within Level 3 of the fair value hierarchy.trading liabilities (short positions).
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Available-for-sale securities -
Available-for-sale securities are generally held by Raymond James Bank and are classified at the date of purchase andpurchase. They are comprised primarily of agency MBSmortgage-backed securities (“MBS”) and CMOs and equity securities held predominatelyagency collateralized mortgage obligations (“CMOs”), which are guaranteed by RJ Bank and ARS. the U.S. government or its agencies. Available-for-sale securities held at RJowned by Raymond James Bank are used as part of its interest rate risk and liquidity management strategies and may be sold in response to changes in interest rates, changes in prepayment risks, or other factors.
The fair values of our available-for-sale securities are determined by obtaining prices from third-party pricing services, which are primarily based on valuation models. The third-party pricing services provide comparable price evaluations utilizing observable market data for similar securities. Such observable market data is comprised of benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data (including market research publications), and loan performance experience. We utilize other third-party pricing services to corroborate the pricing information obtained from the primary pricing service. Securities valued using valuation techniques that rely on observable market data are classified within Level 2 of the fair value hierarchy.
Interest on available-for-sale securities is recognized in interest income on an accrual basis. Forbasis, with the RJ Bank available-for-sale securities, discountsrelated accrued interest not yet received reflected in “Other receivables” on our Consolidated Statements of Financial Condition. Discounts are accreted and premiums are amortized as an adjustment to yield over the estimated average life of the security. Realized gains and losses on sales of available-for-sale securities are recognized using the specific identification method and reflected in other“Other” revenue in the period sold. Unrealized gains or losses due to market factors on available-for-sale securities except for those that are deemed to be other-than-temporary, are recorded through other comprehensive income/(loss) (“OCI”), net of applicable taxes, and are thereafter presented in equity as a component of accumulated other comprehensive income (“AOCI”) on our Consolidated Statements of Financial Condition.
For anyAs a result of our October 1, 2020 adoption of the CECL model (see “Recent accounting developments” above), credit losses on available-for-sale securities in an unrealized loss position at a reporting period end, we make an assessment whether such securities are impaired on an other-than-temporary basis. In orderlimited to evaluate our risk exposure and any potential impairment of these securities, on at least a quarterly basis, we review the characteristics of each security owned such as, where applicable, collateral type, delinquency and foreclosure levels, credit enhancement, projected loan losses, collateral coverage,difference between the presence of U.S. government or government agency guarantees, and issuer credit rating. The following factors are considered in order to determine whether an impairment is other-than-temporary: our intention to sell the security, our assessment of whether it is more likely than not that we will be required to sell the security before the recovery of itssecurity’s amortized cost basis and whether the evidence indicating that we will recover the amortized cost basis ofits fair value and are recognized through an allowance for credit losses rather than as a securitydirect reduction in full outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to period end, recent events specific to the issuer or industry and forecasted performance of the security.
We intend and have the ability to hold our available-for-sale securities. We have concluded that it is not more likely than not that we will be required to sell these available-for-sale securities before the recovery of their amortized cost basis. ThoseGiven that our available-for-sale securities whose amortized cost basisportfolio is comprised of government agency-backed securities for which payments of both principal and interest are guaranteed, and based on the lack of historical credit losses, we do not expect to recover in full are deemed to be other-than-temporarily impaired and are written down to fair value with thezero credit loss portion of the write-down recorded as a realized loss in other revenuelosses on this portfolio and the non-credit portion of the write-down recorded, net of deferred taxes, in shareholders’ equity as a component of AOCI. The credit loss portion of the write-down is the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the security. We estimate the portion of loss attributable to credit using a discounted cash flow model. For the non-agency CMOs within the RJ Bank available-for-sale portfolio, which were classified as level 2 of the fair value hierarchy and were sold during the year ended September 30, 2017, our discounted cash flow model utilized relevant assumptions such as prepayment rate, default rate, and loss severity on a loan level basis.
The fair value of agency securities included within the RJ Bank available-for-sale securities is determined by obtaining third party pricing service bid quotations from two independent pricing services. Third party pricing service bid quotations are based on either current market data or the most recently available market data. The third party pricing services provide comparable price evaluations utilizing available market data for similar securities. The market data the third party pricing services utilize for these price evaluations includes observable data comprised of benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data including market research publications, and loan performance experience.related accrued interest receivable. On a quarterly basis, we utilize bid quotations from other third party pricing servicesreassess our expectation of zero credit losses, giving consideration to corroborate the pricing information obtained from the primary pricing service. Securities valued using these valuation techniques are classified within Level 2 of the fair value hierarchy.
ARS are long-term variable rate securities tied to short-term interest rates that were intended to be reset through a “Dutch auction” process, which generally occurs every seven to 35 days. Holders of ARS were, at one time, able to liquidate their holdings to prospective buyers by participatingany relevant changes in the auctions. During 2008, the Dutch auction process failed and holders were no longer able to liquidate their holdings through the auction process. The fair value of the ARS holdings is estimated based on internal pricing models. The pricing models take into consideration the characteristics of the underlyingavailable-for-sale securities as well as multiple inputs including the issuer and its credit quality, data from recent trades, if any, the expected timing of redemptions and an estimated yield premium that a market participant would require over otherwise comparable securities to compensate for the illiquidity of the ARS. These inputs require significant management judgment and accordingly are classified within Level 3 of the fair value hierarchy.portfolio.
Derivative assets and derivative liabilities -
Our derivative assets and derivative liabilities are recorded at fair value and are included in “Derivative assets” and “Derivative liabilities” inon our Consolidated Statements of Financial Condition. To reduce credit exposure on certain of our derivative transactions, we may enter into a master netting arrangement that allows for net settlement of all derivative transactions with each counterparty. In addition, the credit support annex allows parties to the master netting agreement to mitigate their credit risk by requiring the party which is out of the money to post collateral. We accept collateral in the form of cash or other marketable securities. Where permitted, we elect to net-by-counterparty certain derivative contractsderivatives entered into under a legally
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
enforceable master netting agreement and, therefore, the fair value of those derivative contractsderivatives are netted by counterparty in theon our Consolidated Statements of Financial Condition. As we elect to net-by-counterparty the fair value of such derivative contracts,derivatives, we also net-by-counterparty any cash collateral exchanged as part of those derivative agreements. We may also require certain counterparties to make a deposit at the inception of a derivative agreement, referred to as “initial margin.” This initial margin is included in “Other payables” on our Consolidated Statements of Financial Condition.
Trading:We are also required to maintain deposits with the clearing organizations we utilize to clear certain of our interest rate derivatives, for which we have posted securities as collateral. This initial margin is included as a component of “Other investments” and “Available-for-sale securities” on our Consolidated Statements of Financial Condition. On a daily basis, we also pay cash to, or receive cash from, these clearing organizations due to changes in the fair value of the derivatives which they clear. Such payments are referred to as “variation margin” and are considered to be settlement of the related derivatives.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Fixed income business operations
We enter into interest rate contracts either as part ofderivatives in our fixed income business to facilitate client transactions or to actively manage risk exposures that arise from our client activity, including a portion of our trading inventory. Any realizedThe majority of these derivatives are traded in the over-the-counter market and are executed directly with another counterparty or are cleared and settled through a clearing organization. Realized and unrealized gains or losses including interest,on our fixed income derivatives are recorded in “Net trading profit” within the“Principal transactions” on our Consolidated Statements of Income and Comprehensive Income. The fair valuevalues of these interest rate derivative contracts isderivatives are obtained from internal pricing models that consider current market trading levels and the contractual prices for the underlying financial instruments, as well as time value, yield curve and other volatility factors underlying the positions. Since our model inputs can be observed in a liquid marketmarkets and the models do not require significant judgment, such derivative contractsderivatives are classified within Level 2 of the fair value hierarchy. We utilize values obtained from third party derivatives dealers to corroborate the output of our internal pricing models.models by preparing an independent calculation using a third-party model. Our fixed income business also holds to-be-announced (“TBA”) security contracts that are accounted for as derivatives, which are classified within Level 1 of the fair value hierarchy.
Matched Book: book
We also facilitate matched book derivative transactions through Raymond James Financial Products, LLC (“RJFP”) a non-broker-dealer subsidiary. RJFP entersin which we enter into derivative transactions (primarily interest rate swaps)derivatives with clients. For every derivative transaction RJFP enterswe enter into with a client, it enterswe also enter into an offsetting transaction withderivative on terms that mirror the client transaction with a credit support provider, whowhich is a third partythird-party financial institution. Any collateral required to be exchanged under these derivative contractsderivatives is administered directly between the client and the third partythird-party financial institution. We recordDue to this pass-through transaction structure, we have completely mitigated the value of each derivative position held atmarket and credit risk on these derivatives. As a result, derivatives for which the fair value as eitheris in an asset orposition have an equal and offsetting liability, presented within “Derivative assets” or “Derivative liabilities,” as applicable, on our Consolidated Statements of Financial Condition.derivative liability. Fair value is determined using an internal pricing model which includes inputs from independent pricing sources to project future cash flows under each underlying derivative contract.derivative. Since any changes in fair value are completely offset by a change in fair value of the offsetting transaction position,derivative, there is no net impact on our Consolidated Statements of Income and Comprehensive Income from changes in the fair value of these derivative instruments.derivatives. We recognize revenue on derivative transactionsthese derivatives on the transaction date, computed as the present value of the expected cash flows we expect to receive from the third partythird-party financial institution over the life of the derivative contract.derivative. The difference between the present value of these cash flows at the date of inception and the gross amount potentially received is accreted to revenue over the term of the contract. The revenue from these transactions is included within “Other revenues”“Other” revenues on our Consolidated Statements of Income and Comprehensive Income.
RJRaymond James Bank Derivatives: derivatives
Foreign-exchange derivatives
We enter into three-month forward foreign exchange contracts primarily to hedge the risks related to RJRaymond James Bank’s investment in theirits Canadian subsidiary, as well as theirits risk resulting from transactions denominated in currencies other thatthan the U.S. dollar. The majority of these derivatives are designated as net investment hedges. The effective portion of the gain or loss related to thethese designated derivative instrumentsnet investment hedges is recorded, net of tax, in shareholders’ equity as part of the cumulative translation adjustment component of AOCI with such balance impacting “Other revenues”“Other” revenues in the event the net investment is sold or substantially liquidated. Gains and losses on the undesignated derivative instruments as well as amounts representing hedge ineffectiveness, are recorded in earnings in theon our Consolidated Statements of Income and Comprehensive Income. Hedge effectiveness is assessed at each reporting period using a method that is based on changes in forward rates. The measurement of hedge ineffectiveness is based on the balance of the foreign net investment at the inception of the hedging relationshiprates and performedmeasured using the hypothetical derivativederivatives method. However, asAs the terms of the hedging instrument and hypothetical derivative generally match at inception, therethe hedge is no expected ineffectiveness to be recorded in earnings. highly effective.
The fair value of our forward foreign exchange contracts is determined by obtaining valuations from a third partythird-party pricing service or model. These valuations are based on observable inputs such as spot rates, forward foreign exchange rates and both U.S. and foreign interest rate curves. We validate the observable inputs utilized in the third partythird-party valuation model by preparing an independent calculation using a secondary third party valuation model. These forward foreign exchange contracts are classified within Level 2 of the fair value hierarchy.
Interest rate derivatives
The cash flows associated with certain assets held by RJRaymond James Bank provide interest income at fixed interest rates. Therefore, the value of these assets, absent any risk mitigation, is subject to fluctuation based upon changes in market rates of interest over time. We enterRaymond James Bank enters into floating-rate advances from the FHLBFederal Home Loan Bank (“FHLB”) to, in part, fund these assets and then enterenters into interest rate swapscontracts which swap variable interest payments on this debt for fixed interest payments. These interest rate swaps are designated as cash flow hedges and effectively fix ourRaymond James Bank’s cost of funds associated with these assets to mitigate a portion of the market risk.
The effective portion of the gain or loss on these interest rate derivativesRaymond James Bank’s
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Notes to Consolidated Financial Statements
cash flow hedges is recorded, net of tax, in shareholders’ equity as part of the cash flow hedge component of AOCI and subsequently reclassified to earnings when the hedged transaction affects earnings, specifically upon the incurrence of interest expense on certainthe hedged borrowings. The ineffective portions of the related gain and loss are immediately recognized into “Interest expense” in the Consolidated Statements of Income and Comprehensive Income. Hedge effectiveness is assessed at inception and at each reporting period utilizing regression analysis and performed using the hypothetical derivative method. However, asanalysis. As the key terms of the hedging instrument and hedged transaction match at inception, management expects there
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Notes to Consolidated Financial Statements
the hedges to be no ineffectiveness impacting earnings from this hedgeeffective while it isthey are outstanding. The fair value of these interest rate hedgesswaps is obtaineddetermined by obtaining valuations from internala third-party pricing models that consider current market trading levels and the contractual prices for the underlying financial instruments, as wellservice. These third-party valuations are based on observable inputs such as time value and yield curve and other volatility factors underlyingcurves. We validate these observable inputs by preparing an independent calculation using a secondary model. Cash flows from hedging activities are included in the positions. Since our model inputs can be observed in a liquid market andsame category as the models do not require significant judgment, suchitems being hedged. Cash flows from derivative contractsinstruments used to manage interest rates are classified as operating activities. We classify these derivatives within Level 2 of the fair value hierarchy. We utilize values obtained from a third party to corroborate the output
Other investments
Other investments consist primarily of our internal pricing models.
Other: As partprivate equity investments, securities pledged as collateral with clearing organizations, and term deposits with Canadian financial institutions. Our securities pledged as collateral with clearing organizations, which primarily include U.S. Treasury securities, and term deposits are categorized within Level 1 of our acquisition of Alex. Brown, we assumed certain Deutsche Bank restricted stock unit (“DBRSU”) awards, including the associated plan terms and conditions. Refer to the “share-based compensation” section of this footnote for a description of the assumed obligation. The DBRSU awards contain performance conditions based on Deutsche Bank and subsidiaries attaining certain financial results and will ultimately be settled in Deutsche Bank AG (“DB”) common shares, as traded on the New York Stock Exchange (“NYSE”), provided the performance metrics are achieved. The DBRSU obligation results in a derivative that is measured by applying the reporting period-end DB common share price to the DBRSU awards outstanding as of the end of such period. This computation is a Level 2 measurement under the fair value hierarchy and the liability is included in “Derivative liabilities” in our Consolidated Statements of Financial Condition.hierarchy.
Private equity investments - Private equity investments consist of direct investments, and investments in third-party private equity funds and various Company-sponsoredlegacy private equity funds. funds which we sponsor. The private equity funds in which we invest are primarily closed-end funds in which the Company’sour investments are generally not eligible for redemption. Distributions will be receivedWe receive distributions from these funds as the underlying assets are liquidated or distributed. These investments are measured at fair value with any changesgains or losses recognized in “Other” revenues on our Consolidated Statements of Income and Comprehensive Income. The fair value of private equity fund investments are determined utilizing either the net asset value (“NAV”) of the fund as a practical expedient or Level 3 valuation techniques.
We utilize NAV or its equivalent as a practical expedient to determine the fair value of our private equity investments when: (1) the fund does not have a readily determinable fair value; (2) the NAV of the fund is calculated in a manner consistent with the measurement principles of investment-company accounting, including measurement of the underlying investments at fair value; and (3) it is not probable that we will sell the investment at an amount other than NAV. The NAV is calculated based on our proportionate share of the net assets of the fund as provided by the fund manager.
The portion of our private equity investment portfolio that is not valued at NAV is valued initially at the transaction price until significant transactions or developments indicate that a change in the carrying values of these investments is appropriate. The carrying values of these investments are adjusted based on financial performance, investment-specific events, financing and sales transactions with third parties and/or discounted cash flow models incorporating changes in market outlook. Investments valued using these valuation techniques are classified within Level 3 of the fair value hierarchy. The valuation of such investments requires significant judgment due to the absence of quoted market prices, inherent lack of liquidity and long-term nature of these assets. As a result, these values cannot be determined with precision and the calculated fair value estimates may not be realizable in a current sale or immediate settlement of the instrument.sale.
Other investments - Other investments consist primarily of marketable securities we hold that are associated with certain of our deferred compensation programs, term deposits with Canadian financial institutions, securities pledged as collateral with clearing organizations and certain investments in funds for which, in a number of instances, one of our affiliates serves as the managing member or general partner (see Note 10 for information regarding such funds).
The non-qualified deferred compensation plans or arrangements are for the benefit of certain employees, and provide a return to the participating employees based upon the performance of various referenced investments. The balances associated with these plans are invested in certain marketable securities that we hold until the vesting date, typically five years from the date of the deferral. A liability associated with these deferrals is reflected as a component of “Accrued compensation, commissions and benefits” on our Consolidated Statements of Financial Condition. We use quoted prices in active markets to determine the fair value of these investments. Such instruments are classified within Level 1 of the fair value hierarchy.
Canadian financial institution term deposits are recorded at cost which approximates fair value. These investments are classified within Level 1 of the fair value hierarchy.
Brokerage client receivables, net
Brokerage client receivables include receivables from the clients of our broker-dealer subsidiaries and asset management subsidiaries. The receivables from broker-dealer clients are principally for amounts due on cash and margin transactions andtransactions. Such receivables are generally collateralized by securities owned by the clients. The receivables from asset management clients are primarily for accrued investment advisory fees. Brokerage client receivables are reported at their outstanding principal balance, adjusted fornet of any allowance for doubtful accounts.
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Notes to Consolidated Financial Statements
Whencredit losses. See the receivable held is considered to be impaired,“Allowance for credit losses” section below for the amountapplication of the impairment is generally measured based on the fair value of the securities acting as collateral, which is measured based on current prices from independent sources such as listed market prices or broker-dealer price quotations. practical expedient under CECL for financial assets secured by collateral.
Securities beneficially owned by customers,clients, including those that collateralize margin or other similar transactions, are not reflected inon our Consolidated Statements of Financial Condition (see Note 7 for additional information regarding this collateral).
Other receivables, net
Other receivables primarily include receivables from brokers, dealers and clearing organizations, accrued fees from product sponsors, and accrued interest receivables. Receivables from brokers, dealers and clearing organizations primarily consist of deposits placed with clearing organizations, which includes initial margin, and receivables related to sales of securities which have traded but not yet settled including amounts receivable for securities failed to deliver.
We present “Brokerage client“Other receivables, net” on our Consolidated Statements of Financial Condition, net of any allowance for credit losses. However, these receivables generally have minimal credit risk due to the low probability of clearing organization default and the short-term nature of receivables related to securities settlements and therefore, the allowance for doubtful accounts. Ourcredit losses on such receivables is not significant. Any allowance for doubtful accounts was approximately $1 million at both September 30, 2017credit losses for other receivables is estimated using assumptions based on historical experience, current facts and 2016.other factors. We update these estimates through periodic evaluations against actual trends experienced.
Receivables from brokers, dealers and clearing organizations
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Receivables from brokers, dealers and clearing organizationsNotes to Consolidated Financial Statements
As permitted under the CECL guidance, we include amounts receivable for securities failedaccrued interest receivables related to deliver and cashour financial assets in “Other receivables, net” on deposit with clearing organizations. We present “Receivables from brokers, dealers and clearing organizations” on ourthe Consolidated Statements of Financial Condition netinstead of with the related financial instrument. We reverse any uncollectible accrued interest against interest income when the related financial asset is moved to nonaccrual status. Given that we write off uncollectible amounts in a timely manner, we do not recognize an allowance for doubtful accounts. Our allowance for doubtful accounts was insignificant at September 30, 2017 and 2016.credit losses against accrued interest receivable.
Bank loans, net
Loans held for investment -
Bank loans are comprised of loans originated or purchased by RJRaymond James Bank and include commercial and industrial (“C&I”) loans, real estate investment trust loans (“REIT”), tax-exempt loans, commercial and residential real estate loans, tax-exempt loans, as well as securities-based loans (“SBL”) which are fully collateralized by the borrower’s marketable securities.and other loans. The loans which we have the intent and the ability to hold until maturity or payoff are recorded at their unpaid principal balance plus any premium paid in connection with the purchase of the loan, less the allowance for loancredit losses and any discounts received in connection with the purchase of the loan and net of deferred fees and costs on originated loans. Syndicated loans purchased in the secondary market are recognized as of the trade date. Interest income is recognized on an accrual basis. Loan origination fees and direct costs, as well as premiums and discounts on loans that are not revolving, are capitalized and recognized in interest income using the effective interest method. For revolving loans, the straight-line method is used based on the contractual term. Syndicated loans purchased in the secondary market are recognized as of the trade date. Interest income is recognized on an accrual basis.
We segregate our loan portfolio into six6 loan portfolio segments,segments: C&I, commercial real estate (“CRE”), (primarily loans that are secured by income-producing properties and CRE construction loans), REIT (loans made to businesses that own or finance income-producing real estate), tax-exempt, residential mortgage, and SBL.SBL and other. These portfolio segments also serve as the portfolio loan classes for purposes of credit analysis, exceptanalysis. See the “Allowance for residential mortgage loans which are further disaggregated into residential first mortgage and residential home equity classes.credit losses” section below for information on our allowance policies.
Loans held for sale -
Certain residential mortgage loans originated and intended for sale in the secondary market due to their fixed interest rate terms, as well as SBASmall Business Administration (“SBA”) loans purchased and intended for sale in the secondary market but not yet aggregated for securitization into pools, are each carried at the lower of cost or estimated fair value. The fair valuevalues of the residential mortgage loans held for sale are estimated using observable prices obtained from counterparties for similar loans. These nonrecurring fair value measurements are classified within Level 2 of the fair value hierarchy.
We purchase thethe guaranteed portions of SBA loans and accounts foraccount for these loans in accordance with the policy for loans held for sale. We then aggregate SBA loans with similar characteristics into pools for securitization and sellssell these pools in the secondary market. Individual SBA loans may be sold prior to securitization.
The determination of the fair valuevalues of the SBA loans depends upon their intended disposition. The fair value of the SBA loans to be individually sold are determined based upon their committed sales price. The fair value of the loans to be aggregated into pools for securitization which are committed to be sold, are determined based upon third party price, quotes. The fair value of all other SBA loansthird-party price quotes, or are determined using a third partythird-party pricing service. The prices for the SBA loans, other than those committed to be individually sold, are validated by comparing the third party price quote or the third party pricing service prices, as applicable, for a sample of loans to observable market trades obtained from external sources.
Once the SBA loans are securitized into a pool, the respective securities are classified as trading instruments and are carried at fair value based on our intention to sell the securitizations within the near term. Any changes in the fair value of the securitized pools as well as any realized gains or losses earned thereon are reflected in net trading profit.securitizations. Sales of the securitizations are accounted for as of settlement date, which is the date we have surrendered control over the transferred assets. We do not retain any interest in the securitizations once they are sold. The fair value for SBA loan securitizations is determined by utilizing observable prices obtained from a third party pricing service. The third party pricing service provides comparable price evaluations utilizing observable market data for similar securities. We substantiate the prices obtained from the third party pricing service by comparing such prices for a sample of securities to observable market trades obtained from external sources. The instruments valued using these observable inputs are typically classified within Level 2 of the fair value hierarchy.
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Notes to Consolidated Financial Statements
Corporate loans, which include C&I, CRE and CRE construction, as well asREIT loans, and tax-exempt loans are designated as held for investment upon inception and recognized in loans receivable. If we subsequently designate a corporate or tax-exempt loan as held for sale, which generally occurs as part of a loan workout situation,our credit management activities, we then write down the carrying value of the loan with a partial charge-off, if necessary, to carry it at the lower of cost or estimated fair value.
Gains and losses on sales of residential mortgage loans held for sale, SBA loans that are not part of a securitized pool, and corporate loans transferred from the held for investment portfolio, are included as a component of “Other revenues” in the“Other” revenues on our Consolidated Statements of Income and Comprehensive Income, while interest collected on these assets is included in “Interest income.” Net unrealized losses are recognized through a valuation allowance by charges to income as a component of “Other revenues” in the“Other” revenues on our Consolidated Statements of Income and Comprehensive Income.
Off-balance sheet loanUnfunded lending commitments -
We have outstanding at any time a significant number of commitments to extend credit and other credit-related off-balance sheetoff-balance-sheet financial instruments such as revolving lines of credit, standby letters of credit and loan purchases. Our policy is
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
generally to require customers to provide collateral at the time of closing. The amount of collateral obtained, if it is deemed necessary upon extension of credit, is based on our credit evaluation of the borrower. Collateral held varies but may include assets such as:as marketable securities, accounts receivable, inventory, real estate, and income-producing commercial properties.
In the normal course of business, Raymond James Bank issues or participates in the issuance of standby letters of credit whereby it provides an irrevocable guarantee of payment in the event the letter of credit is drawn down by the beneficiary. These standby letters of credit generally expire in one year or less. In the event that a letter of credit is drawn down, Raymond James Bank would pursue repayment from the party under the existing borrowing relationship or would liquidate collateral, or both. The proceeds from repayment or liquidation of collateral are expected to satisfy the amounts drawn down under the existing letters of credit.
The allowance for potential credit losslosses associated with these off-balance sheet loanunfunded lending commitments is accrued and reflectedincluded in “Other payables” within theon our Consolidated Statements of Financial Condition. Refer to the allowance“Allowance for loan losses and reserve for unfunded lending commitmentscredit losses” section that follows for a discussion of the reserve calculation methodology.methodology and Note 19 for further information about these commitments.
We recognize the revenue associated with corporate syndicated standby letters of credit, which is generally received quarterly, on a cash basis, the effect of which does not differ materiallysignificantly from recognizing the revenue in the period the fee is earned. Unused corporate line of credit fees are accounted for on an accrual basis.
Nonperforming assets -
Nonperforming assets are comprised of both nonperforming loans and OREO.other real estate owned (“OREO”). Nonperforming loans representinclude those loans which have been placed on nonaccrual status and loans which have been restructured in a manner that grant a concession to a borrower experiencing financial difficulties we would not otherwise consider. Loans structured as described above are deemed to be a trouble debt restructuring (“TDR”). Additionally, any accruing loans which are 90 days or more past due and in the process of collectioncollection. Loans which have been restructured in a manner that grants a concession that would not normally be granted to a borrower experiencing financial difficulties are deemed to be troubled debt restructurings (“TDRs”). Loans structured as TDRs which are currently placed on nonaccrual status are considered nonperforming loans.
Loans of all classes are placed on nonaccrual status when we determine that full payment of all contractual principal and interest is in doubt or the loan is past due 90 days or more as to contractual interest or principal unless the loan, in our opinion, is well-secured and in the process of collection. When a loan is placed on nonaccrual status, the accrued and unpaid interest receivable is written offwritten-off against interest income and accretion of the net deferred loan origination fees cease.ceases. Interest is recognized using the cash method for residential mortgage loans and SBL and residential (first mortgage and home equity)other loans, and the cost recovery method for corporate and tax-exempt loans thereafter until the loan qualifies for return to accrual status. LoansMost loans (including first mortgage and home equity residential mortgage TDRs) are returned to an accrual status when the loans have been brought contractually current with the original or amended terms and have been maintained on a current basis for a reasonable period, generally six months. CorporateHowever, corporate loan TDRs have generally been partially charged off and therefore, remain on nonaccrual status until the loan is fully resolved.repaid or sold.
Other real estate acquired in the settlement of loans, including through, or in lieu of, loan foreclosure, is initially recorded at the lower of cost or fair value less estimated selling costs through a charge to the allowance for loancredit losses, thus establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed and the assets are carried at the lower of the carrying amount or fair value, as determined by a current appraisal or valuation less estimated costs to sell, and are classified asincluded in “Other assets” on theour Consolidated Statements of Financial Condition. These nonrecurring fair value measurements are classified within Level 2 of the fair value hierarchy. Costs relating to development and improvement of the property are capitalized, whereas those relating to holding the property are charged to operations. Sales of OREO are recorded as of the settlement date and any associated gains or losses are included in “Other revenues” on our Consolidated Statements of Income and Comprehensive Income.
Impaired loans - Loans in all classes are considered to be impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal and interest on aBank loan when due according to the contractual terms of the loan agreement. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. We determine the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. For individual loans identified as impaired, impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate and taking into consideration the factors described below in relation to the evaluation of the allowance for loan losses, except that as a practical expedient, we measure impairment based on the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. Impaired loans include all corporate nonaccrual loans, all residential mortgage
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Notes to Consolidated Financial Statements
nonaccrual loans for which a charge-off had previously been recorded, and all loans which have been modified in TDRs. Interest income on impaired loans is recognized consistently with the recognition policy of nonaccrual loans.
Allowance for loan losses and reserve for unfunded lending commitments - We maintain an allowance for loan losses to provide for probable losses inherent in our loan portfolio based on ongoing evaluations of the portfolio, the related risk characteristics, and the overall economic and environmental conditions affecting the loan portfolio. Loan losses are charged against the allowance when we believe the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
We have developed policies and procedures for assessing the adequacy of the allowance for loan losses that reflect the assessment of risk considering all available information. In developing this assessment, we rely on estimates and exercise judgment in evaluating credit risk. The evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Depending on changes in circumstances, future assessments of credit risk may yield materially different results from the prior estimates, which may require an increase or a decrease in the allowance for loan losses. Estimates that are particularly susceptible to change that may have an impact on the amount of the allowance include:
the selection of proxy data used to calculate loss factors;
the evaluation of loss emergence and historical loss experience periods;
our evaluation of the risk profile of loan portfolio segments, including internal risk ratings;
the value of underlying collateral, which impacts loss severity and certain cash flow assumptions;
our selection and evaluation of qualitative factors, which reflect the imprecision that is inherent in the estimation of probable loan losses.
The allowance for loan losses is comprised of two components: allowances calculated based on formulas for homogeneous classes of loans collectively evaluated for impairment, which are re-evaluated quarterly and adjusted based on our analysis of certain qualitative factors, and specific allowances assigned to certain classified loans individually evaluated for impairment. The homogeneous classes are a result of management’s disaggregation of the loan portfolio and are comprised of the previously mentioned classes: C&I, CRE, CRE construction, tax-exempt, residential first mortgage, residential home equity, and SBL.
An annual analysis of the loss emergence period estimate, which is the average length of time between the event that triggers a loss and the confirmation and/or charge-off of that loss, is performed for all loan classes. This analysis is utilized in establishing the allowance for each of the classes of loans through the application of an adjustment to the calculated allowance percentage for the respective loan grade.
The loans within the corporate and tax-exempt loan classes are assigned to an internal loan grade based upon the respective loan’s credit characteristics. The loans within the residential first mortgage, residential home equity, and SBL classes are assigned loan grades equivalent to the loan classifications utilized by bank regulators, dependent on their respective likelihood of loss. We assign each loan grade for all loan classes an allowance percentage based on the estimated incurred loss associated with that grade. The allowance for loan losses for all non-impaired loans is then calculated based on the allowance percentage assigned to the respective loan’s class and grade factoring in the respective loss emergence period. The allowance for loan losses for all impaired loans and those nonaccrual residential mortgage loans that have been evaluated for a charge-off are based on an individual evaluation of impairment as previously described in the “Impaired loans” section.
The quantitative factors taken into consideration when assigning the loan grades and allowance percentages to the loans within the corporate and tax-exempt loan classes include: estimates of borrower default probabilities and collateral type; past loss history, Shared National Credit (“SNC”) reviews and examination results from bank regulators. Loan grades for individual C&I and tax-exempt loans are derived from analyzing two aspects of the risk profile in a particular loan: the obligor rating and the facility (collateral) rating. The obligor rating relates to a borrower’s probability of default and the facility rating is utilized to estimate the anticipated loss given default. These two ratings, which are based on historical long-term industry loss rates (proxy data) as we have limited loss history, are considered in combination with certain adjustments for the loss emergence period to derive the final C&I and tax-exempt loan grades and allowance percentages. The allowance for loans within the CRE and CRE construction loan portfolios is based on loan-level probability of default and loss given default estimates in combination with certain adjustments for loss emergence period.
The quantitative loss rates for corporate and tax-exempt loans are supplemented by considering qualitative factors that may cause estimated losses to differ from quantitatively calculated amounts. These qualitative factors are intended to address developing trends, and include, but are not limited to: trends in delinquencies, loan growth; loan terms; changes in geographic distribution; changes in the value of the underlying collateral for collateral-dependent loans; lending policies; loan review process; experience, ability and depth of lending management and other relevant staff; local, regional, national and international economic conditions; competition; legal and regulatory requirements; and concentrations of credit risk.
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Notes to Consolidated Financial Statements
Historical loan loss rates, a quantitative factor, are utilized when assigning the allowance percentages for residential first mortgage loans and residential home equity loans. These estimated loss rates are based on our historical loss data over a period of time. We currently utilize a look back period for residential first mortgage and home equity loans reflecting the current housing cycle that includes the last downturn.
The SBL portfolio is not yet seasoned enough to exhibit a loss trend; therefore, the allowance is based primarily on peer group allowance information and the qualitative factors noted below.
For residential first mortgage loan, residential home equity loan and SBL classes, the qualitative factors considered to supplement the quantitative analysis include, but are not limited to, loan performance trends, loan product parameters and qualification requirements, borrower credit scores at origination, occupancy (i.e., owner occupied, second home or investment property), documentation level, loan purpose, geographic concentrations, average loan size, loan policy exceptions, updated loan-to-value (“LTV”) ratios, and the factors noted above that are utilized for corporate loans. The allowance for loan losses for SBL is determined judgmentally by management, which utilizes peer benchmarking data as we have historically not experienced losses on this portfolio.
We reserve for losses inherent in its unfunded lending commitments using a methodology similar to that used for loans in the respective portfolio segment, based upon loan grade and expected funding probabilities for fully binding commitments. This will result in some reserve variability over different periods depending upon the mix of the loan portfolio at the time and future funding expectations. All classes of impaired loans which have unfunded lending commitments are analyzed in conjunction with the impaired reserve process previously described.
Loan charge-off policies -
Corporate and tax-exempt loans are monitored on an individual basis, and loan grades are reviewed at least quarterly to ensure they reflect the loan’s current credit risk. When we determine that it is likely that a corporate or tax-exempt loan will not be collected in full, the loan is evaluated for a potential impairment.write down of the carrying value. After consideration of the borrower’s ability to restructure the loan, alternative sources of repayment, and other factors affecting the borrower’s ability to repay the debt, the portion of the loan deemed to be a confirmed loss, if any, is charged-off. For collateral-dependent loans secured by real estate, the amount of the loan considered a confirmed loss and charged-off is generally equal to the difference between the recorded investment in the loan and the collateral’s appraised value less estimated costs to sell. For C&I and tax-exempt loans, we evaluate all sources of repayment to arrive at the amount considered to be a loss and charged-off. Corporate banking and credit risk managers also hold a monthly meetingmeet regularly to review criticized loans (loans(i.e., loans that are rated special mention or worse as defined by bank regulators, see Note 8 for further discussion). Additional charge-offs are taken when the value of the collateral changes or there is an adverse change in the expected cash flows.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The majority of our corporate loan portfolio is comprised of participations in either SNCsShared National Credits (“SNCs”) or other large syndicated loans in the U.S. orand Canada. The SNCs are U.S. loan syndications totaling over $20$100 million that are shared between three3 or more regulated institutions. The agent bank’s regulator reviews a portion of SNC loans on a semi-annual basis a process in which other participating banks have no involvement. Once the SNC regulatory review process is complete, we receive a summary of the review of these SNC credits from the Office of the Comptroller of the Currency (“OCC”). This summary includesand provides a synopsis of each loan’s regulatory classification, including loans that are designated for nonaccrual status and directed charge-offs. We must beare at least as critical with nonaccrual designations, directed charge-offs, and classifications, as the OCC. This ensures that each bank participating in a SNC loan rates the loan at least as critical. Any classification changes as a result of the review may impactpotentially impacting our reservesallowance for credit losses and charge-offs during the quarter that the SNC information is received from the OCC, however, these differences in classifications are generally insignificant. The amount of such adjustments depend upon the classification and whether we had the loan classified differently (either more or less critically) than the SNC review findings and, therefore, could result in higher, lower, or no change in loan loss provisions than previously recorded. We incorporate into our ratings process any observed regulatory trends in the semi-annual SNC exam process, but there will inherently be differences of opinion on individual credits due to the high degree of judgment involved.charge-offs. Corporate loans are subject to our internal review procedures and regulatory review by the OCCFlorida Office of Financial Regulation (“OFR”) and the Board of Governors of the Federal Reserve System (“the Fed”) as part of ourthe Bank’s regulatory examination.examinations.
Every residential mortgage loan over 60 days past due is reviewed monthly and documented in a written report detailing delinquency information, balances, collection status, current valuation estimate and other data points. RJ Bank senior management meets monthly to discuss thedetermine loan status, collection strategy and charge-off recommendations on every residential mortgage loan over 60 days past due with charge-offsrecommendations.Charge-offs are typically considered on residential mortgage loans once the loans are delinquent 90 days or more and then generally taken before the loan is 120 days past due. A charge-off is taken against the allowance for loancredit losses for the difference between the loan amount and the amount that we estimate will ultimately be collected, based on the value of the underlying collateral less estimated costs to sell. We predominantly use broker price opinions (“BPO”) for these valuations as access to the property is restricted during the collection and foreclosure process and there is insufficient data available for a full appraisal to be performed. BPOs contain relevant and timely sale comparisons and listings in the marketplace and, therefore, we have found these BPOs to be reasonable determinants of market value in lieu of appraisals and more reliable than an automated valuation tool or the use of tax assessed values. A full appraisal is obtained post-foreclosure. We take further charge-offs against the owned asset if an appraisal has a lower valuation than the original
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Notes to Consolidated Financial Statements
BPO, but do not reverse previously charged-off amounts if the appraisal is higher than the original BPO.valuations. If a loan remains in pre-foreclosure status for more than nine months, an updated valuation is obtained andto determine if further charge-offs are taken against the allowance for loan losses, if necessary.
Loans to financial advisors, net
We offer loans to financial advisors for recruiting and certainretention purposes. The decision to extend credit to a financial advisor or other key revenue producers, primarily for recruiting, transitional cost assistance, and retention purposes. These loansproducer is generally based on their ability to generate future revenues. Loans offered are generally repaid over a five to eightten year period, with interest recognized as earned.earned and are contingent upon affiliation with us (i.e., whether the advisor is actively affiliated with us or has terminated affiliation with us). These loans are not assignable by the financial advisor and may only be assigned by us to a successor in interest. There is no fee income associated with these loans. We assess future recoverability of these loans through analysis of individual financial advisor production or other performance standards. In the event that the financial advisor is no longer affiliated with us, any unpaid balance of such loan becomes immediately due and payable to us. In determining the allowance for doubtful accounts relatedus and generally does not continue to former employees or independent contractors, management primarily considers our historical collection experience as well as other factors including amounts due at termination, the reasons for the terminated relationship, and the former financial advisor’s overall financial position. When the review of these factors indicates that further collection activity is highly unlikely, the outstanding balance of such loan is written-off and the corresponding allowance is reduced.accrue interest. Based upon the nature of these financing receivables, we do not analyzeaffiliation status is the primary credit risk factor within this asset on a portfolio segment or class basis. Further, the aging of this receivable balance is not a determinative factor in computing our allowance for doubtful accounts, as concerns regarding the recoverability of these loans primarily arise in the event that the financial advisor is no longer affiliated with us.portfolio. We present the outstanding balance of loans to financial advisors on our Consolidated Statements of Financial Condition, net of the allowance for doubtful accounts. Ofcredit losses. Refer to the gross balance outstanding, the portion associated with financial advisors who are no longer affiliated with us was approximately $22 million and $13 million at September 30, 2017 and 2016, respectively. Our allowance for doubtful accounts was approximately $8 million and $5 million at September 30, 2017 and 2016, respectively.
Other assets
We carry investments in stock of the Federal Home Loan Bank of Atlanta (“FHLB”) and the Federal Reserve Bank of Atlanta (the “FRB”) at cost. These investments are held in accordance with certain membership requirements, are restricted, and lack a market. FHLB and FRB stock can only be soldcredit losses section that follows for further information related to the issuer or another member institution at its par value. We annually evaluate our holdings in FHLB and FRB stockallowance for potential impairment based upon its assessment of the ultimate recoverability of the par value of the stock. This annual evaluation is comprised of a review of the capital adequacy, liquidity position and the overallcredit losses on our loans to financial condition of the FHLB and FRB to determine the impact these factors have on the ultimate recoverability of the par value of the respective stock. Impairment evaluations are performed more frequently if events or circumstances indicate there may be impairment. Any cash dividends received from these investments are recognized as “Interest income” in the Consolidated Statements of Income and Comprehensive Income.
We also maintain investments in a significant number of company-owned life insurance policies utilized to fund certain non-qualified deferred compensation plans and other employee benefit plans (see Note 20 for information on the non-qualified deferred compensation plans). The life insurance policies are carried at cash surrender value as determined by the insurer.advisors. See Note 9 for additional information.information on our loans to financial advisors.
Investments in real estate partnerships held by consolidated variable interest entities
Raymond James Tax Credit Funds, Inc. (“RJTCF”), a wholly owned subsidiary of RJF,Loans for financial advisors who are actively affiliated with us are considered past due once they are 30 days or one of its affiliates, is the managing member or general partner in LIHTC funds, some of which require consolidation (refermore delinquent as to the separate discussionpayment of contractual interest or principal. Such loans are placed on nonaccrual status when we determine that followsfull payment of contractual principal and interest is in doubt, or the loan is past due 180 days or more as to contractual interest or principal. When a loan is placed on nonaccrual status, the accrued and unpaid interest receivable is written-off against interest income. Interest is recognized using the cash method for these loans thereafter until the loan qualifies for return to accrual status. Loans are returned to an accrual status when the loans have been brought contractually current with the original terms and have been maintained on a current basis for a reasonable period, generally six months.
When we determine that it is likely a loan will not be collected in full, the loan is evaluated for a potential write down of the carrying value. After consideration of the borrower’s ability to restructure the loan, sources of repayment, and other factors affecting the borrower’s ability to repay the debt, the portion of the loan deemed a confirmed loss, if any, is charged-off. A charge-off is taken against the allowance for credit losses for the difference between the amortized cost and the amount we estimate will ultimately be collected. Additional charge-offs are taken if there is an adverse change in the expected cash flows.
Allowance for credit losses
We evaluate our held for investment bank loans, unfunded lending commitments, loans to financial advisors and certain other financial assets to estimate an allowance for credit losses over the remaining life of the financial instrument. The remaining life of our policies regardingfinancial 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 evaluation of VIEs to determine if consolidation is required ). These funds invest in housing project limited partnerships or limited liability companies (“LLCs”) which purchase and develop affordable housing properties qualifying for federal and state low-income housing tax credits. The balance presented is the investment in project partnership balance of allrisk characteristics within each financial asset type. Our estimates are based on ongoing evaluations of the LIHTC fund VIEs which require consolidation. Additional information is presentedportfolio, the related credit risk characteristics, and the overall economic and environmental conditions affecting the financial assets. For certain of our financial assets with collateral maintenance provisions (e.g., collateralized agreements, margin loans and SBL), we apply the practical expedient allowed under the CECL guidance in Note 10.
Property and equipment
Property, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation of assets is primarily providedestimating an allowance for usingcredit losses. We reasonably expect that borrowers (or counterparties, as applicable) will replenish the straight-line method overcollateral as required. As a result, we estimate zero credit losses to the estimated useful livesextent that the fair value equals or exceeds the related carrying value of the assets, which range from two to 10 years for software, three to five years for furniture, fixtures and equipment and 10 to 31 years for buildings, building components, building improvements and land improvements. Leasehold improvements are amortized usingfinancial asset. When the straight-line method over the shorterfair value of the remaining lease term orcollateral securing the estimated useful lives offinancial asset is less than the assets. Depreciation expense associated with property, equipment and leasehold improvements is included in “Occupancy and equipment costs” in the Consolidated Statements of Income and Comprehensive Income. Amortization expense associated with computer software is included in “Communications and information processing” expense in the Consolidated Statements of Income and Comprehensive Income.carrying value, qualitative factors such as historical experience
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Additions, improvements(adjusted for current risk characteristics and expenditures that extendeconomic conditions) as well as reasonable and supportable forecasts are considered in estimating the useful life of an asset are capitalized. Expendituresallowance for repairs and maintenance are charged to operations in the period incurred. Gains andcredit losses on disposalsthe unsecured portion of property and equipmentthe financial asset.
Credit losses are reflectedcharged-off against the allowance when we believe the uncollectibility of the financial asset is confirmed. Subsequent recoveries, if any, are credited to the allowance once received. A credit loss expense, or benefit, is recorded in earnings in an amount necessary to adjust the allowance for credit losses to our estimate as of the end of each reporting period. Our provision or benefit for credit losses for outstanding bank loans is included in “Bank loan provision/(benefit) for credit losses” on our Consolidated Statements of Income and Comprehensive Income and our provision or benefit for credit losses for all other financing receivables, including loans to financial advisors, and unfunded lending commitments is included in “Other” expense.
Loans
We generally estimate the allowance for credit losses on our loan portfolios 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, we select a single forecast scenario for use in our models. 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. At the conclusion of our reasonable and supportable forecast period, which currently ranges from two to three years depending on the model and macroeconomic variables, we use a straight-line reversion approach over a one-year period to revert to historical loss information for C&I, REIT and tax-exempt loans. For CRE and residential mortgage loans, we incorporate a reasonable and supportable forecast of various macroeconomic variables over the remaining life of the assets. The development of the forecast used for CRE and residential mortgage loans incorporates an assumption that each macroeconomic variable will revert to a long-term expectation starting in years two to three of the forecast and largely completing within the first five years of the forecast. We assess the length of the reasonable and supportable forecast period and the reversion period, our reversion approach, our economic forecasts and our methodology for estimating the historical loss information on a quarterly basis.
The allowance for credit losses on loans is generally evaluated and measured on a collective basis, typically by loan portfolio segment, due to similar risk characteristics. When a loan does not share similar risk characteristics with other loans, the loan is evaluated for credit losses on an individual basis. Various risk characteristics are considered when determining whether the loan should be collectively evaluated including, but not limited to, financial asset type, internal risk ratings, collateral type, industry of the borrower, and historical or expected credit loss patterns.
The allowance for credit losses on collectively evaluated loans is comprised of two components: (a) a quantitative allowance; and (b) a qualitative allowance, which is based on an analysis of model limitations and other factors not considered by the quantitative models. There are several factors considered in estimating the quantitative allowance for credit losses on collectively evaluated loans which generally include, but are not limited to, the internal risk rating, historical loss experience (including adjustments due to current risk characteristics and economic conditions), prepayments, borrower-controlled extensions, and expected recoveries. We use third-party data for historical information on collectively evaluated corporate loans (C&I, CRE and REIT loans) and residential mortgage loans.
The qualitative portion of our allowance for credit losses includes certain factors that are not incorporated into the quantitative estimate and would generally require adjustments to the allowance for credit losses. These qualitative factors are intended to address developing trends related to each portfolio segment and would generally include, but are not limited to: changes in lending policies and procedures, including changes in underwriting standards and collection; our loan review process; volume and severity of delinquent loans; changes in the nature, volume and terms of loans; credit concentrations; changes in the value of underlying collateral; changes in legal and regulatory environments; and local, regional, national and international economic conditions.
Held for investment bank loans
The allowance for credit losses for the C&I, CRE, REIT, tax-exempt and residential mortgage portfolio segments is estimated using credit risk models that project a probability of default (“PD”), which is then multiplied by the loss given default (“LGD”) and the estimated exposure at default (“EAD”) at the loan-level for every period realized.remaining in the loan’s expected life, including the maturity period. Historical information, combined with macroeconomic variables, are used in estimating the PD, LGD and EAD. Our credit risk models consider several factors when estimating the expected credit losses which may include, but are not limited to, financial performance and position, estimated prepayments, geographic location, industry or sector type, debt
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
type, loan size, capital structure, initial risk levels and the economic outlook. Additional factors considered by the residential mortgage model include Fair Isaac Corporation (“FICO”) scores and loan-to-value (“LTV”) ratios.
We generally use one of two methods to measure the allowance for credit losses on individually evaluated loans. A discounted cash flow approach is used to estimate the allowance for credit losses on certain nonaccrual corporate loans and all TDRs that are not collateral-dependent. For collateral-dependent loans and for instances where foreclosure is probable, we use an approach that considers the fair value of the collateral less selling costs when measuring the allowance for credit losses. A loan is collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale of the collateral.
See Note 8 for further information about our bank loans, including credit quality indicators considered in developing the allowance for credit losses.
Unfunded lending commitments
We estimate credit losses on unfunded lending commitments using a methodology consistent with that used in the corresponding bank loan portfolio segment and also based on the expected funding probabilities for fully binding commitments. As a result, the allowance for credit losses for unfunded lending commitments will vary depending upon the mix of lending commitments and future funding expectations. All classes of individually evaluated unfunded lending commitments are analyzed in conjunction with the specific allowance process previously described.
Loans to financial advisors
The allowance for credit losses on loans to financial advisors is estimated using credit risk models that incorporate average annual loan-level loss rates and estimated prepayments based on historical data. The qualitative component of our estimate considers internal and external factors that are not incorporated into the quantitative estimate such as the reasonable and supportable forecast period. In estimating an allowance for credit losses on our individually-evaluated loans to financial advisors, we generally take into account the affiliation status of the financial advisor (i.e., whether the advisor is actively affiliated with us or has terminated affiliation with us), the borrower’s ability to restructure the loan, sources of repayment, and other factors affecting the borrower’s ability to repay the debt.
Identifiable intangible assets, net
Certain identifiable intangible assets we acquire such as customer relationships, trade names developed technology, intellectual property, and non-compete agreements, are amortized over their estimated useful lives on a straight-line method,basis and are evaluated for potential impairment whenever events or changes in circumstances suggest that the carrying value of an asset or asset group may not be fully recoverable. Amortization expense associated with suchcertain identifiable intangible assets with short useful lives is included in “Acquisition and disposition-related expenses” on our Consolidated Statements of Income and Comprehensive Income, while amortization expense related to our remaining identifiable intangible assets is included in “Other expenses” in the“Other” expenses on our Consolidated Statements of Income and Comprehensive Income.
We also hold indefinite-lived identifiable intangible assets, which are not amortized. Rather, these assets are subject to an evaluation of potential impairment on an annual basis to determine whether the estimated fair value is in excess of its carrying value, or between annual impairment evaluation dates, if events or circumstances indicate there may be impairment. In the course of our evaluation of the potential impairment of such indefinite-lived assets, we may elect either a qualitative or a quantitative assessment. If after assessing the totality of events or circumstances, we determine it is more likely than not that the fair value is greater than its carrying amount, we are not required to perform a quantitative impairment analysis. However, if we conclude otherwise, we then perform a quantitative impairment analysis. We have elected January 1 as our annual impairment evaluation date, evaluating balances as of December 31. See Note 11 for additional information regarding the outcome of our impairment assessment.
Goodwill
Goodwill represents the cost of acquired businesses in excess of the fair value of the related net assets acquired. GAAP does not provide for the amortization of indefinite-lifeIndefinite-lived intangible assets such as goodwill. Rather, these assetsgoodwill are subject to annot amortized, but rather evaluated for impairment at least annually, or between annual impairment evaluation of potential impairment on an annual basis, or more often ifdates whenever events or circumstances indicate there may be impairment. Goodwillpotential impairment is determined by comparingexists. Impairment exists when the estimated faircarrying value of a reporting unit, withwhich is generally at the level of or one level below our business segments, exceeds its respective carryingfair value. If the estimated fair value exceeds the carrying value, goodwill at the reporting unit level is not deemed
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to be impaired. However, if the estimated fair value is below carrying value, further analysis is required to determine the amount of the impairment. This further analysis involves assigning tangible assets and liabilities, identified intangible assets and goodwill to reporting units and comparing the fair value of each reporting unit to its carrying amount.Consolidated Financial Statements
In the course of our evaluation of the potential impairment ofto goodwill, we may performelect either a qualitative or a quantitative assessment. Our qualitative assessment of potential impairment may resultassessments consider macroeconomic indicators including, but not limited to, trends in the determination that a quantitative impairment analysis is not necessary. Under this elective process, weequity and fixed income markets and other revenue-generating activities, gross domestic product, unemployment rates, and interest rates. We also consider regulatory changes, market capitalization, reporting unit specific results, and changes in key personnel and strategy. We assess these, and other, qualitative factors to determine whether the existence of events or circumstances leads us to determineindicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If after assessing the totality of events or circumstances, we determine it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then performing a quantitative impairment analysis is not required. However, if we conclude otherwise, we then we perform a quantitative impairment analysis.
If we either chooseelect not to perform a qualitative assessment, or we choose to perform a qualitative assessment but are unable to qualitatively conclude that no impairment has occurred, then we perform a quantitative evaluation.
In the case of aour quantitative assessment, we estimate the fair value of the reporting unit with which the goodwill that is subject to the quantitative analysis is associated (generally defined as the businesses for which financial information is available and reviewed regularly by management) and compare it to the carrying value. We estimate the fair value of our reporting units using an income approach based on a discounted cash flow model that includes significant assumptions about future operating results and cash flows, and, if appropriate, a market approach. If the estimated faircarrying value of a reporting unit is less than its carrying value, we estimate the fair value of all assets and liabilities of the reporting unit, including goodwill. If the carrying value of the reporting unit’s goodwill is greater than the estimated fair value, an impairment charge is recognized for the excess.
We have elected January 1 as our annual goodwill impairment evaluation date, evaluating balances as of December 31 (see31. See Note 1211 for additional information regarding the outcome of our goodwill impairment assessments).assessments.
Other assets
Other assets is primarily comprised of investments in company-owned life insurance, property and equipment, net, right-of-use assets (“ROU assets”) associated with leases, prepaid expenses, FHLB stock, Federal Reserve Bank (“FRB”) stock, and investments in real estate partnerships held by consolidated VIEs. See Note 12 for further information.
We maintain investments in company-owned life insurance policies utilized to indirectly fund certain non-qualified deferred compensation plans and other employee benefit plans (see Note 23 for information on the non-qualified deferred compensation plans). These life insurance policies are recorded at cash surrender value as determined by the insurer.
Ownership of FHLB and FRB stock is a requirement for all banks seeking membership into and access to the services provided by these banking systems. These investments are carried at cost.
Raymond James Tax Credit Funds, Inc. (“RJTCF”), a wholly-owned subsidiary of RJF, or one of its affiliates, is the managing member or general partner in Low-Income Housing Tax Credit (“LIHTC”) funds and other funds of a similar nature, some of which require consolidation. These funds invest in housing project limited partnerships or limited liability companies (“LLCs”) which purchase and develop affordable housing properties generally qualifying for federal and state low-income housing tax credits. The investments in project partnerships of all of the LIHTC fund VIEs which require consolidation are included in “Other assets” on our Consolidated Statements of Financial Condition.
Property and equipment, net
Property and equipment are stated at cost less accumulated depreciation and software amortization. Property and equipment primarily consists of software, buildings, certain leasehold improvements, and furniture. Software includes both purchased software and internally developed software, including certain projects where development is in progress. Buildings primarily consists of owned facilities. Leasehold improvements are generally costs associated with lessee-owned interior office space improvements. Equipment primarily consists of communications and technology hardware. Depreciation of assets (other than land) is primarily calculated using the straight-line method over the estimated useful lives of the assets, within ranges outlined in the following table.
| | | | | | | | |
Asset type | | Estimated useful life |
Buildings, building components and land improvements | | 15 to 40 years |
Furniture, fixtures and equipment | | 3 to 5 years |
Software | | 2 to 10 years |
Leasehold improvements (lessee-owned) | | Lesser of useful life or lease term |
Costs for significant internally developed software projects are capitalized when the costs relate to development of new applications or modification of existing internal-use software that results in additional functionality. Internally developed software project costs related to preliminary-project and post-project activities are expensed as incurred.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Additions, improvements and expenditures that extend the useful life of an asset are capitalized. Expenditures for repairs and maintenance, as well as all maintenance costs associated with software applications, are expensed in the period incurred. Depreciation expense associated with property and equipment is included in “Occupancy and equipment” expense on our Consolidated Statements of Income and Comprehensive Income. Amortization expense associated with computer software is included in “Communications and information processing” expense on our Consolidated Statements of Income and Comprehensive Income. Gains and losses on disposals of property and equipment are included in “Other” revenues on our Consolidated Statements of Income and Comprehensive Income in the period incurred.
Leases
We have operating leases for the premises we occupy in many of our U.S. and foreign locations, including our employee-based branch office operations. At inception, we determine if an arrangement to utilize a building or piece of equipment is a lease and, if so, the appropriate lease classification. Substantially all of our leases are operating leases. If the arrangement is determined to be a lease, we recognize an ROU asset in “Other assets” and a corresponding lease liability in “Other payables” on our Consolidated Statements of Financial Condition. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. We elected the practical expedient, where leases with an initial term of 12 months or less are not recorded as an ROU asset or lease liability. Our lease terms include any noncancelable periods and may reflect periods covered by options to extend or terminate when it is reasonably certain that we will exercise those options.
We record our lease ROU assets at the amount of the lease liability plus any prepaid rent, amounts paid for lessor-owned leasehold improvements, and initial direct costs, less any lease incentives and accrued rent. We record lease liabilities at commencement date based on the present value of lease payments over the lease term, which is discounted using our commencement date incremental borrowing rate, or at the imputed rate within the lease, as appropriate. Our incremental borrowing rate considers the weighted-average yields on our senior notes payable, adjusted for collateralization and tenor. Payments that vary because of changes in facts or circumstances occurring after the commencement date, such as operating expense payments under a real estate lease, are considered variable and are expensed in the period incurred. For our real estate leases, we elected the practical expedient to account for the lease and non-lease components as a single lease. Lease expense for our lease payments is recognized on a straight-line basis over the lease term if the ROU asset has not been impaired or abandoned. See Note 14 for additional information on our leases.
Contingent liabilities
We recognize liabilities for contingencies when there is an exposure that, when fully analyzed, indicates it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. Whether a loss is probable, and if so, the estimated range of possible loss, is based upon currently available information and is subject to significant judgment, a variety of assumptions, and uncertainties. When a loss is probable and a range of possible loss can be estimated, we accrue the most likely amount within that range; if the most likely amount of possible loss within that range is not determinable, we accrue athe minimum based onamount in the range of possible loss.loss is accrued. No liability is recognized for those matters which, in management’s judgment, the determination of a reasonable estimate of loss is not possible.possible, or for which a loss is not determined to be probable.
We record liabilities related to legal and regulatory proceedings in “Other payables” on our Consolidated Statements of Financial Condition. The determination of these liability amounts requires significant judgment on the part of management. Management considers many factors including, but not limited to: the amount of the claim; the amount of the loss in the client’s account; the basis and validity of the claim; the possibility of wrongdoing on the part of one of our employees or financial advisors; previous results in similar cases; and legal precedents and case law. Each legal proceeding or significant regulatory matter is reviewed with counsel in
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Notes to Consolidated Financial Statements
each accounting period and the liability balance is adjusted as deemed appropriate by management. Any change in the liability amount is recorded in the consolidated financial statementsthrough “Other” expense on our Consolidated Statements of Income and is recognized as either a charge, or a credit, to net incomeComprehensive Income in that period. The actual costs of resolving legal matters or regulatory proceedings may be substantially higher or lower than the recorded liability amounts for such matters. We expense our costOur costs of defense related to such matters are expensed in the period they are incurred. Such defense costs are primarily related to external legal fees which are included within “Professional fees” on our Consolidated Statements of Income and Comprehensive Income. See Note 19 for additional information.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Share-based compensation
We account for share-based awards through the measurement and recognition of compensation expense for all share-based payment awards made to employees, directors, and directorsindependent contractors based on estimated fair values. The compensation cost of our share-based awards, net of estimated forfeitures, is recognized over the requisite service period of the awards and is calculated as the market value of the awards on the date of the grant. In addition, we account for share-based awards to our independent contractor financial advisors in accordance with guidance applicable to accounting for equity instruments that are issued to other than employees for acquiring, or in conjunction with selling, goods or services and guidance applicable to accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock. Share-based awards granted to our independent contractor financial advisors are measured at their vesting date fair value and their fair value estimated at reporting dates prior to that time. The compensation expense recognized each period is based on the most recent estimated value. Further, we classify certain of these non-employee awards as liabilities at fair value upon vesting, with changes in fair value reported in earnings until these awards are exercised or forfeited. Compensation expense is recognized for all share-based compensation with future service requirements over the requisite service period using the straight-line method, and in certain instances, the graded attribution method. As discussed above, we assumed certain DBRSU awards as part of our acquisition of Alex. Brown that will ultimately be settled in DB common shares provided that certain performance metrics are achieved. The portion of these awards that related to services performed by the award recipients before the acquisition of Alex. Brown represented consideration transferred in the business combination. The portion of these awards which related to compensation for future services were treated as a prepaid compensation asset which had a corresponding derivative liability. The prepaid compensation asset is amortized over the remaining requisite service period of the recipient using the straight-line method while the derivative liability is recorded at fair value at the end of each reporting period until it is settled. Refer to the “Derivative assets and derivative liabilities” sub-section of the “Financial instruments owned, financial instruments sold but not yet purchased and fair value” section of this footnote for information regarding the determination of the fair value of this derivative. The amortization of the prepaid asset and the change in fair value of the derivative liability is recorded in “Compensation, commissions and benefits” expense in our Consolidated Statements of Income and Comprehensive Income. See Note 2023 for additional information on thisour share-based compensation plan.
Deferred compensation plans
We maintain various deferred compensation plans for the benefit of certain employees and independent contractors that provide a return to the participant based upon the performance of various referenced investments. For certain of these plans, we directly hold investments related to our obligations to perform under the deferred compensation plans (see the “Other Investments” discussion within the “Financial instruments owned, financial instruments sold but not yet purchased and fair value” section of this Note 2 for further discussion of these assets). For other such plans, including our Long TermVoluntary Deferred Compensation Plan (“VDCP”), Long-Term Incentive Plan (“LTIP”), and our Wealth Accumulation Plan,certain other plans, we purchase and hold company-owned life insurance policies on the lives of certain current and former participants to earn a competitive rate of return for participants and to provide a source of funds available to satisfy our obligations under the plan (seeplan. See Note 912 for information regarding the carrying value of such policies).policies. Compensation expense is recognized for all awards made under such plans with future service requirements over the requisite service period using the straight-line method. Changes in the value of the company-owned life insurance policies and other investments, as well as the expenses associated with the related deferred compensation plans, are recorded in “Compensation, commissions and benefits” expense on our Consolidated Statements of Income and Comprehensive Income. See Note 2023 for additional information.
Leases
We lease office space and equipment under operating leases. We recognize rent expense related to these operating leases on a straight-line basis over the lease term. The lease term commences on the earlier of the date when we become legally obligated for the rent payments or the date on which we take possession of the property. For tenant improvement allowances and rent holidays, we record a deferred rent liability in “Other payables” on our Consolidated Statements of Financial Condition and amortize the deferred rent over the lease term as a reduction to rent expense in the Consolidated Statements of Income and Comprehensive Income. In instances where the office space or equipment under an operating lease will be abandoned prior to the expiration of the lease term (these instances primarily result from the effects of acquisitions), we accrue an estimate of any projected loss in the Consolidated Statements of Income and Comprehensive Income at the time such abandonment is known and any loss is estimable.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Foreign currency translation
The statements of financial condition of the foreign subsidiaries we consolidate are translated at exchange rates as of the period end.period-end. The statements of income are translated either at an average exchange rate for the period or, in the case of the foreign subsidiary of RJ Bank,certain cases, at the exchange rate in effect on the date which transactions occur. The gains or losses resulting from translating foreign currency financial statements into U.S. dollars are included in other comprehensive income/(loss)OCI and are thereafter presented in equity as a component of AOCI.
Income taxes
The objectivesobjective of accounting for income taxes areis to recognize the amount of taxes payable or refundable for the current year. We utilize the asset and liability method to provide for income taxes on all transactions recorded in theour consolidated financial statements. This method requires that income taxes reflect the expected future tax consequences of temporary differences between the carrying amounts of assets or liabilities for book and tax purposes. Accordingly, a deferred tax asset or liability for each temporary difference is determined based on the tax rates that we expect to be in effect when the underlying items of income and expense are realized. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns, including the repatriation of undistributed earnings of foreign subsidiaries. Variations in the actual outcome of these future tax consequences could materially impact our financial position, results of operations, or liquidity. See Note 1618 for further information on our income taxes.
Earnings per share (“EPS”)
Basic EPS is calculated by dividing earnings availableattributable to common shareholders by the weighted-average number of common shares outstanding. Earnings availableattributable to common shareholders’shareholders represents Net Income Attributable to Raymond James Financial, Inc.net income reduced by the allocation of earnings and dividends to participating securities. Diluted EPS is similar to basic EPS, but adjusts for the dilutive effect of outstanding stock options and certain restricted stock units (“RSUs”) by application of the treasury stock method.
Evaluation of VIEs to determine whether consolidation is required
A VIE requires consolidation by the entity’s primary beneficiary. Examples of entities that may be VIEs include certain legal entities structured as corporations, partnerships or limited liability companies.
We evaluate all of the entities in which we are involved to determine if the entity is a VIE and if so, whether we hold a variable interest and are the primary beneficiary. We hold variable interests primarily in the following VIEs: certain private equity investments, a trust fund established for employee retention purposes (“Restricted Stock Trust Fund”), and certain LIHTC funds and certain new market tax credit funds (“NMTC Funds”).funds. See Note 10 for further information on our VIEs.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Determination of the primary beneficiary of a VIE -
We consolidate VIEs that are subject to assessment when we are deemed to be the primary beneficiary of the VIE. The process for determining whether we are the primary beneficiary of the VIE is to conclude whether we are a party to the VIE holding a variable interest that meets both of the following criteria: (1) has the power to make decisions that most significantly affect the economic performance of the VIE, and (2) has the obligationsobligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE.
Private Equity Interests -
As part of our private equity investments, we hold interests in a number of limited partnerships (our “Private Equity Interests”). We have concluded that the Private Equity Interests are VIEs, primarily as a result of the treatment of limited partner kick-out and participation rights as a simple majority of the limited partners cannot initiate an action to kick-out the general partner without cause and the limited partners with equity at-risk lack substantive participating rights.
In our analysis of the criteria to determine whether we are the primary beneficiary of the Private Equity Interests VIEs, we analyze the power and benefits criteria. In a number of these entities, we are a passive limited partner investor, and thus, we do not have the power to make decisions that most significantly affect the economic performance of such VIEs. Accordingly, in such circumstances, we have determined we are not the primary beneficiary and therefore we do not consolidate the VIE. However, in certain of these entities, we have concluded that we are the primary beneficiary as we meet the power and benefits criteria. In such instances, we consolidate the Private Equity Interests VIE.
Restricted Stock Trust Fund -
We utilize a trust in connection with certain of our restricted stock unitRSU awards. This trust fund was established and funded for the purpose of acquiring our common stock in the open market to be used to settle restricted stock unitsRSUs granted as a retention vehicle for certain employees of one of our Canadian subsidiaries. We are deemed to be the primary beneficiary and, accordingly, consolidate this trust fund.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
LIHTC funds
LIHTC Funds - RJTCF is the managing member or general partner in a number of LIHTC Fundsfunds having one1 or more investor members or limited partners. These low-income housing tax creditLIHTC funds are organized as LLCs or limited partnerships for the purpose of investing in a number of project partnerships, which are limited partnerships or LLCs that in turn purchase and develop, or hold, low-income housing properties qualifying for tax credits.credits and/or provide a mechanism for banks and other institutions to meet their Community Reinvestment Act obligations throughout the U.S.
Our determination of the primary beneficiary of each tax credit fund in which RJTCF has a variable interest requires judgment and is based on an analysis of all relevant facts and circumstances, including: (1) an assessment of the characteristics of RJTCF’s variable interest and other involvement it has with the tax credit fund, including involvement of related parties and any de facto agents, as well as the involvement of other variable interest holders, namely, limited partners or investor members, and (2) the tax credit funds’fund’s purpose and design, including the risks that the tax credit fund was designed to create and pass through to its variable interest holders. In the design of most tax credit fund VIEs, the overriding premise is that the investor members invest solely for tax attributes associated with the portfolio of low-income housing properties held by the fund. However, the tax credit fund whileVIEs which invest and hold LIHTC project partnerships that have already delivered most of the tax credits to their investors hold the projects to monetize anticipated future tax benefits for which the project may ultimately qualify. In both instances, RJTCF, as the managing member or general partner of the fund, is responsible for overseeing the fund’s operations.
Non-guaranteed LIHTCRJTCF sponsors 2 general types of tax credit funds - Except for one guaranteed fund discussed below,designed to deliver tax benefits to the investors. Generally, neither type meets the VIE consolidation criteria. These types of funds include single investor funds and multi-investor funds. RJTCF does not typically provide guarantees related to the delivery or funding of tax credits or other tax attributes to the investor members or limited partners of tax credit funds. The investor member(s) or limited partner(s) of the VIEs bear the risk of loss on their investment. Additionally, under the tax credit funds’ designed structure, the investor member(s) or limited partner(s) receive nearly all of the tax credits and tax-deductible loss benefits designed to be delivered by the fund entity, as well as a majority of any proceeds upon a sale of a project partnership held by a tax credit fund (fund level residuals). RJTCF earns fees from the fund for its services in organizing the fund, identifying and acquiring the project partnership investments and ongoing asset management, fees, and receives a share of any residuals arising from sale of project partnerships upon the termination of the fund.
RJTCF sponsors two general types of non-guaranteed tax credit funds: either non-guaranteedIn single investor funds or non-guaranteed multi-investor funds. In single investor funds,that deliver tax benefits, RJTCF has concluded that the one1 single investor member or limited partner in such funds, in nearly all instances, has significant participating rights over the activities that most significantly impact the
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Notes to Consolidated Financial Statements
economics of the fund. Therefore RJTCF, as managing member or general partner of such funds, is not the one1 party with power over such activities and resultantly is not deemed to be the primary beneficiary of such single investor funds and, in nearly all cases, these funds are not consolidated.
In non-guaranteed multi-investor funds that deliver tax benefits, RJTCF has concluded that since the participating rights over the activities that most significantly impact the economics of the fund are not held by one single investor member or limited partner, RJTCF is deemed to have the power over such activities. RJTCF then assesses whether its projected benefits to be received from the multi-investor funds, primarily its share of any residuals upon the termination of the fund, are potentially significant to the fund. As such residuals received upon termination are not expected to be significant to the funds, in nearly all cases, these funds are not consolidated.
LIHTC funds designed to hold projects to monetize future tax benefits for which the project may qualify are also sponsored by RJTCF does not consolidate non-guaranteedin either single investor or multi-investor funds.
Guaranteed LIHTC fund - form. In conjunction with onesingle investor form, the limited partner has significant participating rights over the activities that most significantly impact the economics of the multi-investor tax credit funds in whichfund, and therefore RJTCF is the managing member, RJTCF has provided one investor member with a guaranteed return on their investment in the fund (the “Guaranteed LIHTC Fund”). As a result of this guarantee obligation, RJTCF has determined that it isnot the primary beneficiary of such funds and accordingly consolidates, this guaranteedsuch funds are not consolidated. In multi-investor fund.form, RJTCF has concluded it meets both the power and benefits criteria for such funds since participating rights are not held by any one single investor, and thus RJTCF is deemed to have the power over such activities. In such instances, since RJTCF has benefit opportunities in the fund that could potentially be significant, such fund is consolidated.
Direct investments in LIHTC project partnerships - RJ
Raymond James Bank is also the investor member of a LIHTC fund that delivers tax benefits which we have determined to be a VIE, and in which a subsidiary of RJTCF is the managing member. We have determined that RJRaymond James Bank is the primary beneficiary of this VIE and therefore, we consolidate the fund. AllThese LIHTC funds which we consolidatedconsolidate are investor members in certain LIHTC project partnerships. Since unrelated third parties are the managing members of the investee project partnerships, we have determined that consolidation of these project partnerships is not required and the funds account for their project partnership investments under the equity method. The carrying value of the funds’ project partnership investments are included in “Investments in real estate partnerships held by consolidated variable interest entities”“Other assets” on our Consolidated Statements of Financial Condition (see Note 10Condition. Any losses on such equity method investments are included in “Other” expenses on our Consolidated Statements of Income and Comprehensive Income. The federal tax credits that result from these investments reduce our provision for additional information).income taxes in the year they are received.
NewAcquisitions
Our financial statements include the operations of an acquired business starting from the completion of the acquisition. Acquisitions are generally recorded as a business combination, whereby the assets acquired and liabilities assumed are recorded on the date of acquisition at their respective estimated fair values, including any identifiable intangible assets. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.
Significant judgment is required in estimating the fair value of certain acquired assets and liabilities. The fair value estimates are based on available historical information, and, in part, on inputs that are unobservable, including future expectations and assumptions. Significant estimates and assumptions inherent in the valuations reflect a consideration of other marketplace participants and include the amount and timing of future cash flows (including expected growth rates and profitability), the underlying demand, the economic barriers to entry and the discount rate applied to the cash flows. To estimate the fair value of identifiable intangible assets we consider the income, market tax credit funds - An entityand cost approaches and place reliance on the approach or approaches deemed most indicative of value.
Depending on the timing of an acquisition, the estimated fair values of the assets acquired and liabilities assumed may be considered provisional and based on information available at the time the financial statements are prepared, providing a reasonable basis for estimating the fair values. Provisional estimates may be adjusted upon the availability of new information regarding facts and circumstances which wasexisted at the acquisition date. Our policy is to finalize the valuation of assets and liabilities as soon as practicable, but not later than one timeyear from the acquisition date. Any adjustments to the initial estimates of the fair values of the acquired assets and liabilities assumed are recorded as adjustments to the respective assets and liabilities.
Determining the useful life of an affiliateintangible asset also requires judgment. With the exception of Morgan Keegan (as hereinafter defined) iscertain customer relationships, the managing membermajority of our acquired intangible assets (e.g., customer relationships, trade names and non-compete agreements) are expected to have determinable useful lives. We estimate the useful lives of these intangible assets based on a number of NMTC Funds. NMTC Fundsfactors including competitive environment, market share, trademark, brand history, underlying demand, and operating plans. Finite-lived intangible assets are organized as LLCs for the purpose of investing in eligible projects in qualified low-income areas or that serve qualified targeted populations. In return for making a qualified equity investment into the NMTC Funds, the Fund’s investor member receives tax credits eligible to apply againstamortized over their federal tax liability. These new market tax credits are taken by the investor member over a seven year period.estimated useful life.
Each of these NMTC Funds have one investor member. We have concluded that in each of the NMTC Funds, the investor member of such funds has significant participating rights over the activities that most significantly impact the economics of the NMTC Fund and,103
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Notes to Consolidated Financial Statements
Acquisition-related expenses
therefore, our affiliate as the managing member of the NMTC Fund does not have the power over such activities. Accordingly, we
Acquisition-related expenses associated with certain acquisitions are not deemed to be the primary beneficiary of these NMTC Funds and, therefore, they are not consolidated.
Recent Accounting Developments
Adoption of new accounting guidance
Consolidation - In February 2015, the FASB issued amended guidance to the consolidation model (ASU 2015-02), with additional amendments issued in October 2016 (ASU 2016-17). The impact of these amendments on the consolidation model were to:
Eliminate the deferral of the application of the new consolidation model, which had resulted in the application of prior accounting guidance to consolidation determinations of certain investment funds.
Make certain changes to the variable interest consolidation model.
Make certain changes to the voting interest consolidation model.
As a result of our October 1, 2016 adoption of this guidance, we deconsolidated a number of tax credit fund VIEs that had been previously consolidated. We determined that under the new guidance, we are no longer deemed to be the primary beneficiary of these VIEs. We applied the new consolidation guidance on the full retrospective basis, meaning that we have reflected the adjustments arising from this adoption as of the beginning of our earliest comparative period presented. Accordingly, we deconsolidated $107 million in assets, $20 million in liabilities, $89 million in noncontrolling equity interests, and increased retained earnings by $2 million, each computed as of September 30, 2016. There was no net income impactseparately reported on our Consolidated Statements of Income and Comprehensive Income and include certain incremental expenses arising from our acquisitions. These costs do not represent recurring operating costs within the fully integrated combined organization. See Note 3 for additional information regarding the prior year periods asnature of these expenses.
NOTE 3 – ACQUISITIONS
Acquisitions completed or announced during the net change in revenues, interest and other expenses were offset by the impacttwelve months ended September 30, 2021
NWPS
In December 2020, we completed our acquisition of all of the deconsolidationoutstanding shares of NWPS Holdings, Inc. and its wholly-owned subsidiaries (collectively “NWPS”), doing business as NWPS and Northwest Plan Services. As an independent provider of retirement plan administration, consulting, actuarial and administration services, the addition of NWPS expands our retirement services offerings, which now include retirement plan administration services, to advisors and clients. For purposes of certain acquisition-related financial reporting requirements, the NWPS acquisition was not considered a material acquisition. NWPS has been integrated into our PCG segment and its results of operations have been included in our results prospectively from the closing date of December 24, 2020.
During the twelve months ended September 30, 2021, the NWPS acquisition resulted in the addition of $139 million of goodwill and $96 million of identifiable intangible assets. The goodwill associated with this acquisition primarily represents synergies from combining NWPS with our existing businesses. The identifiable intangible assets primarily relate to client relationships and have a weighted-average useful life of 24.8 years.
Financo
In March 2021, we completed our acquisition of all of the outstanding ownership interests of Financo, LLC and its subsidiaries (collectively “Financo”), an investment bank focused on the net income/(loss) attributable to noncontrolling interests. Inconsumer sector. The addition of Financo expands our investment banking capabilities in the new consolidation guidance didconsumer and retail space, both domestically and internationally. For purposes of certain acquisition-related financial reporting requirements, the Financo acquisition was not change our consolidation conclusions for certain entities but did change the determination of whether an entity was considered a VIEmaterial acquisition. Financo has been integrated into our Capital Markets segment and therefore impacts certainits results of operations have been included in our disclosures relatedresults prospectively from the closing date of March 30, 2021.
During the twelve months ended September 30, 2021, the Financo acquisition resulted in the addition of $30 million of goodwill and $9 million of identifiable intangible assets. The goodwill associated with this acquisition primarily represents synergies from combining Financo with our existing businesses and is generally deductible for tax purposes over 15 years. The identifiable intangible assets primarily relate to VIEs.client relationships and have a weighted-average useful life of 9 months.
Goodwill - Cebile
In September 2015,2021, we completed our acquisition of all of the FASB issued guidance governing adjustmentsoutstanding ownership interests of Cebile Capital (“Cebile”), a private fund placement agent and secondary market advisor to private equity firms. The addition of Cebile deepens our investment banking relationships with the private equity community and expands our related service offerings. For purposes of certain acquisition-related financial reporting requirements, the Cebile acquisition was not considered a material acquisition. Cebile has been integrated into our Capital Markets segment and its results of operations have been included in our results prospectively from the closing date of September 1, 2021.
During the twelve months ended September 30, 2021, the Cebile acquisition resulted in the addition of $24 million of goodwill and $4 million of identifiable intangible assets. The goodwill associated with this acquisition primarily represents synergies from combining Cebile with our existing businesses. The identifiable intangible assets primarily relate to client relationships and have a weighted-average useful life of 2.5 years. Due to the timing of the close of this acquisition, certain information is not yet available and the amounts of goodwill and intangible assets are considered provisional. We believe the information currently available provides a reasonable basis for estimating the fair value of these assets. However, these provisional amounts recognizedestimates may be adjusted upon the availability of new information regarding facts and circumstances which existed at the acquisition date with a corresponding adjustmentdate. We expect to goodwill (ASU 2015-16). Such adjustments are required when new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement amounts initially recognized or would have resultedfinalize this valuation in the recognition of additional assets and liabilities. This new guidance eliminates the requirement to retrospectively account for such adjustments. This new guidance was effective for this fiscal year beginning on October 1, 2016. The adoption of this new guidance has not had a material impact on our consolidated financial statements.
Share-based compensation - In March 2016, the FASB issued amended guidance related to share-based compensation (ASU 2016-09). The amended guidance involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. We early adopted this guidance as of October 1, 2016. Our adoption of the new stock compensation simplification guidance impacts our determination of income tax expense. Generally, the amount of compensation cost recognized for financial reporting purposes varies from the amount that can ultimately be deducted on the tax return for share-based payment awards. Under the prior guidance, the tax effects of deductions in excess of compensation expense (“windfalls”), as well as the tax effect of any deficiencies (“shortfalls”) were recorded in equity to the extent of previously recognized windfalls, with any remaining shortfall recorded in income tax expense. Under the new guidance, all tax effects related to share-based payments are recorded through tax expense in the periods during which the awards are exercised or vest, as applicable. Under the transition provisions of the new guidance, we have applied this new guidance prospectively to excess tax benefits arising from vesting after the October 1, 2016 adoption date and are no longer presented within financing activities in the Consolidated Statements of Cash Flows. Under the new guidance, excess tax benefits are included along with other income tax cash flows as an operating activity in the Consolidated Statements of Cash Flows. See Notes 16 and 20 for additional information.
Accounting guidance not yet adopted
Revenue recognition - In May 2014, the FASB issued new guidance regarding revenue recognition (ASU 2014-09). The new guidance is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. It also provides guidance on accounting for certain contract costs and requires additional disclosures. This new revenue recognition guidance, including subsequent amendments, is first effective for us for our fiscal year beginning on October 1, 2018 and allows for full retrospective adoption or modified retrospective adoption. Although, early adoption is permitted for fiscal years beginning after December 15, 2016, we do not plan to early adopt. Upon adoption, we plan to use a modified retrospective approach, with a cumulative effect adjustment to opening retained earnings. Our implementation efforts include identifying revenues and costs within the scopefirst quarter of the standard, analyzing contracts and reviewing potential changes to our existing revenue recognition accounting policies. Based on our2022.
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Notes to Consolidated Financial Statements
See Notes 2 and 11 for additional information about our goodwill and identifiable intangible assets, including the related accounting policies.
implementation efforts
Acquisition announcements
Charles Stanley
On July 29, 2021, we announced our firm intention to date, we expect that wemake an offer for the entire issued and to be issued share capital of United Kingdom (“U.K.”)-based Charles Stanley Group PLC (“Charles Stanley”) at a price of £5.15 per share, or approximately £279 million ($387 million as of July 28, 2021). Under the terms of the intended offer, a loan note alternative will be requiredavailable to change our current presentationCharles Stanley shareholders which will enable eligible Charles Stanley shareholders to elect to receive a loan note in lieu of certain costs from a net presentation within revenuespart or all of the cash consideration to a gross presentation, particularly with respect to merger & acquisitions advisory transactions and underwriting transactions. We are still evaluating the impact the adoption of this new guidance will have on our financial position and results of operations. We are also still evaluating the impact to our disclosures as a result of adopting this new guidance.
Financial instruments - In January 2016, the FASB issued guidance related to the accounting for financial instruments (ASU 2016-01). Among its provisions, this new guidance:
Requires equity investments (other than those accounted forwhich they would otherwise be entitled under the equity method or those that result from the consolidationterms of the investee)offer. The initial interest rate for the loan note alternative for the first year is 0.1%. The note bears interest at a variable rate which resets annually, calculated as the Bank of England’s base rate plus a differential defined in the loan note, with the interest rate not to be measured at fair value with changesexceed 1.5% in fair value recognizedany period. The transaction, which is subject to U.K. Financial Conduct Authority approval, is expected to close in net income. However, an entity may choosethe first half of fiscal 2022. We have segregated $400 million in cash to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any.
Simplifiesfund the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment.
Eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized costacquisition on the balance sheet.
Requires the use of the exit price notion when measuring the fair value of financial instrumentsclosing date, which is included in “Assets segregated for disclosure purposes.
Requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option.
Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements.
Clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.
This new guidance is effective for us for our fiscal year beginning on October 1, 2018, generally under a modified retrospective approach, with the exception of the amendments related to equity investments without a readily determinable fair value and the use of an exit price notion to measure financial instruments for disclosureregulatory purposes which will be applied prospectively as of the date of adoption. Early adoption is generally not permitted. We are evaluating the impact, if any, the adoption of this new guidance will have on our financial position and results of operations.
Lease accounting - In February 2016, the FASB issued new guidance related to the accounting for leases (ASU 2016-02). The new guidance requires the recognition of assets and liabilities on the balance sheet related to the rights and obligations created by lease agreements, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement and presentation of expenses and cash flows arising from a lease will primarily depend upon its classification as a finance or operating lease. The new guidance requires new disclosures to help financial statement users better understand the amount, timing and cash flows arising from leases. The new guidance is first effective for our fiscal year beginning on October 1, 2019 and will be adopted under a modified retrospective approach. Early adoption is permitted. This new guidance will impact our financial position and results of operations. We are evaluating the magnitude of such impact.
Derivatives and hedging (contract novations) - In March 2016, the FASB issued new guidance related to derivatives and hedging, specifically the effect of derivative contract novations on existing hedge accounting relationships (ASU 2016-05). The new guidance clarifies that a change in counterparty to a derivative instrument that has been designated as a hedging instrument under the current guidance does not, in and of itself, require re-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The new guidance is first effective for our fiscal year beginning October 1, 2017 and will be adopted under either a prospective or modified retrospective basis. We plan to adopt this guidance on a prospective basis and do not expect this new guidance to have a material effect on our financial position and results of operations.
Derivatives and hedging (contingent put and call options in debt instruments) - In March 2016, the FASB issued new guidance related to derivatives and hedging, specifically contingent put and call options in debt instruments (ASU 2016-06). The new guidance clarifies the requirements for assessing whether contingent call/(put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment is required to assess the embedded call/(put) options solely in accordance with the following four-step decision sequence; an entity must consider: 1) whether the payoff is adjusted based on changes in an index; 2) whether the payoff is indexed to an underlying other than interest rates or credit risk; 3) whether the debt involves a substantial premium or discount; and 4) whether the call/(put) option is contingently exercisable. The new guidance is first effective for our fiscal year beginning October 1, 2017 and will be adopted under a modified retrospective approach. We are evaluating the impact the adoption of this new guidance will have on our financial position and results of operations.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Equity method investments and joint ventures - In March 2016, the FASB issued new guidance related to equity method investments and joint ventures (ASU 2016-07). The new guidance eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. Additionally, the new guidance requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting and therefore upon qualifying for the equity method of accounting. No retroactive adjustment of the investment is required. The new guidance is first effective for our fiscal year beginning October 1, 2017 on a prospective basis. Given that this guidance applies to entity specific transactions and would only become relevant in certain circumstances, we are unable to estimate the impact, if any, this new guidance may have on our financial position.
Credit losses - In June 2016, the FASB issued new guidance related to the measurement of credit losses on financial instruments (ASU 2016-13). The amended guidance involves several aspects of the accounting for credit losses related to certain financial instruments including assets measured at amortized cost, available-for-sale debt securities and certain off-balance sheet commitments. The new guidance broadens the information that an entity must consider in developing its estimated credit losses expected to occur over the remaining life of assets measured either collectively or individually to include historical experience, current conditions and reasonable and supportable forecasts, replacing the existing incurred credit loss model and other models with the Current Expected Credit Losses (“CECL”) model. The new guidance expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating credit losses and requires new disclosures of the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. The new guidance is first effective for our fiscal year beginning October 1, 2020 and will be adopted under a modified retrospective approach. Early adoption is permitted although not prior to our fiscal year beginning October 1, 2019. We have begun our implementation and evaluation efforts by establishing a cross-functional team to assess the required changes to our credit loss estimation methodologies and systems, as well as determine additional data and resources required to comply with the new guidance. We are evaluating the impact the adoption of this new guidance will have on our financial position and results of operations, which will depend on, among other things, the current and expected macroeconomic conditions and the nature and characteristics of financial assets held by us on the date of adoption.
Statement of Cash Flows (classification of certain cash receipts and cash payments) - In August 2016, the FASB issued amended guidance related to the Statement of Cash Flows (ASU 2016-15). The amended guidance involves several aspects of the classification of certain cash receipts and cash payments including debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies), distributions received from equity method investees, beneficial interests in securitization transactions and separately identifiable cash flows and application of the predominance principle. The amended guidance is first effective for our financial report covering the quarter ended December 31, 2018 and will be adopted under a retrospective approach. Early adoption is permitted. The adoption of this new guidance will impact our Statement of Cash Flows and will not have an impact on our financial position and results of operations.
Income tax impact of intra-entity transfers of assets - In October 2016, the FASB issued guidance related to the accounting for income tax consequences of intra-entity transfers of assets (ASU 2016-16). Current GAAP prohibits the recognition of current and deferred income taxes for intra-entity asset transfers until the asset has been sold to an outside party. Under the new guidance, an entity should recognize the income tax consequences of an inter-entity transfer of an asset when the transfer occurs. The guidance is first effective for our fiscal year beginning October 1, 2018 and will be adopted under a retrospective approach. Early adoption is permitted. We are evaluating the impact the adoption of this new guidance will have on our financial position and results of operations.
Statement of Cash Flows (restricted cash) - In November 2016, the FASB issued guidance related to the classification and presentation of changes in restricted cash on the Statement of Cash Flows (ASU 2016-18). Current GAAP does not provide guidance to address how to classify and present changes in restricted cash or restricted cash equivalents that occur when there are transfers between cash, cash equivalents and restricted cash or restricted cash equivalents and when there are direct cash receipts into restricted cash or restricted cash equivalents or direct cash payments made from restricted cash or restricted cash equivalents. Under the new guidance, an entity should present in their Statement of Cash Flows the changes during the period in the total of cash and cash equivalents and amounts described as restricted cash or restricted cash equivalents when reconciling the beginning-of-period and ending-of-period total amounts shown on the statement of cash flows. The guidance is first effective for our financial report covering the quarter ended December 31, 2018 and will be adopted under a retrospective approach. Early adoption is permitted. We are evaluating the impact the adoption of this new guidance will havecash” on our Consolidated Statements of Cash Flows.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
NotesFinancial Condition as of September 30, 2021. The acquisition would provide us the opportunity to Consolidated Financial Statements
Definition of a business - In January 2017, the FASB issued amended guidance related to the definition of a business (ASU 2017-01). This amended guidance clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance is first effective for our fiscal year beginning October 1, 2018 and will be adopted on a prospective basis. Early adoption is permitted. Given the adoption of this amended guidance is dependent upon the nature of future events and circumstances, we are unable to estimate the impact, if any, the adoption of this new guidance will have on our financial position and results of operations.
Goodwill - In January 2017, the FASB issued amended guidance to simplify the subsequent measurement of goodwill, eliminating “Step 2” from the goodwill impairment test (ASU 2017-04). In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Under the amended guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and subsequently recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The guidance is first effective for our financial report covering the quarter ended December 31, 2019 and will be adopted on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We will adopt this simplification guidanceaccelerate growth in the earliest period it applies to our factsU.K. and, circumstances.
Callable debt securities - In March 2017, the FASB issued guidance that requires certain premiums on callable debt securities to be amortized to the earliest call date instead of the contractual life of the security (ASU 2017-08). Discounts on callable debt securities will continue to be amortized to the contractual maturity date. This guidance is first effective for our fiscal year beginning on October 1, 2019; however, early adoption is permitted. The guidance will be adopted using a modified retrospective approach. We are evaluating the impact the adoption of this new guidance will have on our financial position and results of operations.
Share-based payment awards - In May 2017, the FASB issued amended guidance that clarifies when changes to the terms or conditions of share-based payment awards require an entity to apply modification accounting (ASU 2017-09). The amended guidance states an entity should account for the effects of a modification unless certain criteria are met which include that the modified award has the same fair value, vesting conditions and classification as the original award. The guidance is first effective for our fiscal year beginning October 1, 2019 on a prospective basis; however, early adoption is permitted. Given that this guidance applies to specific transactions and would only become relevant in certain circumstances, we are unable to estimate the impact, if any, this new guidance may have on our financial position.
Derivatives and hedging (accounting for hedging activities) - In August 2017, the FASB issued new guidance amending its hedge accounting model (ASU 2017-12). Among other things, the new guidance:
Expandsthrough Charles Stanley’s multiple affiliation options, give us the ability to hedge nonfinancial and financial risk components.
Reduces complexity in fair value hedges of interest rate risk.
Eliminates the requirement to separately measure and report hedge ineffectiveness.
Generally requires the entire changeoffer wealth management affiliation choices consistent with our model in the fair valueU.S. and Canada. For purposes of certain acquisition-related financial reporting requirements, the Charles Stanley acquisition will not be considered a hedging instrument to be presenting inmaterial acquisition. Charles Stanley will operate within our PCG segment upon completion of the same income statement line as the hedged item.acquisition.
Modifies accounting for components excluded from the assessment of hedge effectiveness.
Eases certain documentation and hedge effectiveness assessment requirements.TriState Capital
The new guidance is first effective for our fiscal year beginningOn October 1, 2019; however, early adoption is permitted. The amendments are required to be applied to cash flow and net investment hedges that exist on the date of adoption on a modified retrospective basis. Changes to presentation and disclosure requirements are only required on a prospective basis. We are evaluating whether we will early adopt this new guidance and the impact it will have on our financial position and results of operations.
NOTE 3 – ACQUISITIONS
Acquisition announcements during fiscal year 2017
In April 2017,20, 2021, we announced we had entered into a definitive agreement to acquire 100%TriState Capital Holdings, Inc. (“TriState Capital”) in a combination cash and stock transaction, valued at approximately $1.1 billion. Under the terms of the agreement, TriState Capital common stockholders will receive $6.00 cash and 0.25 RJF shares for each share of TriState Capital common stock, which represents per share consideration of $31.09 based on the closing price of RJF common stock on October 19, 2021. We have entered into an agreement with the sole holder of the TriState Capital Series C Perpetual Non-Cumulative Convertible Non-Voting Preferred Stock (“Series C Convertible Preferred”) pursuant to which the Series C Convertible Preferred will be converted to common shares at the prescribed exchange ratio and cashed out at $30 per share. The TriState Capital Series A Non-Cumulative Perpetual Preferred Stock and Series B Non-Cumulative Perpetual Preferred Stock will remain outstanding sharesand will be converted into equivalent preferred stock of Scout Investments, Inc. (the “Scout Group”),RJF. The transaction, which is subject to customary closing conditions, including regulatory approvals and approval by TriState Capital shareholders, is expected to close in fiscal 2022. We currently have the ability to utilize our cash on hand to fund the acquisition. TriState Capital offers private banking, commercial banking, and investment management products and services. TriState Capital will continue to operate as a separately branded firm and as an asset managementindependently-charted bank subsidiary upon closing of the acquisition.
Acquisition and distribution entity, from UMB Financial Corporation.disposition-related expenses
Certain acquisition and integration costs associated with these acquisitions were included in “Acquisition and disposition-related expenses” during fiscal 2021 on our Consolidated Statements of Income and Comprehensive Income. Such costs primarily included legal and other professional fees and, with respect to Financo and Cebile, amortization expense related to identifiable intangible assets with short useful lives. The Scout Group includes Scout Investments (“Scout”)following table details our acquisition and its Reams Asset Management division (“Reams”), as well as Scout Distributors.disposition-related expenses.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2021 | | 2020 | | 2019 |
Acquisition-related expenses: | | | | | | |
Legal | | $ | 7 | | | $ | — | | | $ | — | |
Identifiable intangible amortization | | 6 | | | — | | | — | |
Other professional fees | | 6 | | | — | | | — | |
Total Acquisition-related expenses | | 19 | | | — | | | — | |
Disposition-related expenses (1) | | — | | | 7 | | | 15 | |
Total Acquisition and disposition-related expenses | | $ | 19 | | | $ | 7 | | | $ | 15 | |
(1) The additiontwelve months ended September 30, 2020 included a $7 million loss in our Capital Markets segment related to the sale of Scout, an equity asset manager,our interests in certain entities that operated predominantly in France. The twelve months ended September 30, 2019 included a $15 million loss in our Capital Markets segment on the sale of our operations related to research, sales and Reams, an institutional-focused fixed income specialist, broadens the investment solutions available to our clients. Astrading of December 31, 2016, Scout and its Reams division had combined assets under management and advisement ofEuropean equities.
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
approximately $27 billion. The Scout Group was included in our Asset Management segment upon completion of this acquisition, which occurred on November 17, 2017.
Acquisitions completed during fiscal year 2016
Mummert & Company Corporate Finance GmbH (“Mummert”)
In June 2016, we completed our acquisition of all of the outstanding shares of Mummert, a middle market M&A advisory firm, headquartered in Munich, Germany, that was focused primarily on the technology, industrial, healthcare, consumer and business services sectors. Mummert expanded our investment banking capabilities in Europe, and has been integrated into our Capital Markets segment. For purposes of certain acquisition-related financial reporting requirements, the Mummert acquisition was not considered a material acquisition. We accounted for this acquisition under the acquisition method of accounting with the assets and liabilities of Mummert recorded as of the acquisition date at their respective fair values in our consolidated financial statements. Mummert’s results of operations have been included in our results prospectively from June 1, 2016. See Note 17 for information regarding the contingent consideration associated with the Mummert transaction.
MacDougall, MacDougall & MacTier Inc. (“3Macs”)
In August 2016, we completed our acquisition of all of the outstanding shares of 3Macs, an independent investment firm founded in 1849 and headquartered in Montreal, Quebec, Canada. As of the acquisition date, 3Macs had approximately 70 financial advisors with approximately $6 billion (Canadian) of client assets under administration. The 3Macs financial advisors operate within RJ Ltd. in our Private Client Group segment. For purposes of certain acquisition-related financial reporting requirements, the 3Macs acquisition was not considered a material acquisition. We accounted for this acquisition under the acquisition method of accounting with the assets and liabilities of 3Macs recorded as of the acquisition date at their respective fair values in our consolidated financial statements. 3Macs results of operations have been included in our results prospectively from August 31, 2016.
U.S. Private Client Services unit of Deutsche Bank Wealth Management
In September 2016, we completed an acquisition of certain specified assets and the assumption of certain specified liabilities of the U.S. Private Client Services unit of Deutsche Bank Wealth Management (“Alex. Brown”) from Deutsche Bank Securities, Inc. As of the acquisition date, approximately 190 financial advisors with approximately $46 billion of client assets under administration joined the firm. Alex. Brown is included in our Private Client Group segment. For purposes of certain acquisition-related financial reporting requirements, the Alex. Brown acquisition was not considered a material acquisition. We accounted for this acquisition under the acquisition method of accounting with the specific assets acquired and liabilities of Alex. Brown we assumed recorded as of the acquisition date at their respective fair values in our consolidated financial statements. Alex. Brown’s results of operations have been included in our results of operations prospectively from September 6, 2016.
As part of the acquisition of Alex. Brown, we assumed the liability for certain DBRSU awards, including the associated plan terms and conditions, which will ultimately be settled in DB common shares if the conditions outlined in the plan are met. At various dates throughout fiscal year 2016, we purchased DB common shares to serve as an economic hedge to the DBRSU liability. See Note 2 and Note 20 for further information on this liability.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Acquisition-related expenses
The “Acquisition-related expenses” presented in our Consolidated Statements of Income and Comprehensive Income for the year ended September 30, 2017 and 2016 pertain to certain incremental expenses incurred in connection with the acquisitions described above.
The table below presents a summary of acquisition-related expenses incurred in each respective period. Our acquisition-related expenses associated with our fiscal year 2015 acquisitions were not significant.
|
| | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | 2016 |
Severance | | $ | 5,859 |
| | $ | 866 |
|
Acquisition and integration-related incentive compensation costs | | 5,474 |
| | — |
|
Early termination costs of assumed contracts | | 1,329 |
| | — |
|
Information systems integration costs | | 1,380 |
| | 21,752 |
|
Legal and regulatory | | 3,192 |
| | 8,334 |
|
Post-closing purchase price contingency | | (3,345 | ) | | — |
|
DBRSU obligation and related hedge | | 770 |
| | 4,837 |
|
All other | | 3,336 |
| | 4,917 |
|
Total acquisition-related expenses | | $ | 17,995 |
| | $ | 40,706 |
|
In the table above:
Severance expenses primarily arose from the 3Macs acquisition. Such costs included severance costs as well as any forgiven employee loan balances and any unamortized balance of the prepaid compensation asset associated with terminated associates, which was not collected. See Note 9 for more information.
Acquisition and integration-related incentive compensation costs are primarily comprised of non-recurring RSU grants made to certain employees and consultants for acquisition-related purposes.
DBRSU obligation and related hedge expenses for the year ended September 30, 2017 included a loss on the DBRSU awards related to a DB rights offering during the year. This loss was partially offset by a related gain on the DB shares that act as an economic hedge to this obligation. Expenses for the year ended September 30, 2016 represented the pre-Alex. Brown closing date unrealized loss on the DB shares. See Note 20 for more information.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 4 – FAIR VALUE
Our “Financial instruments owned”instruments” and “Financial instruments sold, but not yet purchased”instrument liabilities” on our Consolidated Statements of Financial Condition are recorded at fair value under GAAP. See Note 2 forvalue. For further information about such instruments and our significant accounting policies related to fair value.
value, see Note 2. The following tables below presentspresent assets and liabilities measured at fair value on a recurring and nonrecurring basis. Netting adjustments represent the impact of counterparty and collateral netting on our derivative balances included inon our Consolidated Statements of Financial Condition. See Note 6 for additional information.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | Level 1 | | Level 2 | | Level 3 | | Netting adjustments | | Balance as of September 30, 2021 |
Assets at fair value on a recurring basis: | | | | | | | | | | |
Assets segregated for regulatory purposes (1) | | $ | 2,100 | | | $ | — | | | $ | — | | | $ | — | | | $ | 2,100 | |
Trading assets: | | | | | | | | | | |
Municipal and provincial obligations | | — | | | 155 | | | — | | | — | | | 155 | |
Corporate obligations | | 16 | | | 63 | | | — | | | — | | | 79 | |
Government and agency obligations | | 15 | | | 94 | | | — | | | — | | | 109 | |
Agency MBS, CMOs and asset-backed securities (“ABS”) | | — | | | 211 | | | — | | | — | | | 211 | |
Non-agency CMOs and ABS | | — | | | 14 | | | — | | | — | | | 14 | |
Total debt securities | | 31 | | | 537 | | | — | | | — | | | 568 | |
Equity securities | | 8 | | | 4 | | | — | | | — | | | 12 | |
Brokered certificates of deposit | | — | | | 16 | | | — | | | — | | | 16 | |
Other | | — | | | — | | | 14 | | | — | | | 14 | |
Total trading assets | | 39 | | | 557 | | | 14 | | | — | | | 610 | |
Available-for-sale securities (2) | | 15 | | | 8,300 | | | — | | | — | | | 8,315 | |
Derivative assets: | | | | | | | | | | |
Interest rate - matched book | | — | | | 193 | | | — | | | — | | | 193 | |
Interest rate - other | | 16 | | | 128 | | | — | | | (87) | | | 57 | |
Foreign exchange | | — | | | 5 | | | — | | | — | | | 5 | |
| | | | | | | | | | |
Total derivative assets | | 16 | | | 326 | | | — | | | (87) | | | 255 | |
Other investments - private equity - not measured at NAV | | — | | | — | | | 75 | | | — | | | 75 | |
All other investments: | | | | | | | | | | |
Government and agency obligations (3) | | 86 | | | — | | | — | | | — | | | 86 | |
Other | | 77 | | | 2 | | | 23 | | | — | | | 102 | |
Total all other investments | | 163 | | | 2 | | | 23 | | | — | | | 188 | |
Subtotal | | 2,333 | | | 9,185 | | | 112 | | | (87) | | | 11,543 | |
Other investments - private equity - measured at NAV | | | | | | | | | | 94 | |
Total assets at fair value on a recurring basis | | $ | 2,333 | | | $ | 9,185 | | | $ | 112 | | | $ | (87) | | | $ | 11,637 | |
| | | | | | | | | | |
Liabilities at fair value on a recurring basis: | | | | | | | | | | |
Trading liabilities: | | | | | | | | | | |
Municipal and provincial obligations | | $ | 2 | | | $ | — | | | $ | — | | | $ | — | | | $ | 2 | |
Corporate obligations | | — | | | 6 | | | — | | | — | | | 6 | |
Government and agency obligations | | 137 | | | — | | | — | | | — | | | 137 | |
| | | | | | | | | | |
Total debt securities | | 139 | | | 6 | | | — | | | — | | | 145 | |
Equity securities | | 28 | | | 3 | | | — | | | — | | | 31 | |
| | | | | | | | | | |
Total trading liabilities | | 167 | | | 9 | | | — | | | — | | | 176 | |
Derivative liabilities: | | | | | | | | | | |
Interest rate - matched book | | — | | | 193 | | | — | | | — | | | 193 | |
Interest rate - other | | 16 | | | 106 | | | — | | | (88) | | | 34 | |
| | | | | | | | | | |
Other | | — | | | — | | | 1 | | | — | | | 1 | |
Total derivative liabilities | | 16 | | | 299 | | | 1 | | | (88) | | | 228 | |
Total liabilities at fair value on a recurring basis | | $ | 183 | | | $ | 308 | | | $ | 1 | | | $ | (88) | | | $ | 404 | |
|
| | | | | | | | | | | | | | | | | | | | |
$ in thousands | | Quoted prices in active markets for identical instruments (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | | Netting adjustments | | Balance as of September 30, 2017 |
Assets at fair value on a recurring basis | | | | | | | | | | |
Trading instruments | | | | | | | | | | |
Municipal and provincial obligations | | $ | 83 |
| | $ | 221,884 |
| | $ | — |
| | $ | — |
| | $ | 221,967 |
|
Corporate obligations | | 9,361 |
| | 81,577 |
| | — |
| | — |
| | 90,938 |
|
Government and agency obligations | | 6,354 |
| | 28,977 |
| | — |
| | — |
| | 35,331 |
|
Agency MBS and CMOs | | 913 |
| | 133,070 |
| | — |
| | — |
| | 133,983 |
|
Non-agency CMOs and ABS | | — |
| | 28,442 |
| | 5 |
| | — |
| | 28,447 |
|
Total debt securities | | 16,711 |
| | 493,950 |
| | 5 |
| | — |
| | 510,666 |
|
Equity securities | | 16,090 |
| | 389 |
| | — |
| | — |
| | 16,479 |
|
Brokered certificates of deposit | | — |
| | 31,492 |
| | — |
| | — |
| | 31,492 |
|
Other | | 32 |
| | — |
| | 5,594 |
| (1) | — |
| | 5,626 |
|
Total trading instruments | | 32,833 |
| | 525,831 |
| | 5,599 |
| | — |
| | 564,263 |
|
Available-for-sale securities | | | | | | | | | | |
Agency MBS and CMOs | | — |
| | 2,081,079 |
| | — |
| | — |
| | 2,081,079 |
|
Other securities | | 1,032 |
| | — |
| | — |
| | — |
| | 1,032 |
|
ARS preferred securities | | — |
| | — |
| | 106,171 |
| | — |
| | 106,171 |
|
Total available-for-sale securities | | 1,032 |
| | 2,081,079 |
| | 106,171 |
| | — |
| | 2,188,282 |
|
Derivative assets | | | | | | | | | | |
Interest rate contracts | | | | | | | | | | |
Matched book | | — |
| | 288,035 |
| | — |
| | — |
| | 288,035 |
|
Other | | — |
| | 86,436 |
| | — |
| | (55,728 | ) | | 30,708 |
|
Foreign exchange contracts | | — |
| | 32 |
| | — |
| | — |
| | 32 |
|
Total derivative assets | | — |
| | 374,503 |
| | — |
| | (55,728 | ) | | 318,775 |
|
Private equity investments | | | | | | | | | |
|
|
Measured at fair value | | — |
| | — |
| | 88,885 |
| | — |
| | 88,885 |
|
Measured at NAV
| | | | | | | | | | 109,894 |
|
Total private equity investments | | — |
| | — |
| | 88,885 |
| | — |
| | 198,779 |
|
Other investments (2) | | 220,312 |
| | 332 |
| | 336 |
| | — |
| | 220,980 |
|
Total assets at fair value on a recurring basis | | $ | 254,177 |
|
| $ | 2,981,745 |
|
| $ | 200,991 |
|
| $ | (55,728 | ) |
| $ | 3,491,079 |
|
| | | | | | | | | | |
Assets at fair value on a nonrecurring basis | | |
| | |
| | |
| | |
| | |
|
Bank loans, net | | |
| | |
| | |
| | |
| | |
|
Impaired loans | | $ | — |
| | $ | 17,474 |
| | $ | 23,994 |
| | $ | — |
| | $ | 41,468 |
|
Loans held for sale (3) | | — |
| | 11,285 |
| | — |
| | — |
| | 11,285 |
|
Total bank loans, net | | — |
| | 28,759 |
| | 23,994 |
| | — |
| | 52,753 |
|
Other Assets: OREO | | — |
| | 880 |
| | — |
| | — |
| | 880 |
|
Total assets at fair value on a nonrecurring basis | | $ | — |
| | $ | 29,639 |
| | $ | 23,994 |
| | $ | — |
| | $ | 53,633 |
|
| | | | | | | | | | |
(continued on next page) |
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | Level 1 | | Level 2 | | Level 3 | | Netting adjustments | | Balance as of September 30, 2020 |
Assets at fair value on a recurring basis: | | | | | | | | | | |
Trading assets: | | | | | | | | | | |
Municipal and provincial obligations | | $ | 5 | | | $ | 120 | | | $ | — | | | $ | — | | | $ | 125 | |
Corporate obligations | | 11 | | | 45 | | | — | | | — | | | 56 | |
Government and agency obligations | | 13 | | | 131 | | | — | | | — | | | 144 | |
Agency MBS and agency CMOs | | — | | | 130 | | | — | | | — | | | 130 | |
Non-agency CMOs and ABS | | — | | | 13 | | | — | | | — | | | 13 | |
Total debt securities | | 29 | | | 439 | | | — | | | — | | | 468 | |
Equity securities | | 11 | | | 5 | | | — | | | — | | | 16 | |
Brokered certificates of deposit | | — | | | 17 | | | — | | | — | | | 17 | |
Other | | — | | | — | | | 12 | | | — | | | 12 | |
Total trading assets | | 40 | | | 461 | | | 12 | | | — | | | 513 | |
Available-for-sale securities (2) | | 16 | | | 7,634 | | | — | | | — | | | 7,650 | |
Derivative assets: | | | | | | | | | | |
Interest rate - matched book | | — | | | 333 | | | — | | | — | | | 333 | |
Interest rate - other | | 16 | | | 224 | | | — | | | (135) | | | 105 | |
| | | | | | | | | | |
Total derivative assets | | 16 | | | 557 | | | — | | | (135) | | | 438 | |
Other investments - private equity - not measured at NAV | | — | | | — | | | 37 | | | — | | | 37 | |
All other investments: | | | | | | | | | | |
Government and agency obligations (3) | | 103 | | | — | | | — | | | — | | | 103 | |
Other | | 92 | | | 1 | | | 22 | | | — | | | 115 | |
Total all other investments | | 195 | | | 1 | | | 22 | | | — | | | 218 | |
Subtotal | | 267 | | | 8,653 | | | 71 | | | (135) | | | 8,856 | |
Other investments - private equity - measured at NAV | | | | | | | | | | 79 | |
Total assets at fair value on a recurring basis | | $ | 267 | | | $ | 8,653 | | | $ | 71 | | | $ | (135) | | | $ | 8,935 | |
| | | | | | | | | | |
Liabilities at fair value on a recurring basis: | | | | | | | | | | |
Trading liabilities: | | | | | | | | | | |
Municipal and provincial obligations | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1 | |
Corporate obligations | | — | | | 5 | | | — | | | — | | | 5 | |
Government and agency obligations | | 136 | | | — | | | — | | | — | | | 136 | |
Non-agency CMOs and ABS | | — | | | 2 | | | — | | | — | | | 2 | |
Total debt securities | | 137 | | | 7 | | | — | | | — | | | 144 | |
Equity securities | | 96 | | | — | | | — | | | — | | | 96 | |
| | | | | | | | | | |
Total trading liabilities | | 233 | | | 7 | | | — | | | — | | | 240 | |
Derivative liabilities: | | | | | | | | | | |
Interest rate - matched book | | — | | | 333 | | | — | | | — | | | 333 | |
Interest rate - other | | 16 | | | 145 | | | — | | | (112) | | | 49 | |
Foreign exchange | | — | | | 5 | | | — | | | — | | | 5 | |
Other | | — | | | 1 | | | 5 | | | — | | | 6 | |
Total derivative liabilities | | 16 | | | 484 | | | 5 | | | (112) | | | 393 | |
Total liabilities at fair value on a recurring basis | | $ | 249 | | | $ | 491 | | | $ | 5 | | | $ | (112) | | | $ | 633 | |
(1) These assets consist of U.S. Treasuries with maturities greater than 3 months as of our date of purchase.
(2) Substantially all of our available-for-sale securities consist of agency MBS and agency CMOs. See Note 5 for further information.
(3) These assets are comprised of U.S. Treasuries primarily purchased to meet certain deposit requirements with clearing organizations.
|
| | | | | | | | | | | | | | | | | | | | |
$ in thousands | | Quoted prices in active markets for identical instruments (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | | Netting adjustments | | Balance as of September 30, 2017 |
Liabilities at fair value on a recurring basis | | | | | | | | | | |
Trading instruments sold but not yet purchased | | | | | | | | | | |
Municipal and provincial obligations | | $ | 304 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 304 |
|
Corporate obligations | | 1,286 |
| | 35,272 |
| | — |
| | — |
| | 36,558 |
|
Government obligations | | 167,622 |
| | — |
| | — |
| | — |
| | 167,622 |
|
Agency MBS and CMOs | | 2,477 |
| | — |
| | — |
| | — |
| | 2,477 |
|
Non-agency MBS and CMOs | | — |
| | 5,028 |
| | — |
| | — |
| | 5,028 |
|
Total debt securities | | 171,689 |
| | 40,300 |
| | — |
| | — |
| | 211,989 |
|
Equity securities | | 8,118 |
| | 1,342 |
| | — |
| | — |
| | 9,460 |
|
Total trading instruments sold but not yet purchased | | 179,807 |
| | 41,642 |
| | — |
| | — |
| | 221,449 |
|
Derivative liabilities | | | | | | | | | | |
Interest rate contracts | | | | | | | | | | |
Matched book | | — |
| | 288,035 |
| | — |
| | — |
| | 288,035 |
|
Other | | — |
| | 101,893 |
| | — |
| | (59,410 | ) | | 42,483 |
|
Foreign exchange contracts | | — |
| | 646 |
| | — |
| | — |
| | 646 |
|
DBRSU obligation (equity) | | — |
| | 25,800 |
| | — |
| | — |
| | 25,800 |
|
Total derivative liabilities | | — |
| | 416,374 |
| | — |
| | (59,410 | ) | | 356,964 |
|
Total liabilities at fair value on a recurring basis | | $ | 179,807 |
| | $ | 458,016 |
| | $ | — |
| | $ | (59,410 | ) | | $ | 578,413 |
|
| |
(1) | Includes the fair value of forward commitments to purchase GNMA or FNMA MBS arising from our fixed income public finance operations. See Notes 2 and 17 for additional information. |
| |
(2) | Includes $44 million of financial instruments that are related to obligations to perform under certain deferred compensation plans and DB shares with a fair value of $19 million as of September 30, 2017 which we hold as an economic hedge against the DBRSU obligation. See Notes 2 and 20 for additional information. |
| |
(3) | Loans classified as held for sale recorded at a fair value lower than cost. |
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
|
| | | | | | | | | | | | | | | | | | | | |
$ in thousands | | Quoted prices in active markets for identical instruments (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | | Netting adjustments | | Balance as of September 30, 2016 |
Assets at fair value on a recurring basis: | | | | | | | | | | |
Trading instruments | | | | | | | | | | |
Municipal and provincial obligations | | $ | 480 |
|
| $ | 273,683 |
| | $ | — |
| | $ | — |
| | $ | 274,163 |
|
Corporate obligations | | 10,000 |
|
| 122,885 |
| | — |
| | — |
| | 132,885 |
|
Government and agency obligations | | 6,412 |
|
| 43,186 |
| | — |
| | — |
| | 49,598 |
|
Agency MBS and CMOs | | 413 |
| | 164,250 |
| | — |
| | — |
| | 164,663 |
|
Non-agency CMOs and ABS | | — |
| | 34,421 |
| | 7 |
| | — |
| | 34,428 |
|
Total debt securities | | 17,305 |
| | 638,425 |
| | 7 |
| | — |
| | 655,737 |
|
Equity securities | | 14,529 |
| | 1,500 |
| | — |
| | — |
| | 16,029 |
|
Brokered certificates of deposit | | — |
| | 35,206 |
| | — |
| | — |
| | 35,206 |
|
Other | | 555 |
| | 3 |
| | 6,020 |
| (1) | — |
| | 6,578 |
|
Total trading instruments | | 32,389 |
| | 675,134 |
| | 6,027 |
| | — |
| | 713,550 |
|
Available-for-sale securities | | |
| | |
| | |
| | |
| | |
|
Agency MBS and CMOs | | — |
| | 682,297 |
| | — |
| | — |
| | 682,297 |
|
Non-agency CMOs | | — |
| | 50,519 |
| | — |
| | — |
| | 50,519 |
|
Other securities | | 1,417 |
| | — |
| | — |
| | — |
| | 1,417 |
|
ARS | | |
| | |
| | |
| | |
| |
|
|
Municipal obligations | | — |
| | — |
| | 25,147 |
|
| — |
| | 25,147 |
|
Preferred securities | | — |
| | — |
| | 100,018 |
| | — |
| | 100,018 |
|
Total available-for-sale securities | | 1,417 |
| | 732,816 |
| | 125,165 |
| | — |
| | 859,398 |
|
Derivative assets | | | | | | | | | | |
Interest rate contracts | | | | | | | | | | |
Matched-book | | — |
| | 422,196 |
| | — |
| | — |
| | 422,196 |
|
Other | | — |
| | 163,433 |
| | — |
| | (107,539 | ) | | 55,894 |
|
Foreign exchange contracts | | — |
| | 2,016 |
| | — |
| | — |
| | 2,016 |
|
Total derivative assets | | — |
| | 587,645 |
| | — |
| | (107,539 | ) | | 480,106 |
|
Private equity investments | | | | | | |
| | |
|
|
Measured at fair value | | — |
| | — |
| | 83,165 |
| | — |
| | 83,165 |
|
Measured at NAV
| | | | | | | | | | 111,469 |
|
Total private equity investments | | — |
| | — |
| | 83,165 |
| | — |
| | 194,634 |
|
Other investments (2) | | 325,655 |
| | 257 |
| | 441 |
| | — |
| | 326,353 |
|
Total assets at fair value on a recurring basis | | $ | 359,461 |
|
| $ | 1,995,852 |
|
| $ | 214,798 |
|
| $ | (107,539 | ) |
| $ | 2,574,041 |
|
| | | | | | | | | | |
Assets at fair value on a nonrecurring basis | | |
| | |
| | |
| | |
| | |
|
Bank loans, net | | | | | | | | | | |
Impaired loans | | $ | — |
| | $ | 23,146 |
| | $ | 47,982 |
| | $ | — |
| | $ | 71,128 |
|
Loans held for sale (3) | | — |
| | 18,177 |
| | — |
| | — |
| | 18,177 |
|
Total bank loans, net | | — |
| | 41,323 |
| | 47,982 |
| | — |
| | 89,305 |
|
Other assets: OREO | | — |
| | 679 |
| | — |
| | — |
| | 679 |
|
Total assets at fair value on a nonrecurring basis | | $ | — |
| | $ | 42,002 |
| | $ | 47,982 |
| | $ | — |
| | $ | 89,984 |
|
| | | | | | | | | | |
(continued on next page) |
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
|
| | | | | | | | | | | | | | | | | | | | |
$ in thousands | | Quoted prices in active markets for identical instruments (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | | Netting adjustments | | Balance as of September 30, 2016 |
Liabilities at fair value on a recurring basis | | |
| | |
| | |
| | |
| | |
|
Trading instruments sold but not yet purchased | | |
| | |
| | |
| | |
| | |
|
Municipal and provincial obligations | | $ | 1,161 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,161 |
|
Corporate obligations | | 1,283 |
| | 29,791 |
| | — |
| | — |
| | 31,074 |
|
Government obligations | | 266,682 |
| | — |
| | — |
| | — |
| | 266,682 |
|
Agency MBS and CMOs | | 2,804 |
| | — |
| | — |
| | — |
| | 2,804 |
|
Total debt securities | | 271,930 |
| | 29,791 |
| | — |
| | — |
| | 301,721 |
|
Equity securities | | 18,382 |
| | — |
| | — |
| | — |
| | 18,382 |
|
Total trading instruments sold but not yet purchased | | 290,312 |
| | 29,791 |
| | — |
| | — |
| | 320,103 |
|
Derivative liabilities | | | | | | | | | | |
Interest rate contracts | | | | | | | | | | |
Matched book | | — |
| | 422,196 |
| | — |
| | — |
| | 422,196 |
|
Other | | — |
| | 178,502 |
| | — |
| | (142,859 | ) | | 35,643 |
|
DBRSU obligation (equity) | | — |
| | 17,769 |
| | — |
| | — |
| | 17,769 |
|
Total derivative liabilities | | — |
| | 618,467 |
| | — |
| | (142,859 | ) | | 475,608 |
|
Total liabilities at fair value on a recurring basis | | $ | 290,312 |
|
| $ | 648,258 |
|
| $ | — |
|
| $ | (142,859 | ) |
| $ | 795,711 |
|
| |
(1) | Includes the fair value of forward commitments to purchase GNMA or FNMA MBS arising from our fixed income public finance operations. See Notes 2 and 17 for additional information. |
| |
(2) | Includes $77 million of financial instruments that are related to obligations to perform under certain deferred compensation plans and DB shares with a fair value of $12 million as of September 30, 2016 which we hold as an economic hedge against the DBRSU obligation. See Notes 2 and 20 for additional information. |
| |
(3) | Loans classified as held for sale recorded at a fair value lower than cost. |
Transfers between levels
We had $4 million and $3 million in transfers of financial instruments from Level 1 to Level 2 during the year ended September 30, 2017 and 2016, respectively. These transfers were a result of decreased market activity in these instruments. Our transfers from Level 2 to Level 1 were $1 million in each of the years ended September 30, 2017 and 2016, respectively. These transfers were a result of increased market activity in these instruments. Our policy is to treat transfers between levels of the fair value hierarchy as having occurred at the end of the reporting period.
Changes in Level 3 recurring fair value measurements
The following tables below presentspresent the changes in fair value for Level 3 assets and liabilities measured at fair value on a recurring basis. The realized and unrealized gains and losses in the tables below may include changes in fair value that were attributable to both observable and unobservable inputs. Our policy isIn the following tables, gains/(losses) on trading instruments are reported in “Principal transactions” and gains/(losses) on other investments are reported in “Other” revenues on our Consolidated Statements of Income and Comprehensive Income.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended September 30, 2021 Level 3 instruments at fair value |
| | | | Financial assets | | | | Financial liabilities |
| | | | Trading assets | | Derivative assets | | Other investments | | | | Derivative liabilities |
$ in millions | | | | Other | | Other | | Private equity investments | | All other | | | | Other |
Fair value beginning of year | | | | $ | 12 | | | $ | — | | | $ | 37 | | | $ | 22 | | | | | $ | (5) | |
Total gains/(losses) included in earnings | | | | (1) | | | 1 | | | 37 | | | 1 | | | | | 5 | |
Purchases and contributions | | | | 49 | | | — | | | 1 | | | — | | | | | — | |
Sales and distributions | | | | (46) | | | (1) | | | — | | | — | | | | | (1) | |
Transfers: | | | | | | | | | | | | | | |
Into Level 3 | | | | — | | | — | | | — | | | — | | | | | — | |
Out of Level 3 | | | | — | | | — | | | — | | | — | | | | | — | |
Fair value end of year | | | | $ | 14 | | | $ | — | | | $ | 75 | | | $ | 23 | | | | | $ | (1) | |
Unrealized gains/(losses) for the year included in earnings for instruments held at the end of the year | | | | $ | — | | | $ | — | | | $ | 37 | | | $ | 1 | | | | | $ | (1) | |
The net unrealized gains included in earnings on our Level 3 private equity investments for the year ended September 30, 2021 primarily reflected the impact of continued improvement in market conditions and an improved outlook for certain of our investments. Of these gains, $24 million were attributable to treat transfers between levelsnoncontrolling interests, which are reflected as an offset in “Other” expenses on our Consolidated Statements of Income and Comprehensive Income.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended September 30, 2020 Level 3 instruments at fair value |
| | Financial assets | | Financial liabilities |
| | Trading assets | | | | Other investments | | Trading liabilities | | Derivative liabilities |
$ in millions | | Other | | | | Private equity investments | | All other | | Other | | Other |
Fair value beginning of year | | $ | 3 | | | | | $ | 63 | | | $ | 24 | | | $ | (1) | | | $ | — | |
Total gains/(losses) included in earnings | | (4) | | | | | (29) | | | (2) | | | — | | | (5) | |
Purchases and contributions | | 70 | | | | | 4 | | | — | | | 2 | | | — | |
Sales and distributions | | (57) | | | | | (1) | | | — | | | (1) | | | — | |
Transfers: | | | | | | | | | | | | |
Into Level 3 | | — | | | | | — | | | — | | | — | | | — | |
Out of Level 3 | | — | | | | | — | | | — | | | — | | | — | |
Fair value end of year | | $ | 12 | | | | | $ | 37 | | | $ | 22 | | | $ | — | | | $ | (5) | |
Unrealized gains/(losses) for the year included in earnings for instruments held at the end of the year | | $ | (1) | | | | | $ | (29) | | | $ | (2) | | | $ | — | | | $ | (5) | |
The net unrealized losses on our Level 3 private equity investments for the year ended September 30, 2020 were primarily driven by the then anticipated negative impact of the fair value hierarchycoronavirus (“COVID-19”) pandemic on certain of our investments. Of these losses, $20 million were attributable to noncontrolling interests, which are reflected as having occurred at the endan offset in “Other” expenses on our Consolidated Statements of the reporting period.Income and Comprehensive Income.
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Year ended September 30, 2017 Level 3 assets at fair value |
| | Trading instruments | | Available-for-sale securities | | Private equity and other investments |
$ in thousands | | Non-agency CMOs and ABS | | Other | | ARS – municipal obligations | | ARS - preferred securities | | Private equity investments | | Other investments |
Fair value beginning of year | | $ | 7 |
| | $ | 6,020 |
| | $ | 25,147 |
| | $ | 100,018 |
| | $ | 83,165 |
| | $ | 441 |
|
Total gains/(losses) for the year: | | | | |
| | |
| | |
| | |
| | |
|
Included in earnings | | 1 |
| | (2,568 | ) | | 641 |
| | (84 | ) | | 8,343 |
| | 118 |
|
Included in other comprehensive income | | — |
| | — |
| | 2,344 |
| | 7,705 |
| | — |
| | — |
|
Purchases and contributions | | — |
| | 67,316 |
| | — |
| | — |
| | 5,245 |
| | 217 |
|
Sales | | — |
| | (65,174 | ) | | (28,132 | ) | | (1,468 | ) | | (168 | ) | | (245 | ) |
Distributions | | (3 | ) | | — |
| | — |
| | — |
| | (7,700 | ) | | — |
|
Transfers: | | |
| | |
| | |
| | |
| | |
| | |
|
Into Level 3 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Out of Level 3 | | — |
| | — |
| | — |
| | — |
| | — |
| | (195 | ) |
Fair value end of year | | $ | 5 |
| | $ | 5,594 |
| | $ | — |
| | $ | 106,171 |
| | $ | 88,885 |
| | $ | 336 |
|
| | | | | | | | | | | | |
Change in unrealized gains/(losses) for the year included in earnings (or changes in net assets) for assets held at the end of the year | | $ | 1 |
| | $ | (1,626 | ) | | $ | — |
| | $ | 7,705 |
| | $ | 8,331 |
| | $ | 118 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended September 30, 2016 Level 3 assets at fair value |
| | Trading instruments | Available-for-sale securities | | Private equity and other investments |
$ in thousands | | Corporate obligations | | Non-agency CMOs and ABS | | Other | | ARS – municipal obligations | | ARS - preferred securities | | Private equity investments | | Other investments |
Fair value beginning of year | | $ | 156 |
| | $ | 9 |
| | $ | 6,961 |
| | $ | 28,015 |
| | $ | 110,749 |
| | $ | 77,435 |
| | $ | 565 |
|
Total gains/(losses) for the year: | | | | |
| | |
| | | | | | |
| | |
|
Included in earnings | | (137 | ) | | — |
| | (3,048 | ) | | 133 |
| | 136 |
| | 11,517 |
|
| 9 |
|
Included in other comprehensive income | | — |
| | — |
| | — |
| | (1,393 | ) | | (9,656 | ) | | — |
| | — |
|
Purchases and contributions | | 75 |
| | — |
| | 61,887 |
| | — |
| | — |
| | 11,271 |
| | 8 |
|
Sales | | (94 | ) | | — |
|
| (59,780 | ) | | (1,583 | ) | | (1,211 | ) | | (18 | ) |
| — |
|
Redemptions by issuer | | — |
| | — |
| | — |
| | (25 | ) | | — |
| | — |
| | — |
|
Distributions | | — |
| | (2 | ) | | — |
| | — |
| | — |
| | (17,040 | ) | | (141 | ) |
Transfers: | | | | | | | | | | | | | | |
Into Level 3 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Out of Level 3 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Fair value end of year | | $ | — |
| | $ | 7 |
| | $ | 6,020 |
| | $ | 25,147 |
| | $ | 100,018 |
| | $ | 83,165 |
| | $ | 441 |
|
| | | | | | | | | | | | | | |
Change in unrealized gains/(losses) for the year included in earnings (or changes in net assets) for assets held at the end of the year | | $ | — |
| | $ | 2 |
| | $ | (2,752 | ) | | $ | (1,348 | ) | | $ | (9,574 | ) | | $ | 11,517 |
| | $ | 2 |
|
The gains included in our Consolidated Statements of Income and Comprehensive Income for certain private equity investments for the years ended September 30, 2017 and 2016 were primarily attributable to the noncontrolling interests’ share of the net valuation adjustments.
As of September 30, 2017, 10%2021, 19% of our assets and 1% of our liabilities were measured at fair value on a recurring basis. In comparison, as of September 30, 2020, 19% of our assets and 2% of our liabilities are instrumentswere measured at fair value on a recurring basis. InstrumentsAs of both September 30, 2021 and 2020, Level 3 assets represented less than 1% of our assets measured at fair value on a recurring basis categorized as Level 3 as of September 30, 2017 represent 6% of our assets measured at fair value. In comparison as of September 30, 2016, 8% and 3% of our assets and liabilities, respectively, represented instruments measured at fair value on a recurring basis. Instruments measured at fair value on a recurring basis categorized as Level 3 as of September 30, 2016 represented 8% of our assets measured at fair value. Level 3 instruments as a percentage of
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
total financial instruments decreased compared to September 30, 2016, primarily as a result of the increase in total assets measured at fair value since September 30, 2016.
The following table presents the gains/(losses) related to Level 3 recurring fair value measurements included in our Consolidated Statements of Income and Comprehensive Income.
|
| | | | | | | | | | | | |
$ in thousands | | Net trading profits | | Other revenues | | Other comprehensive income |
For the year ended September 30, 2017 | | | | | | |
Total gains/(losses) included in earnings | | $ | (2,567 | ) | | $ | 9,018 |
| | $ | 10,049 |
|
Change in unrealized gains/(losses) for assets held at the end of the year | | $ | (1,625 | ) | | $ | 8,449 |
| | $ | 7,705 |
|
| | | | | | |
For the year ended September 30, 2016 | | | | | | |
Total gains/(losses) included in earnings | | $ | (3,185 | ) | | $ | 11,795 |
| | $ | (11,049 | ) |
Change in unrealized gains/(losses) for assets held at the end of the year | | $ | (2,750 | ) | | $ | 11,519 |
| | $ | (10,922 | ) |
Quantitative information about level 3 fair value measurements
The following table below presents the valuation techniques and significant unobservable inputs used in the valuation of a significant majoritycertain of our financial instrumentsprivate equity investments classified as level 3. These inputs represent those that a market participant would take into account when pricing these instruments. Weighted averages are calculated by weighting each input by the relative fair value of the related financial instrument. Certain investments are valued initially at transaction price and updated as other investment-specific events take place which indicate that a change in the carrying values of these investments is appropriate. Other investment-specific events include such events as our periodic review, significant transactions occur or new developments become known.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Recurring measurements $ in millions | | Fair value at September 30, 2021 | | Valuation technique(s) | | Unobservable input | | Range (weighted-average) |
Other investments - private equity investments (not measured at NAV) | | $ | 75 | | | Discounted cash flow, transaction price or other investment-specific events | | Discount rate | | 25% |
| | | | | | Terminal earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiple | | 10.0x |
| | | | | | Terminal year | | 2023 - 2035 (2024) |
| | Fair value at September 30, 2020 | | | | | | |
Other investments - private equity investments (not measured at NAV) | | $ | 37 | | | Discounted cash flow, transaction price or other investment-specific events | | Discount rate | | 25% |
| | | | | | Terminal EBITDA multiple | | 9.0x |
| | | | | | Terminal year | | 2021 - 2042 (2023) |
|
| | | | | | | | | | |
Level 3 financial instrument $ in thousands | | Fair value at September 30, 2017 | | Valuation technique(s) | | Unobservable input | | Range (weighted-average) |
Recurring measurements: | | | | | | |
ARS preferred securities | | $ | 106,171 |
| | Discounted cash flow | | Average discount rate | | 5.46% - 6.81% (6.03%) |
| | |
| | | | Average interest rates applicable to future interest income on the securities (1) | | 2.58% - 3.44% (2.72%) |
| | |
| | | | Prepayment year (2) | | 2017 - 2021 (2021) |
Private equity investments (not measured at NAV): | | $ | 68,454 |
| | Income or market approach: | | | | |
| | | | Scenario 1 - income approach - discounted cash flow | | Discount rate | | 13% - 25% (22.4%) |
| | | | | | Terminal growth rate of cash flows | | 3% - 3% (3%) |
| | | | | | Terminal year | | 2020 - 2042 (2021) |
| | | | Scenario 2 - market approach - market multiple method | | EBITDA Multiple | | 5.25 - 7.0 (5.8) |
| | | | | | Weighting assigned to outcome of scenario 1/scenario 2 | | 87%/13% |
| | $ | 20,431 |
| | Transaction price or other investment-specific events(3) | | Not meaningful (3) | | Not meaningful (3) |
Nonrecurring measurements: | | |
| | | | | | |
Bank loans: impaired loans - residential | | $ | 20,736 |
| | Discounted cash flow | | Prepayment rate | | 7 yrs. - 12 yrs. (10.4 yrs.) |
Bank loans: impaired loans: corporate | | $ | 3,258 |
| | Appraisal or discounted cash flow value(4) | | Not meaningful (4) | | Not meaningful (4) |
| |
(1) | Future interest rates are projected based upon a forward interest rate path, plus a spread over such projected base rate that is applicable to each future period for each security within this portfolio segment. The interest rates presented represent the average interest rate over all projected periods for securities within the portfolio segment. |
| |
(2) | Assumed calendar year of at least a partial redemption of the outstanding security by the issuer. |
| |
(3) | Certain private equity investments are valued initially at the transaction price until either our periodic review, significant transactions occur, new developments become known, or we receive information from the fund manager that allows us to update our proportionate share of net assets, when any of which indicate that a change in the carrying values of these investments is appropriate. |
| |
(4) | The valuation techniques used for the impaired corporate loan portfolio are appraisals less selling costs for the collateral dependent loans and discounted cash flows for impaired loans that are not collateral dependent. |
(continued on next page)
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued from previous page)
|
| | | | | | | | | | |
Level 3 financial instrument $ in thousands | | Fair value at September 30, 2016 | | Valuation technique(s) | | Unobservable input | | Range (weighted-average) |
Recurring measurements: | | | | | | |
Available-for-sale securities ARS Municipals - issuer is a municipality | | $ | 10,413 |
| | Discounted cash flow | | Average discount rate | | 5.17% - 6.36% (5.77%) |
| | | | | | Average interest rates applicable to future interest income on the securities (1) | | 1.23% - 1.83% (1.53%) |
| | | | | | Prepayment year (2) | | 2019 - 2026 (2022) |
Available-for-sale securities ARS Municipals - tax- exempt preferred securities | | $ | 14,734 |
| | Discounted cash flow | | Average discount rate | | 4.62% - 5.62% (5.12%) |
| | |
| | | | Average interest rates applicable to future interest income on the securities (1) | | 0.91% - 0.91% (0.91%) |
| | |
| | | | Prepayment year (2) | | 2016 - 2021 (2021) |
Available-for-sale securities ARS Preferred securities | | $ | 100,018 |
| | Discounted cash flow | | Average discount rate | | 4.87% - 6.34% (5.56%) |
| | |
| | | | Average interest rates applicable to future interest income on the securities (1) | | 1.24% - 2.51% (1.34%) |
| | |
| | | | Prepayment year (2) | | 2016 - 2021 (2021) |
Private equity investments (not measured at NAV): | | $ | 56,746 |
| | Income or market approach: | | | | |
| | | | Scenario 1 - income approach - discounted cash flow | | Discount rate | | 13% - 20% (17.9%) |
| | | | | | Terminal growth rate of cash flows | | 3% - 3% (3%) |
| | | | | | Terminal year | | 2019 - 2021 (2020) |
| | | | Scenario 2 - market approach - market multiple method | | EBITDA Multiple | | 5.25 - 7.5 (6.3) |
| | | | | | Weighting assigned to outcome of scenario 1/scenario 2 | | 81%/19% |
| | $ | 26,419 |
| | Transaction price or other investment-specific events (3) | | Not meaningful (3) | | Not meaningful (3) |
Nonrecurring measurements: | | |
| | | | | | |
Bank loans - impaired residential | | $ | 21,909 |
| | Discounted cash flow | | Prepayment rate | | 7 yrs. - 12 yrs. (10.2 yrs.) |
Bank loans - impaired corporate | | $ | 26,073 |
| | Appraisal or discounted cash flow value (4) | | Not meaningful (4) | | Not meaningful (4) |
| |
(1) | Future interest rates are projected based upon a forward interest rate path, plus a spread over such projected base rate that is applicable to each future period for each security within this portfolio segment. The interest rates presented represent the average interest rate over all projected periods for securities within the portfolio segment. |
| |
(2) | Assumed calendar year of at least a partial redemption of the outstanding security by the issuer. |
| |
(3) | Certain private equity investments are valued initially at the transaction price until either our periodic review, significant transactions occur, new developments become known, or we receive information from the fund manager that allows us to update our proportionate share of net assets, when any of which indicate that a change in the carrying values of these investments is appropriate. |
| |
(4) | The valuation techniques used for the impaired corporate loan portfolio are appraisals less selling costs for the collateral dependent loans and discounted cash flows for impaired loans that are not collateral dependent. |
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Qualitative disclosureinformation about unobservable inputs
For our recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the sensitivity of the fair value measurement to changes in significant unobservable inputs and interrelationships between those unobservable inputs are described below:
Auction rate securities:
One of the significant unobservable inputs used in the fair value measurement of auction rate securities presented within our available-for-sale securities portfolio relates to judgments regarding whether the level of observable trading activity is sufficient to conclude markets are active. Where insufficient levels of trading activity are determined to exist as of the reporting date, then management’s assessment of how much weight, if any, to apply to trading prices in inactive markets versus management’s own valuation models could significantly impact the valuation conclusion. The valuation of the securities impacted by changes in management’s assessment of market activity levels could be either higher or lower, depending upon the relationship of the inactive trading prices compared to the outcome of management’s internal valuation models.
The future interest rate and maturity assumptions impacting the valuation of the auction rate securities are directly related. As short-term interest rates rise, due to the variable nature of the penalty interest rate provisions embedded in most of these securities in the event auctions fail to set the security’s interest rate, then a penalty rate that is specified in the security increases. These penalty rates are based upon a stated interest rate spread over what is typically a short-term base interest rate index. Management estimates that at some level of increase in short-term interest rates, issuers of the securities will have the economic incentive to refinance (and thus prepay) the securities. Therefore, the short-term interest rate assumption directly impacts the input related to the timing of any projected prepayment. The faster and steeper short-term interest rates rise, the earlier prepayments will likely occur and the higher the fair value of the security.
Private equity investments:
The significant unobservable inputs used in the fair value measurement of private equity investments generally relate to the financial performance of the investment entity and the market’s required return on investments from entities in industries in which we hold investments. Significant increases/(decreases)Increases in our investment entities’ future economic performance willthe discount rate would have resulted in a corresponding increase/(decrease) onlower fair value measurement. Increases in the valuation results. Theterminal EBITDA multiple would have resulted in a higher fair value of our investment moves inversely withmeasurement. Increases in the market’s expectation of returns from such investments. Should the market require higher returns from industriesterminal year are dependent upon each investment’s strategy, but generally result in which we are invested, all other factors held constant, our investments will decrease in value. Should the market accepta lower returns from industries in which we are invested, all other factors held constant, our investments will increase in value.fair value measurement.
Investments in private equity measured at net asset value per share
As a practical expedient, we utilize NAV or its equivalent to determine the recorded value of a portion of our private equity investments portfolio. We utilize NAV when the fund investment does not have a readily determinable fair value and the NAV of the fund is calculated in a manner consistent with the measurement principles of investment company accounting, including measurement of the investments at fair value.
Our private equity portfolio as of September 30, 20172021 includes various direct and third partyinvestments, as well as investments in third-party private equity investmentsfunds and various legacy private equity funds which we sponsor. The portfolio is primarily invested in a broad range of industriesstrategies including leveraged buyouts, growth capital, distressed capital, venture capital and mezzanine capital.
Due to the closed-end nature of certain of our fund investments, such investments cannot be redeemed directly with the funds. Our investment is monetized throughby distributions received through the liquidation of the underlying assets of those funds. We anticipate 90%funds, the timing of these underlying assets will be liquidated over a period of five years or less, with the remaining 10% to be liquidated over a period of nine years.which is uncertain.
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table below presents the recorded value and unfunded commitments related to our private equity investments portfolio.
| | | | | | | | | | | | | | |
$ in millions | | Recorded value | | Unfunded commitment |
September 30, 2021 | | | | |
Private equity investments measured at NAV | | $ | 94 | | | $ | 8 | |
Private equity investments not measured at NAV | | 75 | | | |
Total private equity investments | | $ | 169 | | | |
| | | | |
September 30, 2020 | | | | |
Private equity investments measured at NAV | | $ | 79 | | | $ | 9 | |
Private equity investments not measured at NAV | | 37 | | | |
Total private equity investments | | $ | 116 | | | |
|
| | | | | | | | | | | | | | | | |
| | | | Unfunded commitment |
$ in thousands | | Recorded Value | | RJF | | Noncontrolling Interest | | Total |
September 30, 2017 | | | | | | | | |
Private equity investments measured at NAV | | $ | 109,894 |
| | $ | 20,973 |
| | $ | 2,273 |
| | $ | 23,246 |
|
Private equity investments measured at fair value | | 88,885 |
| | | | | | |
Total private equity investments | | $ | 198,779 |
| | | | | | |
| | | | | | | | |
September 30, 2016 | | | | | | | | |
Private equity investments measured at NAV | | $ | 111,469 |
| | $ | 27,542 |
| | $ | 3,001 |
| | $ | 30,543 |
|
Private equity investments measured at fair value | | 83,165 |
| | | | | | |
Total private equity investments | | $ | 194,634 |
| | | | | | |
Of the total private equity investments, the portions we owned were $120 million and $90 million as of September 30, 2021 and 2020, respectively. The portions of the private equity investments we dodid not own were $54$49 million and $51$26 million as of September 30, 20172021 and September 30, 2016,2020, respectively, and as such arewere included as a component of noncontrolling interest ininterests on our Consolidated Statements of Financial Condition. Of the total
As a financial holding company, we are subject to holding period limitations for our merchant banking activities. Additionally, many of our private equity investments, the weighted average portion we own is $145 million or 73% and $144 million or 74% as of September 30, 2017 and September 30, 2016, respectively.
Many of these fund investments meet the definition of prohibited “covered funds”covered funds as defined by the Volcker Rule ofenacted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Volcker Rule”Dodd-Frank Act”). We have received approval from the Board of Governors of the Federal Reserve System (the “Fed”)Fed to continue to hold the majority of our covered fund investments for up to an additional five-year conformance period, thereby extending our applicable holding period until July 2022 for such investments.2022. As a result, we will be required to exit or restructure certain of our private equity investments during fiscal 2022.
FairFinancial instruments measured at fair value optionon a nonrecurring basis
The following table presents assets measured at fair value option is an accounting electionon a nonrecurring basis along with the valuation techniques and significant unobservable inputs used in the valuation of the assets classified as level 3. These inputs represent those that allowsa market participant would take into account when pricing these instruments. Weighted averages are calculated by weighting each input by the reporting entity to applyrelative fair value accounting for certainof the related financial assets and liabilities on an instrument by instrument basis. As of September 30, 2017 and 2016, we had not electedinstrument.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | | | Level 2 | | Level 3 | | Total fair value | | Valuation technique(s) | | Unobservable input | | Range (weighted-average) |
September 30, 2021 | | | | | | | | | | | | | | |
Bank loans: | | | | | | | | | | | | | | |
Residential mortgage loans | | | | $ | 3 | | | $ | 11 | | | $ | 14 | | | Collateral or discounted cash flow (1) | | Prepayment rate | | 7 yrs. - 12 yrs. (10.5 yrs.) |
Corporate loans | | | | $ | — | | | $ | 49 | | | $ | 49 | | | Collateral or discounted cash flow (1) | | Not meaningful (1) | | Not meaningful (1) |
Loans held for sale | | | | $ | 29 | | | $ | — | | | $ | 29 | | | N/A | | N/A | | N/A |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
September 30, 2020 | | | | | | | | | | | | | | |
Bank loans: | | | | | | | | | | | | | | |
Residential mortgage loans | | | | $ | 4 | | | $ | 13 | | | $ | 17 | | | Collateral or discounted cash flow (1) | | Prepayment rate | | 7 yrs. - 12 yrs. (10.6 yrs.) |
Corporate loans | | | | $ | — | | | $ | 15 | | | $ | 15 | | | Collateral or discounted cash flow (1) | | Not meaningful (1) | | Not meaningful (1) |
Loans held for sale | | | | $ | 38 | | | $ | — | | | $ | 38 | | | N/A | | N/A | | N/A |
Other assets: other real estate owned | | | | $ | 1 | | | $ | — | | | $ | 1 | | | N/A | | N/A | | N/A |
(1) The valuation techniques used to estimate the fair values are based on collateral value optionless selling costs for any of our financial assets or liabilitiesthe collateral-dependent loans and discounted cash flows for loans that are not alreadycollateral-dependent.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Financial instruments not recorded at fair value.
Additional disclosures about the fair value of financial instruments that are not carried on the Consolidated Statements of Financial Condition at fair value
Many, but not all, of the financial instruments we hold arewere recorded at fair value inon the Consolidated Statements of Financial Condition.
The following representstable presents the estimated fair value and fair value hierarchy of financial instruments in which the ending balance at September 30, 2017assets and 2016 wasliabilities that are not carriedrecorded at fair value in accordance withon the GAAP on our Consolidated Statements of Financial Condition:Condition at September 30, 2021 and 2020. This table excludes financial instruments that are carried at amounts which approximate fair value.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | | | Level 2 | | Level 3 | | Total estimated fair value | | Carrying amount |
September 30, 2021 | | | | | | | | | | |
Financial assets: | | | | | | | | | | |
Bank loans, net | | | | $ | 116 | | | $ | 24,839 | | | $ | 24,955 | | | $ | 24,902 | |
Financial liabilities: | | | | | | | | | | |
Bank deposits - certificates of deposit | | | | $ | — | | | $ | 898 | | | $ | 898 | | | $ | 878 | |
Senior notes payable | | | | $ | 2,459 | | | $ | — | | | $ | 2,459 | | | $ | 2,037 | |
| | | | | | | | | | |
September 30, 2020 | | | | | | | | | | |
Financial assets: | | | | | | | | | | |
Bank loans, net | | | | $ | 72 | | | $ | 21,119 | | | $ | 21,191 | | | $ | 21,125 | |
Financial liabilities: | | | | | | | | | | |
Bank deposits - certificates of deposit | | | | $ | — | | | $ | 1,056 | | | $ | 1,056 | | | $ | 1,017 | |
Senior notes payable | | | | $ | 2,504 | | | $ | — | | | $ | 2,504 | | | $ | 2,045 | |
Short-term financial instruments: The carrying value of short-term financial instruments, includingsuch as cash and cash equivalents, assetsincluding amounts segregated pursuant to federal regulationsfor regulatory purposes and other segregated assets, repurchaserestricted cash, and the majority of collateralized agreements and reverse repurchase agreements and other collateralized financings, are recorded at amounts that approximate the fair value of these instruments. These financial instruments generally expose us to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market rates. Under the fair value hierarchy, cash and cash equivalents, including amounts segregated for regulatory purposes and assets segregated pursuant to federal regulations and other segregated assetsrestricted cash, are classified as Level 1. Repurchase1 and collateralized agreements and reverse repurchase agreements and other collateralized financings are classified as Level 2 under the fair value hierarchy as they are generally overnight and are collateralized by U.S. government or agency securities.2.
Bank loans, net: These financial instruments are primarily comprised of loans originated or purchased by RJRaymond James Bank and include C&I loans, commercial and residential real estate loans, tax-exempt loans, as well as SBL and other loans intended to be held until maturity or payoff andpayoff. These financial instruments are primarily recorded at amounts that result from the application of the methodologies for loans held for investment methodologies summarized in Note 2. In addition, these financial instruments consist ofCertain bank loans are held for sale, which are carried at the lower of cost or market value. A portion of these loans held for sale, which are carried at lower of cost or market value, as well as any impaired loanscertain held for investment loans which have been written-down, are recorded at fair value as nonrecurring fair value measurements and therefore are excluded from the table below.preceding table.
FairThe fair values for both variable and fixed-rate loans held for investment are estimated using a discounted cash flow analysis based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. This methodology for estimating the fair valuequality, which includes our estimate of loans does not consider other market variables and, therefore, is not based on an exit price concept.future credit losses expected to be incurred. The
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
majority of fair value determinations for these loans are classified as Level 3 under the fair value hierarchy. Refer to Note 2 for information regarding the fair value policies specific to loans held for sale.
Receivables and other assets: Brokerage client receivables, receivables from brokers, dealers and clearing organizations, other receivables, and certain other assets are recorded at amounts that approximate fair value and are classified as LevelLevels 2 and 3 under the fair value hierarchy. As specified under GAAP, the FHLB and FRB stock are recorded at cost, which we have determined to approximate their estimated fair value, and are classified as Level 2 under the fair value hierarchy.
Loans to financial advisors, net: These financial instruments are primarily comprised of loans provided to financial advisors, or key revenue producers, primarily for recruiting transitional cost assistance, and retention purposes. Such loans are generally repaid over a five to eight year period, and are recorded at cost less an allowance for doubtful accounts. The fair value of loans to financial advisors, net, is determined through application of a discounted cash flow analysis, based on contractual maturities of the underlying loans discounted at the current market interest rates associated with such loans. This methodology for estimating the fair value of these loans does not consider other market variables and, therefore, is not based on an exit price concept. Loans to financial advisors, net are classified as Level 3 under the fair value hierarchy.
Securities borrowed and securities loaned: Securities borrowed and securities loaned are recorded at amounts whichthat approximate fair value and are primarily classified as Level 2 under the fair value hierarchy. Refer to Note 2 for information regarding loans to financial advisors, net.
Bank deposits: The fair values for demand deposits are equal to the amount payable on demand at the reporting date (i.e., carrying amounts). The carrying amounts of variable-rate money market and savings accounts approximate their fair values at the reporting date as these are short-term in nature. Due to their demand or short-term nature, the demand deposits and variable ratevariable-rate money market and savings accounts are classified as Level 2 under the fair value hierarchy. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of expected monthly maturities on time deposits. These fixed ratefixed-rate certificates of deposit are classified as Level 3 under the fair value hierarchy.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Payables: Brokerage client payables payables to brokers, dealers and clearing organizations, and other payables are recorded at amounts that approximate fair value and are classified as Level 2 under the fair value hierarchy.
Other borrowings: The fair value of the mortgage note payable associated with the financing of our Saint Petersburg, Florida corporate offices Other borrowings is based upon an estimate of the current market rates for similar loans. The carrying amount of the remaining components of our other borrowings approximate their fair value due to the relative short-term nature of such borrowings, some of which are day-to-day. In addition to the mortgage note payable, the portion of other borrowings which are not “day-to-day” are primarily comprised of RJRaymond James Bank’s borrowings from the FHLB, which by their nature, reflect terms that approximate current market rates for similar loans. Under theloans and therefore, their carrying value approximates fair value hierarchy, ourvalue. Our other borrowings are classified as Level 2.2 under the fair value hierarchy.
Senior notes payable: The fair value of our senior notes payable is calculated based upon recent trades of those or other similar debt securities in the market.
Off-balance sheet financial instruments: The fair value of unfunded commitments to extend credit is based on a methodology similar to that described above for bank loans and further adjusted for the probability of funding. The fair value of these unfunded lending commitments, in addition to the fair value of other off-balance sheet financial instruments, Our senior notes payable are classified as Level 32 under the fair value hierarchy. See Note 22 for further discussion of off-balance sheet financial instruments.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The table below presents the estimated fair values by level within the fair value hierarchy and the carrying amounts of certain of our financial instruments not carried at fair value. The carrying amounts below exclude financial instruments which have been recorded at fair value and those recorded at amounts which approximate fair value in the Consolidated Statements of Financial Condition.
|
| | | | | | | | | | | | | | | | | | | | |
$ in thousands | | Quoted prices in active markets for identical instruments (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | | Total estimated fair value | | Carrying amount |
September 30, 2017 | | | | | | | | | | |
Financial assets: | | | | | | | | | | |
Bank loans, net | | $ | — |
| | $ | 23,001 |
| | $ | 16,836,745 |
| | $ | 16,859,746 |
| | $ | 16,954,042 |
|
Loans to financial advisors, net | | $ | — |
| | $ | — |
| | $ | 698,862 |
| | $ | 698,862 |
| | $ | 863,647 |
|
Financial liabilities: | | | | | | | | |
| | |
Bank deposits | | $ | — |
| | $ | 17,417,678 |
| | $ | 313,359 |
| | $ | 17,731,037 |
| | $ | 17,732,362 |
|
Other borrowings | | $ | — |
| | $ | 29,278 |
| | $ | — |
| | $ | 29,278 |
| | $ | 28,813 |
|
Senior notes payable | | $ | — |
| | $ | 1,647,696 |
| | $ | — |
| | $ | 1,647,696 |
| | $ | 1,548,839 |
|
September 30, 2016 | | | | | | | | | | |
Financial assets: | | | | | | | | | | |
Bank loans, net | | $ | — |
| | $ | 196,109 |
| | $ | 14,925,802 |
| | $ | 15,121,911 |
| | $ | 15,121,430 |
|
Loans to financial advisors, net | | $ | — |
| | $ | — |
| | $ | 699,733 |
| | $ | 699,733 |
| | $ | 826,776 |
|
Financial liabilities: | | | | | | | | |
| | |
Bank deposits | | $ | — |
| | $ | 13,947,310 |
| | $ | 318,228 |
| | $ | 14,265,538 |
| | $ | 14,262,547 |
|
Other borrowings | | $ | — |
| | $ | 34,520 |
| | $ | — |
| | $ | 34,520 |
| | $ | 33,391 |
|
Senior notes payable | | $ | 362,180 |
| | $ | 1,452,071 |
| | $ | — |
| | $ | 1,814,251 |
| | $ | 1,680,587 |
|
NOTE 5 – AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities are primarily comprised of agency MBS and agency CMOs owned by RJ Bank and ARS owned by oneRaymond James Bank. As of our non-broker-dealer subsidiaries. SeeOctober 1, 2020, we adopted new accounting guidance related to the measurement of credit losses on financial instruments, including available-for-sale securities. Refer to Note 2 for further information about this guidance and a discussion of our available-for-sale securities accounting policies, including the fair value determination process.securities.
The following table details the amortized costcosts and fair values of available-for sale-securities areour available-for-sale securities.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | Cost basis | | Gross unrealized gains | | Gross unrealized losses | | Fair value |
September 30, 2021 | | | | | | | | |
Agency residential MBS | | $ | 5,168 | | | $ | 46 | | | $ | (25) | | | $ | 5,189 | |
Agency commercial MBS | | 1,285 | | | 7 | | | (28) | | | 1,264 | |
Agency CMOs | | 1,854 | | | 9 | | | (16) | | | 1,847 | |
Other securities | | 15 | | | — | | | — | | | 15 | |
Total available-for-sale securities | | $ | 8,322 | | | $ | 62 | | | $ | (69) | | | $ | 8,315 | |
| | | | | | | | |
September 30, 2020 | | | | | | | | |
Agency residential MBS | | $ | 4,064 | | | $ | 74 | | | $ | (3) | | | $ | 4,135 | |
Agency commercial MBS | | 948 | | | 22 | | | (1) | | | 969 | |
Agency CMOs | | 2,504 | | | 27 | | | (1) | | | 2,530 | |
Other securities | | 15 | | | 1 | | | — | | | 16 | |
Total available-for-sale securities | | $ | 7,531 | | | $ | 124 | | | $ | (5) | | | $ | 7,650 | |
The amortized costs and fair values in the preceding table exclude $14 million and $15 million of accrued interest on available-for-sale securities as follows:of September 30, 2021 and September 30, 2020, respectively, which was included in “Other receivables, net” on our Consolidated Statements of Financial Condition.
|
| | | | | | | | | | | | | | | | |
$ in thousands | | Cost basis | | Gross unrealized gains | | Gross unrealized losses | | Fair value |
September 30, 2017 | | | | | | | | |
Agency MBS and CMOs | | $ | 2,089,153 |
| | $ | 1,925 |
| | $ | (9,999 | ) | | $ | 2,081,079 |
|
Other securities | | 1,575 |
| | — |
| | (543 | ) | | 1,032 |
|
Total RJ Bank available-for-sale securities | | 2,090,728 |
| | 1,925 |
| | (10,542 | ) | | 2,082,111 |
|
ARS preferred securities | | 101,674 |
| | 4,497 |
| | — |
| | 106,171 |
|
Total available-for-sale securities | | $ | 2,192,402 |
| | $ | 6,422 |
| | $ | (10,542 | ) | | $ | 2,188,282 |
|
September 30, 2016 | | |
| | |
| | |
| | |
|
Agency MBS and CMOs | | $ | 680,341 |
| | $ | 2,512 |
| | $ | (556 | ) | | $ | 682,297 |
|
Non-agency CMOs (1) | | 53,427 |
| | 9 |
| | (2,917 | ) | | 50,519 |
|
Other securities | | 1,575 |
| | — |
| | (158 | ) | | 1,417 |
|
Total RJ Bank available-for-sale securities | | 735,343 |
| | 2,521 |
| | (3,631 | ) | | 734,233 |
|
ARS municipal obligations | | 27,491 |
| | 14 |
| | (2,358 | ) | | 25,147 |
|
ARS preferred securities | | 103,226 |
| | — |
| | (3,208 | ) | | 100,018 |
|
Total auction rate securities | | 130,717 |
| | 14 |
| | (5,566 | ) | | 125,165 |
|
Total available-for-sale securities | | $ | 866,060 |
| | $ | 2,535 |
| | $ | (9,197 | ) | | $ | 859,398 |
|
| |
(1) | As of September 30, 2016, the non-credit portion of unrealized losses related to non-agency CMOs with previously recorded OTTI before taxes was $2 million, recorded in AOCI. See Note 18 for additional information. During the year ended September 30, 2017, we sold the remainder of our non-agency CMOs. |
See Note 4 for additional information regarding the fair value of available-for-sale securities.
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table details the contractual maturities, amortized cost,costs, carrying values and current yields for our available-for-sale securities are as presented below.securities. Since RJ Bank’sour MBS and CMO available-for-sale securities (MBS and CMOs) are backed by mortgages, actual maturities willmay differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties. Expected maturitiesAs a result, as of ARS may differ significantly from contractual maturities, as issuers may haveSeptember 30, 2021, the right to call or prepay obligations with or without call or prepayment penalties.weighted-average life of our available-for-sale securities portfolio was approximately four years.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 |
$ in millions | | Within one year | | After one but within five years | | After five but within ten years | | After ten years | | Total |
Agency residential MBS | | | | | | | | | | |
Amortized cost | | $ | — | | | $ | 80 | | | $ | 2,554 | | | $ | 2,534 | | | $ | 5,168 | |
Carrying value | | $ | — | | | $ | 84 | | | $ | 2,570 | | | $ | 2,535 | | | $ | 5,189 | |
Agency commercial MBS | | | | | | | | | | |
Amortized cost | | $ | 21 | | | $ | 298 | | | $ | 878 | | | $ | 88 | | | $ | 1,285 | |
Carrying value | | $ | 21 | | | $ | 299 | | | $ | 856 | | | $ | 88 | | | $ | 1,264 | |
Agency CMOs | | | | | | | | | | |
Amortized cost | | $ | — | | | $ | 1 | | | $ | 32 | | | $ | 1,821 | | | $ | 1,854 | |
Carrying value | | $ | — | | | $ | 1 | | | $ | 33 | | | $ | 1,813 | | | $ | 1,847 | |
Other securities | | | | | | | | | | |
Amortized cost | | $ | — | | | $ | 8 | | | $ | 7 | | | $ | — | | | $ | 15 | |
Carrying value | | $ | — | | | $ | 8 | | | $ | 7 | | | $ | — | | | $ | 15 | |
Total available-for-sale securities | | | | | | | | | | |
Amortized cost | | $ | 21 | | | $ | 387 | | | $ | 3,471 | | | $ | 4,443 | | | $ | 8,322 | |
Carrying value | | $ | 21 | | | $ | 392 | | | $ | 3,466 | | | $ | 4,436 | | | $ | 8,315 | |
Weighted-average yield | | 2.24 | % | | 1.61 | % | | 1.15 | % | | 1.08 | % | | 1.14 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 |
$ in thousands | | Within one year | | After one but within five years | | After five but within ten years | | After ten years | | Total |
Agency MBS and CMOs: | | | | | | | | | | |
Amortized cost | | $ | — |
| | $ | 110,510 |
| | $ | 675,502 |
| | $ | 1,303,141 |
| | $ | 2,089,153 |
|
Carrying value | | — |
| | 110,019 |
| | 673,454 |
| | 1,297,606 |
| | 2,081,079 |
|
Weighted-average yield | | — |
| | 1.96 | % | | 1.87 | % | | 1.97 | % | | 1.94 | % |
Other securities: | | | | | | | | | | |
Amortized cost | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,575 |
| | $ | 1,575 |
|
Carrying value | | — |
| | — |
| | — |
| | 1,032 |
| | 1,032 |
|
Weighted-average yield | | — |
| | — |
| | — |
| | — |
| | — |
|
Sub-total agency MBS and CMOs and other securities: | | |
| | |
|
Amortized cost | | $ | — |
| | $ | 110,510 |
| | $ | 675,502 |
| | $ | 1,304,716 |
| | $ | 2,090,728 |
|
Carrying value | | — |
| | 110,019 |
| | 673,454 |
| | 1,298,638 |
| | 2,082,111 |
|
Weighted-average yield | | — |
| | 1.96 | % | | 1.87 | % | | 1.97 | % | | 1.94 | % |
ARS preferred securities: | | |
| | |
| | |
| | |
| | |
|
Amortized cost | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 101,674 |
| | $ | 101,674 |
|
Carrying value | | — |
| | — |
| | — |
| | 106,171 |
| | 106,171 |
|
Weighted-average yield | | — |
| | — |
| | — |
| | 2.10 | % | | 2.10 | % |
Total available-for-sale securities: | | |
| | |
| | |
| | |
| | |
|
Amortized cost | | $ | — |
| | $ | 110,510 |
| | $ | 675,502 |
| | $ | 1,406,390 |
| | $ | 2,192,402 |
|
Carrying value | | — |
| | 110,019 |
| | 673,454 |
| | 1,404,809 |
| | 2,188,282 |
|
Weighted-average yield | | — |
| | 1.96 | % | | 1.87 | % | | 1.98 | % | | 1.95 | % |
The following table details the gross unrealized losses and fair value,values of securities that were in a loss position at the reporting period end, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, are as follows:position.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or more | | Total |
$ in millions | | Estimated fair value | | Unrealized losses | | Estimated fair value | | Unrealized losses | | Estimated fair value | | Unrealized losses |
September 30, 2021 | | | | | | | | | | | | |
Agency residential MBS | | $ | 3,155 | | | $ | (25) | | | $ | 18 | | | $ | — | | | $ | 3,173 | | | $ | (25) | |
Agency commercial MBS | | 645 | | | (13) | | | 353 | | | (15) | | | 998 | | | (28) | |
Agency CMOs | | 918 | | | (12) | | | 231 | | | (4) | | | 1,149 | | | (16) | |
Other securities | | 3 | | | — | | | — | | | — | | | 3 | | | — | |
Total | | $ | 4,721 | | | $ | (50) | | | $ | 602 | | | $ | (19) | | | $ | 5,323 | | | $ | (69) | |
September 30, 2020 | | | | | | | | | | | | |
Agency residential MBS | | $ | 966 | | | $ | (3) | | | $ | — | | | $ | — | | | $ | 966 | | | $ | (3) | |
Agency commercial MBS | | 177 | | | (1) | | | — | | | — | | | 177 | | | (1) | |
Agency CMOs | | 410 | | | (1) | | | — | | | — | | | 410 | | | (1) | |
| | | | | | | | | | | | |
Total | | $ | 1,553 | | | $ | (5) | | | $ | — | | | $ | — | | | $ | 1,553 | | | $ | (5) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 |
| | Less than 12 months | | 12 months or more | | Total |
$ in thousands | | Estimated fair value | | Unrealized losses | | Estimated fair value | | Unrealized losses | | Estimated fair value | | Unrealized losses |
Agency MBS and CMOs | | $ | 1,119,715 |
| | $ | (5,621 | ) | | $ | 295,528 |
| | $ | (4,378 | ) | | $ | 1,415,243 |
| | $ | (9,999 | ) |
Other securities | | — |
| | — |
| | 1,032 |
| | (543 | ) | | 1,032 |
| | (543 | ) |
Total | | $ | 1,119,715 |
| | $ | (5,621 | ) | | $ | 296,560 |
| | $ | (4,921 | ) | | $ | 1,416,275 |
| | $ | (10,542 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2016 |
| | Less than 12 months | | 12 months or more | | Total |
$ in thousands | | Estimated fair value | | Unrealized losses | | Estimated fair value | | Unrealized losses | | Estimated fair value | | Unrealized losses |
Agency MBS and CMOs | | $ | 208,880 |
| | $ | (361 | ) | | $ | 28,893 |
| | $ | (195 | ) | | $ | 237,773 |
| | $ | (556 | ) |
Non-agency CMOs | | 4,256 |
| | (21 | ) | | 44,137 |
| | (2,896 | ) | | 48,393 |
| | (2,917 | ) |
Other securities | | 1,417 |
| | (158 | ) | | — |
| | — |
| | 1,417 |
| | (158 | ) |
ARS municipal obligations | | 13,204 |
| | (697 | ) | | 11,695 |
| | (1,661 | ) | | 24,899 |
| | (2,358 | ) |
ARS preferred securities | | 98,489 |
| | (3,208 | ) | | — |
| | — |
| | 98,489 |
| | (3,208 | ) |
Total | | $ | 326,246 |
| | $ | (4,445 | ) |
| $ | 84,725 |
|
| $ | (4,752 | ) |
| $ | 410,971 |
|
| $ | (9,197 | ) |
The reference point for determining when securities are in a loss position is the reporting period end. As such, it is possible that a security had a fair value that exceeded its amortized cost on other days during the period.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Agency MBS and CMOs and Non-agency CMOs
The Federal Home Loan Mortgage Corporation (“FHLMC”), FNMA, as well the GNMA, guarantee the contractual cash flows of our available-for-sale securities are guaranteed by the agency MBS and CMOs.U.S. government or its agencies. At September 30, 2017,2021, of the 133 U.S. government-sponsored enterprise MBS and CMOs276 available-for-sale securities in an unrealized loss position, 100239 were in a continuous unrealized loss position for less than 12 months and 3337 securities were in a continuous unrealized loss position for greater than 12 months or more.months. We do not consider unrealized losses associated with these securities other-than-temporarily impairedto be credit losses due to the guarantee provided by FNMA, FHLMC, and GNMA as toof the full payment of principal and interest, and the fact that we have the ability and intent to hold these securities. In addition, unrealized losses related to these available-for-sale securities are generally due to changes in market interest rates. At September 30, 2017,2021, based on our assessment of this portfolio, we did not recognize an allowance for credit losses on our available-for-sale securities. At September 30, 2021, debt securities we held from FNMAin excess of ten percent of our equity included those issued by the Federal National Home Mortgage Association and FHLMC had anFederal Home Loan Mortgage Corporation with amortized costcosts of $1.43$5.17 billion and $586$2.90 billion, respectively, which also approximated the fair values of the securities.
We received proceeds of $969 million and $222 million, respectively, and a fair valuefrom the sales of $1.42 billion and $582 million, respectively.
Duringavailable-for-sale securities for the yearyears ended September 30, 2017, we sold the remainder of our non-agency CMOs. In2021 and 2020, respectively. These sales resulted in insignificant gains for both periods, in which we held such securities, all individual non-agency securities were evaluated for OTTI on a quarterly basis. Only those non-agency CMOs whose amortized cost basis we did not expect to recover in full were considered to be other than temporarily impaired, as we had the ability and intent to hold such securities.
There were $66 million in proceeds and a gain of $1 million, which is included in “Other revenues” on our Consolidated Statements of Income and Comprehensive Income, from the sale of agency MBS and CMOs and non-agency CMO available-for-sale securities during the year ended September 30, 2017. During the year ended September 30, 2016, there were $8 million in proceeds, resulting in an insignificant gain, from sales of non-agency CMO available-for-sale securities. During the year ended September 30, 2015, there were $12 million in proceeds and a loss of $1 million from the sale of non-agency CMO available-for-sale securities.
ARS
Our cost basis in the ARS we hold is the fair value of the securities in the period in which we acquired them. The par value of the ARS we held as of September 30, 2017 was $120 million. Only those ARS whose amortized cost basis we do not expect to recover in full are considered to be other-than-temporarily impaired, as we have the ability and intent to hold these securities. All of our ARS securities are evaluated for OTTI on a quarterly basis.
As of September 30, 2017, there were no ARS with a fair value less than cost basis. During the year ended September 30, 2017, we sold the remainder of our ARS municipal obligations. In periods in which we held such securities, certain ARS had a fair value less than their cost basis, indicating potential impairment. We analyzed the credit ratings associated with these securities as an indicator of potential credit impairment and, including subsequent ratings changes, determined that all of these securities maintained investment-grade ratings by at least one rating agency. We had the ability and intent to hold these ARS and expected to recover the entire cost basis and therefore concluded that none of the potential impairment was related to potential credit loss.
Sales or redemptions of ARS for the year-ended September 30, 2017 primarily related to ARS municipal obligations and resulted in aggregate proceeds of $30 million and a gain of $1 million, which is included in “Other revenues”“Other” revenues on our Consolidated Statements of Income and Comprehensive Income. DuringThere were no sales of available-for-sale securities for the year ended September 30, 2016, sales or redemptions of ARS resulted in proceeds of $3 million and an insignificant gain. During the year ended September 30, 2015, sales or redemptions of ARS resulted in proceeds of $64 million and a gain of $11 million primarily related to ARS municipal obligations.
Other-than-temporarily impaired securities
There is no intent to sell our ARS and it was not more likely than not that we would be required to sell these securities as of September 30, 2017.
Changes in the amount of OTTI related to credit losses recognized in “Other revenues” on available-for-sale securities are as follows:2019.
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | 2016 | | 2015 |
Amount related to credit losses on securities we held at the beginning of the year | | $ | 8,107 |
| | $ | 11,847 |
| | $ | 18,703 |
|
Decreases to the amount related to credit losses for securities sold during the year | | (8,107 | ) | | (3,740 | ) | | (6,856 | ) |
Amount related to credit losses on securities we held at the end of the year | | $ | — |
| | $ | 8,107 |
| | $ | 11,847 |
|
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 6 – DERIVATIVE FINANCIAL INSTRUMENTSASSETS AND DERIVATIVE LIABILITIES
Our derivative assets and derivative liabilities are recorded at fair value and are included in “Derivative assets” and “Derivative liabilities” inon our Consolidated Statements of Financial Condition. Cash flows related to our derivative contractsderivatives are included within operating activities inon the Consolidated Statements of Cash Flows. The significant accounting policies governing our derivative financial instruments,derivatives, including our methodologies for determining fair value, are described in Note 2.
Derivatives arising from our fixed income business operations
We enter into interest rate contracts as part of our fixed income business to facilitate client transactions or to actively manage risk exposures that arise from our client activity, including a portion of our trading inventory. The majority of these derivatives are traded in the over-the-counter market and are executed directly with another counterparty or are cleared and settled through a clearing organization.
We also facilitate matched book derivative transactions in which RJFP enters into interest rate derivative transactions with clients. For every derivative transaction RJFP enters into with a client, RJFP enters into an offsetting derivative on terms that mirror the client transaction with a credit support provider, which is a third party financial institution. Any collateral required to be exchanged under these derivative contracts is administered directly between the client and the third-party financial institution. Due to this pass-through transaction structure, RJFP has completely mitigated the market and credit risk on these derivative contracts. As a result, derivatives for which the fair value is in an asset position have an equal and offsetting derivative liability. RJFP only has credit risk on its uncollected derivative transaction fee revenues. The receivable for uncollected derivative transaction fee revenues of RJFP was $5 million and $7 million at September 30, 2017 and 2016, respectively, and is included in “Other receivables” on our Consolidated Statements of Financial Condition.
Derivatives arising from RJ Bank’s business operations
We enter into forward foreign exchange contracts and interest rate swaps to hedge certain exposures arising out of RJ Bank’s business operations. Each of these activities is described in the “Derivative assets and derivative liabilities” section of Note 2 and below.
We enter into three-month forward foreign exchange contracts primarily to hedge the risks related to RJ Bank’s investment in their Canadian subsidiary as well as their risk resulting from transactions denominated in currencies other than the U.S. dollar. The majority of these derivatives are designated as net investment hedges.
The cash flows associated with certain assets held by RJ Bank provide interest income at fixed interest rates. Therefore, the value of these assets, absent any risk mitigation, is subject to fluctuation based upon changes in market rates of interest over time. RJ Bank enters into floating-rate advances from the FHLB to, in part, fund these assets and then enters into interest rate swaps which swap variable interest payments on this debt for fixed interest payments. These interest rate swaps are designated as cash flow hedges and effectively fix RJ Bank’s cost of funds associated with these assets to mitigate a portion of the market risk.
Derivative arising from our acquisition of Alex. Brown
As part of our acquisition of Alex. Brown, we assumed certain DBRSU awards, including the associated plan terms and conditions. The DBRSU awards contain performance conditions based on Deutsche Bank and subsidiaries attaining certain financial results and will ultimately be settled in DB common shares, provided the performance metrics are achieved. The DBRSU obligation results in a derivative, the fair value and notional of which is measured by multiplying the number of outstanding DBRSU awards to be settled in DB common shares as of the end of the reporting period by the end of reporting period DB share price, as traded on the NYSE.
Counterparty netting and collateral related to derivative contracts
To reduce credit exposure on certain of our derivative transactions, we may enter into a master netting arrangement that allows for net settlement of all derivative transactions with each counterparty. In addition, the credit support annex allows parties to the master netting agreement to mitigate their credit risk by requiring the party which is out of the money to post collateral. We accept collateral in the form of cash or other marketable securities. Where permitted, we elect to net-by-counterparty certain derivative contracts entered into under a legally enforceable master netting agreement and, therefore, the fair value of those derivative contracts are netted by counterparty in the Consolidated Statements of Financial Condition. As we elect to net-by-counterparty the fair value of such derivative contracts, we also net-by-counterparty cash collateral exchanged as part of those derivative agreements. We may also require certain counterparties to make a deposit at the inception of a derivative agreement, referred to as “initial margin.” This initial margin is included in “Other payables” on our Consolidated Statements of Financial Condition.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
We are also required to maintain cash or marketable security deposits with the clearing organizations we utilize to clear certain of our interest rate derivative transactions. This initial margin is included as a component of “Receivables from brokers, dealers and clearing organizations” in our Consolidated Statements of Financial Condition. On a daily basis we also pay cash to or receive cash from these clearing organizations due to changes in the fair value of the derivatives which they clear. Such payments are referred to as “variation margin.” During the quarter ended March 31, 2017, the Chicago Mercantile Exchange, a clearing organization we utilize to clear certain of our interest rate derivatives, adopted a rule change which requires variation margin to be considered settlement of the related derivatives instead of collateral. The impact of this change on our Consolidated Statements of Financial Condition was to reduce the gross fair value of these derivative assets and/or liabilities by the amount of variation margin received or paid on the related derivatives. Prior to the quarter ending March 31, 2017, such balances were included as a component of “Receivables from brokers, dealers and clearing organizations” when such balances were in an asset position, or “Other payables” when such balances were in a liability position, on our Consolidated Statements of Financial Condition.
RJ Bank provides to counterparties for the benefit of its U.S. subsidiaries, a guarantee of payment in the event of the subsidiary’s default under forward foreign exchange contracts. Due to this RJ Bank guarantee and the short-term nature of these derivatives, RJ Bank’s U.S. subsidiaries are generally not required to post collateral with and do not generally receive collateral from the respective counterparties.
Derivative balances included inon our financial statements
The following table below presents the gross fair valuevalues and notional amountamounts of derivative contractsderivatives by product type, the amounts of counterparty and cash collateral netting inon our Consolidated Statements of Financial Condition, as well as cash and securities collateral posted and received under enforceable credit support agreements that do not meet the criteria for netting under GAAP.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | September 30, 2020 |
$ in millions | | Derivative assets | | Derivative liabilities | | Notional amount | | Derivative assets | | Derivative liabilities | | Notional amount |
Derivatives not designated as hedging instruments | | | | | | | | | | | | |
Interest rate - matched book | | $ | 193 | | | $ | 193 | | | $ | 1,736 | | | $ | 333 | | | $ | 333 | | | $ | 2,174 | |
Interest rate - other (1) | | 144 | | | 122 | | | 15,087 | | | 240 | | | 161 | | | 19,206 | |
Foreign exchange | | 3 | | | — | | | 826 | | | — | | | 2 | | | 605 | |
Other | | — | | | 1 | | | 551 | | | — | | | 6 | | | 608 | |
Subtotal | | 340 | | | 316 | | | 18,200 | | | 573 | | | 502 | | | 22,593 | |
Derivatives designated as hedging instruments | | | | | | | | | | | | |
Interest rate | | — | | | — | | | 850 | | | — | | | — | | | 850 | |
Foreign exchange | | 2 | | | — | | | 939 | | | — | | | 3 | | | 866 | |
Subtotal | | 2 | | | — | | | 1,789 | | | — | | | 3 | | | 1,716 | |
Total gross fair value/notional amount | | 342 | | | 316 | | | $ | 19,989 | | | 573 | | | 505 | | | $ | 24,309 | |
Offset on the Consolidated Statements of Financial Condition | | | | | | | | | | | | |
Counterparty netting | | (46) | | | (46) | | | | | (40) | | | (40) | | | |
Cash collateral netting | | (41) | | | (42) | | | | | (95) | | | (72) | | | |
Total amounts offset | | (87) | | | (88) | | | | | (135) | | | (112) | | | |
Net amounts presented on the Consolidated Statements of Financial Condition | | 255 | | | 228 | | | | | 438 | | | 393 | | | |
Gross amounts not offset on the Consolidated Statements of Financial Condition | | | | | | | | | | | | |
Financial instruments (2) | | (205) | | | (193) | | | | | (349) | | | (333) | | | |
Total | | $ | 50 | | | $ | 35 | | | | | $ | 89 | | | $ | 60 | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | September 30, 2016 |
$ in thousands | | Derivative assets | | Derivative liabilities | | Notional amount | | Derivative assets | | Derivative liabilities | | Notional amount |
Derivatives not designated as hedging instruments | | | | | | | | | | | | |
Interest rate contracts: | | | | | | | | | | | | |
Matched book | | $ | 288,035 |
| | $ | 288,035 |
| | $ | 2,766,488 |
| | $ | 422,196 |
| | $ | 422,196 |
| | $ | 2,938,590 |
|
Other | | 86,436 |
| | 100,503 |
| | 4,931,809 |
| | 163,433 |
| | 151,831 |
| | 4,285,033 |
|
Foreign exchange contracts | | 3 |
| | 530 |
| | 437,783 |
| | 620 |
| | — |
| | 313,562 |
|
DBRSU obligation (equity) (1) | | — |
| | 25,800 |
| | 25,800 |
| | — |
| | 17,769 |
| | 17,769 |
|
Subtotal | | 374,474 |
| | 414,868 |
| | 8,161,880 |
| | 586,249 |
| | 591,796 |
| | 7,554,954 |
|
Derivatives designated as hedging instruments | | | | | | | | | | | | |
Interest rate contracts | | — |
| | 1,390 |
| | 850,000 |
| | — |
| | 26,671 |
| | 550,000 |
|
Foreign exchange contracts | | 29 |
| | 116 |
| | 1,048,646 |
| | 1,396 |
| | — |
| | 753,373 |
|
Subtotal | | 29 |
| | 1,506 |
| | 1,898,646 |
| | 1,396 |
| | 26,671 |
| | 1,303,373 |
|
Total gross fair value/notional amount | | 374,503 |
| | 416,374 |
| | $ | 10,060,526 |
| | 587,645 |
| | 618,467 |
| | $ | 8,858,327 |
|
Offset in the Statements of Financial Condition | | | | | | | | | | | | |
Counterparty netting | | (6,045 | ) | | (6,045 | ) | | | | (55,498 | ) | | (55,498 | ) | | |
Cash collateral netting | | (49,683 | ) | | (53,365 | ) | | | | (52,041 | ) | | (87,361 | ) | | |
Total amounts offset | | (55,728 | ) | | (59,410 | ) | |
| | (107,539 | ) | | (142,859 | ) | |
|
Net amounts presented in the Statements of Financial Condition | | 318,775 |
| | 356,964 |
| | | | 480,106 |
| | 475,608 |
| | |
| | | | | | | | | | | | |
Gross amounts not offset in the Statements of Financial Condition | | | | | | | | | | |
Financial instruments (2) | | (293,340 | ) | | (288,035 | ) | | | | (451,224 | ) | | (424,633 | ) | | |
Cash received/(paid) | | — |
| | — |
| | | | — |
| | (26,671 | ) | | |
Subtotal | | (293,340 | ) | | (288,035 | ) | |
| | (451,224 | ) | | (451,304 | ) | |
|
Total | | $ | 25,435 |
| | $ | 68,929 |
| |
| | $ | 28,882 |
| | $ | 24,304 |
| |
|
(1) The DBRSU obligation is not subjectSubstantially all relates to an enforceable master netting arrangement or other similar arrangement. However, we hold sharesinterest rate derivatives entered into as part of DBour fixed income business operations, including TBA security contracts that are accounted for as an economic hedge against this obligation with a fair value of $19 million and $12 million as of September 30, 2017 and 2016, respectively, which are a component of “Other investments” on our Consolidated Statements of Financial Condition. See additional discussion of the DBRSUs in Note 20.
derivatives.
(2) Although the matched book derivative arrangements do not meet the definition of a master netting arrangement as specified by GAAP, the nature of the agreement with the third partythird-party intermediary includeincludes terms that are similar to a master netting agreement. As a result, we present the matched book amounts net in the preceding table.
The following table above.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Gains/details the gains/(losses) recognizedincluded in AOCI, net of income taxes, on derivatives designated as hedging instruments are as follows (seeinstruments. These gains/(losses) included any amounts reclassified from AOCI to net income during the year. See Note 1820 for additional information):information.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2021 | | 2020 | | 2019 |
Interest rate (cash flow hedges) | | $ | 26 | | | $ | (34) | | | $ | (61) | |
Foreign exchange (net investment hedges) | | (34) | | | 5 | | | 22 | |
Total gains/(losses) included in AOCI, net of taxes | | $ | (8) | | | $ | (29) | | | $ | (39) | |
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | 2016 | | 2015 |
Interest rate contracts (cash flow hedges) | | $ | 23,232 |
| | $ | (11,833 | ) | | $ | (4,650 | ) |
Foreign exchange contracts (net investment hedges) | | (26,281 | ) | | (6,721 | ) | | 60,331 |
|
Total gains/(losses) recognized in AOCI, net of taxes | | $ | (3,049 | ) | | $ | (18,554 | ) | | $ | 55,681 |
|
There was no significant hedge ineffectiveness and nowere 0 components of derivative gains or losses were excluded from the assessment of hedge effectiveness for any of the years ended September 30, 2017, 20162021, 2020 or 2015.2019. We expect to reclassify an estimated $4$16 million as additionalof interest expense out of AOCI and into earnings within the next 12 months. The maximum length of time over which forecasted transactions are or will be hedged is 10six years.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table details the gains/(losses) on derivatives not designated as hedging instruments recognized on the Consolidated Statements of Income and Comprehensive Income are as follows:Income.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Year ended September 30, |
$ in millions | | Location of gain/(loss) | | 2021 | | 2020 | | 2019 |
Interest rate | | Principal transactions/other revenues | | $ | 13 | | | $ | 7 | | | $ | 7 | |
Foreign exchange | | Other revenues | | $ | (21) | | | $ | — | | | $ | 25 | |
Other | | Principal transactions | | $ | 4 | | | $ | (5) | | | $ | — | |
Other | | Compensation, commissions and benefits expense | | $ | — | | | $ | (1) | | | $ | 5 | |
|
| | | | | | | | | | | | | | |
| | Location of the impact recognized on derivatives included in the Consolidated Statements of Income and Comprehensive Income | | Gain/(loss) recognized during the |
| | | year ended September 30, |
$ in thousands | | | 2017 | | 2016 | | 2015 |
Interest rate contracts: | | | | | | | | |
Matched book | | Other revenues | | $ | 36 |
| | $ | 92 |
| | $ | 901 |
|
Other | | Net trading profit | | $ | 7,895 |
| | $ | 2,819 |
| | $ | 3,107 |
|
Foreign exchange contracts | | Other revenues | | $ | (19,961 | ) | | $ | (2,662 | ) | | $ | 20,459 |
|
DBRSUs | | Compensation, commissions and benefits expense | | $ | (5,648 | ) | | $ | 2,457 |
| | $ | — |
|
DBRSUs | | Acquisition-related expenses | | $ | (2,383 | ) | | $ | — |
| | $ | — |
|
Acquisition-related expenses in the table above include the impact on the DBRSU obligation of the DB rights offering during fiscal year 2017 and from forfeitures which occurred during the periods presented. The impact of the DB rights offering on the DBRSU obligation was partially offset by a gain on the rights offering related to the shares of DB we hold as an economic hedge, which was also reported in acquisition-related expenses.
Risks associated with our derivatives and ourrelated risk mitigation related to, our derivative contracts
Credit risk
We are exposed to credit losses in the event of nonperformance by the counterparties to forward foreign exchange derivative agreements and interest rate contractsderivatives that are not cleared through a clearing organization. Where we are subject to credit exposure, we perform a credit evaluation of counterparties prior to entering into derivative transactions and we monitor their credit standings. Currently, we anticipate that all of the counterparties will be able to fully satisfy their obligations under those agreements. We may require initial margin or collateral from counterparties in the form of cash deposits or other marketable securities to support certain of these obligations as established by the credit threshold specified by the agreement and/or as a result of monitoring the credit standing of the counterparties.
Our only exposure to credit risk in theon matched book derivatives operations is related to our uncollected derivative transaction fee revenues.revenues, which were insignificant as of both September 30, 2021 and 2020. We are not exposed to market risk as it relates toon these derivative contractsderivatives due to the pass-through transaction structure previously described.described in Note 2.
Interest rate and foreign exchange risk
We are exposed to interest rate risk related to certain of our interest rate derivative agreements.derivatives. We are also exposed to foreign exchange risk related to our forward foreign exchange derivative agreements.derivatives. On a daily basis, we monitor our risk exposure inon our derivative agreementsderivatives based on established limits with respect to a number of factors, including interest rate, foreign exchange spot and forward rates, spread, ratio, basis and volatility risks. These exposures are monitoredrisks, both on afor the total portfolio basis and separately for each agreement for selectedby maturity periods.period.
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Derivatives with credit-risk-related contingent features
Certain of the derivative instruments arising from our interest rate contracts and forward foreign exchange contracts contain provisions that require our debt to maintain an investment grade rating from one or more of the major credit rating agencies. If our debt were to fall below investment grade, the counterparties to the derivative instruments could terminate and request immediate payment or demand immediate and ongoing overnight collateralization on our derivative instruments in liability positions. The aggregate fair value of all derivative instruments with such credit-risk-related contingent features that are in a liability position at both September 30, 2017 and 2016 was not material.
NOTE 7 – COLLATERALIZED AGREEMENTS AND FINANCINGS
Collateralized agreements are comprised of reverse repurchase agreements and securities borrowed. Collateralized financings are comprised of repurchase agreements and securities loaned. We enter into these transactions in order to facilitate client activities, invest excess cash, acquire securities to cover short positions and finance certain firm activities. The significant accounting policies governing our collateralized agreements and financings are described in Note 2.
For financial statement purposes, we do not offset our reverse repurchase agreements, repurchase agreements, securities borrowing and securities lending transactions because the conditions for netting as specified by GAAP are not met. Our reverse repurchase agreements, repurchase agreements, securities borrowing and securities lending transactions are governed by master agreements that are widely used by counterparties and that may allow for net settlements of payments in the normal course, as well as offsetting of all contracts with a given counterparty in the event of bankruptcy or default of one of the parties to the transaction. For financial statement purposes, we do not offset our reverse repurchase agreements, repurchase agreements, securities borrowed and securities loaned because the conditions for netting as specified by GAAP are not met. Although not offset on the Consolidated Statements of Financial Condition, these transactions are included in the following table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Collateralized agreements | | Collateralized financings |
$ in millions | | Reverse repurchase agreements | | Securities borrowed | | Total | | Repurchase agreements | | Securities loaned | | Total |
September 30, 2021 | | | | | | | | | | | | |
Gross amounts of recognized assets/liabilities | | $ | 279 | | | $ | 201 | | | $ | 480 | | | $ | 205 | | | $ | 72 | | | $ | 277 | |
Gross amounts offset on the Consolidated Statements of Financial Condition | | — | | | — | | | — | | | — | | | — | | | — | |
Net amounts presented on the Consolidated Statements of Financial Condition | | 279 | | | 201 | | | 480 | | | 205 | | | 72 | | | 277 | |
Gross amounts not offset on the Consolidated Statements of Financial Condition | | (279) | | | (195) | | | (474) | | | (205) | | | (68) | | | (273) | |
Net amounts | | $ | — | | | $ | 6 | | | $ | 6 | | | $ | — | | | $ | 4 | | | $ | 4 | |
September 30, 2020 | | | | | | | | | | | | |
Gross amounts of recognized assets/liabilities | | $ | 207 | | | $ | 215 | | | $ | 422 | | | $ | 165 | | | $ | 85 | | | $ | 250 | |
Gross amounts offset on the Consolidated Statements of Financial Condition | | — | | | — | | | — | | | — | | | — | | | — | |
Net amounts presented on the Consolidated Statements of Financial Condition | | 207 | | | 215 | | | 422 | | | 165 | | | 85 | | | 250 | |
Gross amounts not offset on the Consolidated Statements of Financial Condition | | (207) | | | (209) | | | (416) | | | (165) | | | (79) | | | (244) | |
Net amounts | | $ | — | | | $ | 6 | | | $ | 6 | | | $ | — | | | $ | 6 | | | $ | 6 | |
|
| | | | | | | | | | | | | | | | |
| | Assets | | Liabilities |
$ in thousands | | Reverse repurchase agreements | | Securities borrowed | | Repurchase agreements | | Securities loaned |
September 30, 2017 | | | | | | | | |
Gross amounts of recognized assets/liabilities | | $ | 404,462 |
| | $ | 138,319 |
| | $ | 220,942 |
| | $ | 383,953 |
|
Gross amounts offset in the Statements of Financial Condition | | — |
| | — |
| | — |
| | — |
|
Net amounts presented in the Statements of Financial Condition | | 404,462 |
| | 138,319 |
| | 220,942 |
| | 383,953 |
|
Gross amounts not offset in the Statements of Financial Condition | | (404,462 | ) | | (134,304 | ) | | (220,942 | ) | | (373,132 | ) |
Net amount | | $ | — |
| | $ | 4,015 |
| | $ | — |
| | $ | 10,821 |
|
September 30, 2016 | | | | | | | | |
Gross amounts of recognized assets/liabilities | | $ | 470,222 |
| | $ | 170,860 |
| | $ | 193,229 |
| | $ | 677,761 |
|
Gross amounts offset in the Statements of Financial Condition | | — |
| | — |
| | — |
| | — |
|
Net amounts presented in the Statements of Financial Condition | | 470,222 |
| | 170,860 |
| | 193,229 |
| | 677,761 |
|
Gross amounts not offset in the Statements of Financial Condition | | (470,222 | ) | | (167,169 | ) | | (193,229 | ) | | (664,870 | ) |
Net amount | | $ | — |
| | $ | 3,691 |
| | $ | — |
| | $ | 12,891 |
|
The required market valuetotal amount of the collateral associated with collateralized agreements and financings generally exceeds the amount financed. Accordingly, the total collateral received under reverse repurchase agreements and the total amount of collateral posted under repurchase agreements exceeds the carrying value of these agreements inon our Consolidated Statements of Financial Condition. In the event the market value of the securities we pledge as collateral in these activities declines, we may have to post additional collateral or reduce the borrowing amounts. We monitor such levels daily.
Collateral received and pledged
We receive cash and securities as collateral, primarily in connection with reverse repurchase agreements, and other collateralized financings, securities borrowed, derivative transactions not transacted through a clearing organization, and client margin loans. The collateral we receive reduces our credit exposure to individual counterparties.
In many cases, we are permitted to deliver or repledge financial instruments we have received as collateral forto satisfy our own use incollateral requirements under our repurchase agreements, securities lending agreements or other secured borrowings, satisfaction ofto satisfy deposit requirements with clearing organizations, or to otherwise meetingmeet either our or our clients’, settlement requirements.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table below presents financial instruments at fair value that we received as collateral, arewere not included on our Consolidated Statements of Financial Condition, and that were available to be delivered or repledged, along with the balances of such instruments that were delivered or repledged, to satisfy one of our purposes described above:previously described.
| | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2021 | | 2020 |
Collateral we received that was available to be delivered or repledged | | $ | 3,429 | | | $ | 2,869 | |
Collateral that we delivered or repledged | | $ | 830 | | | $ | 788 | |
|
| | | | | | | | |
| | September 30, |
$ in thousands | | 2017 | | 2016 |
Collateral we received that is available to be delivered or repledged | | $ | 3,030,736 |
| | $ | 2,925,335 |
|
Collateral that we delivered or repledged | | $ | 1,068,912 |
| | $ | 1,536,393 |
|
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Encumbered assets
We pledge certain of our financial instrumentsassets to collateralize either repurchase agreements or other secured borrowings, maintain lines of credit, or to satisfy our collateral or settlement requirements with counterparties or clearing organizations who may or may not have the right to deliver or repledge such securities.instruments. The following table below presents information about the fair value of our assets that have been pledged for one of the purposes described above:previously described.
| | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2021 | | 2020 |
Had the right to deliver or repledge | | $ | 368 | | | $ | 325 | |
Did not have the right to deliver or repledge | | $ | 65 | | | $ | 65 | |
Bank loans, net pledged at FHLB and the Federal Reserve Bank of Atlanta | | $ | 5,716 | | | $ | 5,367 | |
|
| | | | | | | | |
| | September 30, |
$ in thousands | | 2017 | | 2016 |
Financial instruments owned, at fair value, pledged to counterparties that: | | | | |
Had the right to deliver or repledge | | $ | 363,739 |
| | $ | 440,642 |
|
Did not have the right to deliver or repledge | | $ | 44,930 |
| | $ | 18,788 |
|
Repurchase agreements, repurchase-to-maturity transactions and securities lending transactionsloaned accounted for as secured borrowings
The following table presents the remaining contractual maturity of repurchase agreements and securities lending transactions accounted for as secured borrowings:borrowings.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | Overnight and continuous | | Up to 30 days | | 30-90 days | | Greater than 90 days | | Total |
September 30, 2021 | | | | | | | | | | |
Repurchase agreements: | | | | | | | | | | |
Government and agency obligations | | $ | 122 | | | $ | — | | | $ | — | | | $ | — | | | $ | 122 | |
Agency MBS and agency CMOs | | 83 | | | — | | | — | | | — | | | 83 | |
Total repurchase agreements | | 205 | | | — | | | — | | | — | | | 205 | |
Securities loaned: | | | | | | | | | | |
Equity securities | | 72 | | | — | | | — | | | — | | | 72 | |
Total collateralized financings | | $ | 277 | | | $ | — | | | $ | — | | | $ | — | | | $ | 277 | |
| | | | | | | | | | |
September 30, 2020 | | | | | | | | | | |
Repurchase agreements: | | | | | | | | | | |
Government and agency obligations | | $ | 87 | | | $ | — | | | $ | — | | | $ | — | | | $ | 87 | |
Agency MBS and agency CMOs | | 78 | | | — | | | — | | | — | | | 78 | |
Total repurchase agreements | | 165 | | | — | | | — | | | — | | | 165 | |
Securities loaned: | | | | | | | | | | |
Equity securities | | 85 | | | — | | | — | | | — | | | 85 | |
Total collateralized financings | | $ | 250 | | | $ | — | | | $ | — | | | $ | — | | | $ | 250 | |
|
| | | | | | | | | | | | | | | | | | | | |
$ in thousands | | Overnight and continuous | | Up to 30 days | | 30-90 days | | Greater than 90 days | | Total |
As of September 30, 2017: | | |
Repurchase agreements | | | | | | | | | | |
Government and agency obligations | | $ | 107,284 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 107,284 |
|
Agency MBS and CMOs | | 113,658 |
| | — |
| | — |
| | — |
| | 113,658 |
|
Total Repurchase Agreements | | 220,942 |
| | — |
| | — |
| | — |
| | 220,942 |
|
| | | | | | | | | | |
Securities lending | | | | | | | | | | |
Equity securities | | 383,953 |
| | — |
| | — |
| | — |
| | 383,953 |
|
Total | | $ | 604,895 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 604,895 |
|
Gross amounts of recognized liabilities for repurchase agreements and securities lending transactions included in the table within this footnote | | $ | 604,895 |
|
Amounts related to repurchase agreements and securities lending transactions not included in the table within this footnote | | $ | — |
|
| | | | | | | | | | |
As of September 30, 2016: | | | | | | | | | | |
Repurchase agreements | | | | | | | | | | |
Government and agency obligations | | $ | 92,804 |
| | $ | 6,252 |
| | $ | — |
| | $ | — |
| | $ | 99,056 |
|
Agency MBS and CMOs | | 92,422 |
| | 1,751 |
| | — |
| | — |
| | 94,173 |
|
Total Repurchase Agreements | | 185,226 |
| | 8,003 |
| | — |
| | — |
| | 193,229 |
|
| | | | | | | | | | |
Securities lending | | | | | | | | | | |
Equity securities | | 677,761 |
| | — |
| | — |
| | — |
| | 677,761 |
|
Total | | $ | 862,987 |
| | $ | 8,003 |
| | $ | — |
| | $ | — |
| | $ | 870,990 |
|
Gross amounts of recognized liabilities for repurchase agreements and securities lending transactions included in the table within this footnote | | $ | 870,990 |
|
Amounts related to repurchase agreements and securities lending transactions not included in the table within this footnote | | $ | — |
|
Our repurchase agreements would includeAs of both September 30, 2021 and 2020, we did not have any “repurchase-to-maturity” agreements, which are repurchase agreements where a security is transferred under an agreement to repurchase and the maturity date of the repurchase agreement matches the maturity date of the underlying security, if any, that we are a party to as of period-end. As of both September 30, 2017 and 2016, we did not have any “repurchase-to-maturity” agreements.security.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 8 – BANK LOANS, NET
Bank client receivables are comprised of loans originated or purchased by RJRaymond James Bank and include C&I loans, REIT loans, tax-exempt loans, SBL, and commercial and residential real estate loans, and SBL and other loans. These receivables are collateralized by first orand, to a lesser extent, second mortgages on residential or other real property, other assets of the borrower, a pledge of revenue, securities or are unsecured.
We segregate our loan portfolio into six loan portfolio segments: C&I, CRE, CRE construction, tax-exempt, residential mortgage and SBL. These portfolio segments also serve as the portfolio loan classes for purposes of credit analysis, except for residential mortgage loans which are further disaggregated into residential first mortgage and residential home equity classes.
See Note 2 for a discussion of accounting policies related to bank loans.
As of October 1, 2020, we adopted new accounting guidance related to the measurement of credit losses on financial instruments. See Note 2 for further information about this guidance and a discussion of our accounting policies related to our allowance for credit losses. We segregate our loan portfolio into 6 loan portfolio segments: C&I, CRE, REIT, tax-exempt, residential mortgage, and SBL and other. Upon adoption, we redefined certain of our portfolio segments to align with the new methodology applied in determining the allowance for credit losses. Prior-period loan portfolio segment balances have been revised to conform to the current presentation. Loan balances in the following tables are presented at amortized cost (outstanding principal balance net of unearned income and deferred expenses, which include purchase premiums, purchase discounts and net deferred origination fees and costs), except for certain held for sale loans and allowancesrecorded at fair value. Bank loans
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
are presented on our Consolidated Statements of Financial Condition at amortized cost (or fair value where applicable) less the allowance for credit losses.
The following tables presenttable presents the balances for both the held for sale and held for investment loan portfolios, as well as the associated percentage of each portfolio segment in RJRaymond James Bank’s total loan portfolio. “Loans held
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2021 | | 2020 | | 2019 | | 2018 | | 2017 |
$ in millions | | Balance | | % | | Balance | | % | | Balance | | % | | Balance | | % | | Balance | | % |
C&I loans | | $ | 8,440 | | | 33 | % | | $ | 7,421 | | | 34 | % | | $ | 8,056 | | | 38 | % | | $ | 7,741 | | | 39 | % | | $ | 7,339 | | | 43 | % |
CRE loans | | 2,872 | | | 11 | % | | 2,489 | | | 12 | % | | 2,507 | | | 12 | % | | 2,309 | | | 12 | % | | 1,859 | | | 11 | % |
REIT loans | | 1,112 | | | 5 | % | | 1,210 | | | 5 | % | | 1,333 | | | 6 | % | | 1,470 | | | 8 | % | | 1,361 | | | 8 | % |
Tax-exempt loans | | 1,321 | | | 5 | % | | 1,259 | | | 6 | % | | 1,241 | | | 6 | % | | 1,227 | | | 6 | % | | 1,018 | | | 6 | % |
Residential mortgage loans | | 5,318 | | | 21 | % | | 4,973 | | | 23 | % | | 4,479 | | | 21 | % | | 3,775 | | | 19 | % | | 3,162 | | | 18 | % |
SBL and other | | 6,106 | | | 24 | % | | 4,087 | | | 19 | % | | 3,351 | | | 16 | % | | 3,035 | | | 15 | % | | 2,388 | | | 14 | % |
Total loans held for investment | | 25,169 | | | 99 | % | | 21,439 | | | 99 | % | | 20,967 | | | 99 | % | | 19,557 | | | 99 | % | | 17,127 | | | 100 | % |
Held for sale loans | | 145 | | | 1 | % | | 110 | | | 1 | % | | 142 | | | 1 | % | | 164 | | | 1 | % | | 70 | | | — | % |
Total loans held for sale and investment | | 25,314 | | | 100 | % | | 21,549 | | | 100 | % | | 21,109 | | | 100 | % | | 19,721 | | | 100 | % | | 17,197 | | | 100 | % |
Allowance for credit losses | | (320) | | | | | (354) | | | | | (218) | | | | | (203) | | | | | (190) | | | |
Bank loans, net | | $ | 24,994 | | | | | $ | 21,195 | | | | | $ | 20,891 | | | | | $ | 19,518 | | | | | $ | 17,007 | | | |
Accrued interest receivable on bank loans | | $ | 48 | | | | | $ | 45 | | | | | $ | 53 | | | | | $ | 52 | | | | | $ | 37 | | | |
The allowance for sale, net” and “Total loanscredit losses was 1.27% of the held for investment net”loan portfolio as of September 30, 2021 and was determined using the CECL methodology, which we adopted on October 1, 2020. Prior periods have not been restated and were calculated under the incurred loss methodology, which differs from the CECL methodology in that it was based on historical loss experience and did not include an estimate of credit losses using a reasonable and supportable forecast period.
Accrued interest receivables presented in the preceding table below are presented netreported in “Other receivables, net” on our Consolidated Statements of unearned income and deferred expenses, which include purchase premiums, purchase discounts and net deferred origination fees and costs.Financial Condition.
|
| | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2017 | | 2016 | | 2015 |
$ in thousands | | Balance | | % | | Balance | | % | | Balance | | % |
Loans held for sale, net | | $ | 70,316 |
| | — |
| | $ | 214,286 |
| | 1 | % | | $ | 119,519 |
| | 1 | % |
Loans held for investment: | | |
| | |
| | |
| | |
| | |
| | |
|
C&I loans | | 7,385,910 |
| | 43 | % | | 7,470,373 |
| | 48 | % | | 6,928,018 |
| | 52 | % |
CRE construction loans | | 112,681 |
| | 1 | % | | 122,718 |
| | 1 | % | | 162,356 |
| | 1 | % |
CRE loans | | 3,106,290 |
| | 18 | % | | 2,554,071 |
| | 17 | % | | 2,054,154 |
| | 16 | % |
Tax-exempt loans | | 1,017,791 |
| | 6 | % | | 740,944 |
| | 5 | % | | 484,537 |
| | 4 | % |
Residential mortgage loans | | 3,148,730 |
| | 18 | % | | 2,441,569 |
| | 16 | % | | 1,962,614 |
| | 15 | % |
SBL | | 2,386,697 |
| | 14 | % | | 1,904,827 |
| | 12 | % | | 1,481,504 |
| | 11 | % |
Total loans held for investment | | 17,158,099 |
| |
|
| | 15,234,502 |
| | |
| | 13,073,183 |
| | |
|
Net unearned income and deferred expenses | | (31,178 | ) | | |
| | (40,675 | ) | | |
| | (32,424 | ) | | |
|
Total loans held for investment, net | | 17,126,921 |
| | |
| | 15,193,827 |
| | |
| | 13,040,759 |
| | |
|
| | | | | | | | | | | | |
Total loans held for sale and investment | | 17,197,237 |
| | 100 | % | | 15,408,113 |
| | 100 | % | | 13,160,278 |
| | 100 | % |
Allowance for loan losses | | (190,442 | ) | | |
| | (197,378 | ) | | |
| | (172,257 | ) | | |
Bank loans, net | | $ | 17,006,795 |
| | |
| | $ | 15,210,735 |
| | |
| | $ | 12,988,021 |
| | |
|
| | | | | | | | | | | | | | |
| | September 30, |
| | 2014 | | 2013 |
$ in thousands | | Balance | | % | | Balance | | % |
Loans held for sale, net | | $ | 45,988 |
| | — |
| | $ | 110,292 |
| | 1 | % |
Loans held for investment: | | | | |
| | |
| | |
|
C&I loans | | 6,422,347 |
| | 58 | % | | 5,246,005 |
| | 59 | % |
CRE construction loans | | 94,195 |
| | 1 | % | | 60,840 |
| | 1 | % |
CRE loans | | 1,689,163 |
| | 15 | % | | 1,283,046 |
| | 14 | % |
Tax-exempt loans | | 122,218 |
| | 1 | % | | — |
| | — |
|
Residential mortgage loans | | 1,751,747 |
| | 16 | % | | 1,745,650 |
| | 19 | % |
SBL | | 1,023,748 |
| | 9 | % | | 555,805 |
| | 6 | % |
Total loans held for investment | | 11,103,418 |
| | |
| | 8,891,346 |
| | |
|
Net unearned income and deferred expenses | | (37,533 | ) | | |
| | (43,936 | ) | | |
|
Total loans held for investment, net | | 11,065,885 |
| | |
| | 8,847,410 |
| | |
|
| | | | | | | | |
Total loans held for sale and investment | | 11,111,873 |
| | 100 | % | | 8,957,702 |
| | 100 | % |
Allowance for loan losses | | (147,574 | ) | | |
| | (136,501 | ) | | |
|
Bank loans, net | | $ | 10,964,299 |
| | |
| | $ | 8,821,201 |
| | |
|
At September 30, 2017,2021, the FHLB had a blanket lien on RJRaymond James Bank’s residential mortgage loan portfolio as security for the repayment of certain borrowings. See Note 1416 for more information regarding borrowings from the FHLB.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Loans heldHeld for sale loans
RJRaymond James Bank originated or purchased $1.67$2.15 billion, $1.80$1.79 billion and $1.24$2.33 billion of loans held for sale during the years ended September 30, 2017, 20162021, 2020 and 2015,2019, respectively. The majority of these loans were purchases of the guaranteed portions of SBA loans intended for resale in the secondary market as individual SBA loans or as securitized pools of SBA loans. Proceeds from the sale of held for sale loans amounted to $439$973 million, $383$776 million and $213$800 million for the years ended September 30, 2017, 20162021, 2020 and 2015,2019, respectively. Net gains resulting from such sales amounted to $2 million in each of the years ended September 30, 2017, 2016 and 2015. Unrealized losses recorded in the Consolidated Statements of Income and Comprehensive Income to reflect the loans held for sale at the lower of cost or market value were insignificant in each of the years ended September 30, 2017, 20162021, 2020 and 2015.2019.
Purchases and sales of loans held for investment
The following table presents purchases and sales of any loans held for investment by portfolio segment:segment. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | C&I loans | | | | CRE loans | | | | Residential mortgage loans | | | | Total |
Year ended September 30, 2021 | | | | | | | | | | | | | | |
Purchases | | $ | 1,528 | | | | | $ | — | | | | | $ | 524 | |
| | | $ | 2,052 | |
Sales | | $ | 297 | | | | | $ | — | | | | | $ | — | | | | | $ | 297 | |
Year ended September 30, 2020 | | | | | | | | | | | | | | |
Purchases | | $ | 589 | | | | | $ | 5 | | | | | $ | 402 | | | | | $ | 996 | |
Sales | | $ | 598 | | | | | $ | 27 | | | | | $ | 2 | | | | | $ | 627 | |
Year ended September 30, 2019 | | | | | | | | | | | | | | |
Purchases | | $ | 1,046 | | | | | $ | 42 | | | | | $ | 400 | | | | | $ | 1,488 | |
Sales | | $ | 126 | | | | | $ | — | | | | | $ | — | | | | | $ | 126 | |
|
| | | | | | | | | | | | | | | | |
$ in thousands | | C&I | | CRE | | Residential mortgage | | Total |
Year ended September 30, 2017 | | | | | | |
Purchases | | $ | 536,627 |
| | $ | 63,542 |
| | $ | 264,340 |
|
| $ | 864,509 |
|
Sales | | $ | 341,196 |
| | $ | — |
| | $ | — |
| | $ | 341,196 |
|
Year ended September 30, 2016 | | | | | | |
Purchases | | $ | 457,503 |
| | $ | 24,869 |
| | $ | 371,710 |
| | $ | 854,082 |
|
Sales | | $ | 172,968 |
| | $ | — |
| | $ | — |
| | $ | 172,968 |
|
Year ended September 30, 2015 | | | | | | |
Purchases | | $ | 792,921 |
| | $ | — |
| | $ | 220,311 |
| | $ | 1,013,232 |
|
Sales | | $ | 108,983 |
| | $ | — |
| | $ | — |
| | $ | 108,983 |
|
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Sales in the preceding table above represent the recorded investment (i.e., net of charge-offs and discounts or premiums) of loans held for investment that were transferred to loans held for sale and subsequently sold to a third party during the respective period. CorporateAs more fully described in Note 2, corporate loan sales generally occur as part of a loan workout situation.our credit management activities.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Aging analysis of loans held for investment
The following table presents an analysisinformation on delinquency status of the payment status ofour loans held for investment:investment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | 30-89 days and accruing | | 90 days or more and accruing | | Total past due and accruing | | Nonaccrual with allowance | | Nonaccrual with no allowance | | Current and accruing | | Total loans held for investment |
September 30, 2021 | | | | | | | | | | | | | | |
C&I loans | | $ | — | | | $ | — | | | $ | — | | | $ | 39 | | | $ | — | | | $ | 8,401 | | | $ | 8,440 | |
CRE loans | | — | | | — | | | — | | | — | | | 20 | | | 2,852 | | | 2,872 | |
REIT loans | | — | | | — | | | — | | | — | | | — | | | 1,112 | | | 1,112 | |
Tax-exempt loans | | — | | | — | | | — | | | — | | | — | | | 1,321 | | | 1,321 | |
Residential mortgage loans | | 2 | | | — | | | 2 | | | 2 | | | 13 | | | 5,301 | | | 5,318 | |
SBL and other | | — | | | — | | | — | | | — | | | — | | | 6,106 | | | 6,106 | |
Total loans held for investment | | $ | 2 | | | $ | — | | | $ | 2 | | | $ | 41 | | | $ | 33 | | | $ | 25,093 | | | $ | 25,169 | |
| | | | | | | | | | | | | | |
September 30, 2020 | | | | | | | | | | | | | | |
C&I loans | | $ | — | | | $ | — | | | $ | — | | | $ | 2 | | | $ | — | | | $ | 7,419 | | | $ | 7,421 | |
CRE loans | | — | | | — | | | — | | | — | | | 14 | | | 2,475 | | | 2,489 | |
REIT loans | | — | | | — | | | — | | | — | | | — | | | 1,210 | | | 1,210 | |
Tax-exempt loans | | — | | | — | | | — | | | — | | | — | | | 1,259 | | | 1,259 | |
Residential mortgage loans | | — | | | — | | | — | | | 3 | | | 11 | | | 4,959 | | | 4,973 | |
SBL and other | | — | | | — | | | — | | | — | | | — | | | 4,087 | | | 4,087 | |
Total loans held for investment | | $ | — | | | $ | — | | | $ | — | | | $ | 5 | | | $ | 25 | | | $ | 21,409 | | | $ | 21,439 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
$ in thousands | | 30-89 days and accruing | | 90 days or more and accruing | | Total past due and accruing | | Nonaccrual (1) | | Current and accruing | | Total loans held for investment (2) |
As of September 30, 2017: | | | | | | | | | | | | |
C&I loans | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 5,221 |
| | $ | 7,380,689 |
| | $ | 7,385,910 |
|
CRE construction loans | | — |
| | — |
| | — |
| | — |
| | 112,681 |
| | 112,681 |
|
CRE loans | | — |
| | — |
| | — |
| | — |
| | 3,106,290 |
| | 3,106,290 |
|
Tax-exempt loans | | — |
| | — |
| | — |
| | — |
| | 1,017,791 |
| | 1,017,791 |
|
Residential mortgage loans: | | |
| | |
| |
|
| | | | |
| |
|
|
First mortgage loans | | 1,853 |
| | — |
| | 1,853 |
| | 33,718 |
| | 3,086,701 |
| | 3,122,272 |
|
Home equity loans/lines | | 248 |
| | — |
| | 248 |
| | 31 |
| | 26,179 |
| | 26,458 |
|
SBL | | — |
| | — |
| | — |
| | — |
| | 2,386,697 |
| | 2,386,697 |
|
Total loans held for investment, net | | $ | 2,101 |
| | $ | — |
| | $ | 2,101 |
| | $ | 38,970 |
| | $ | 17,117,028 |
| | $ | 17,158,099 |
|
| | | | | | | | | | | | |
As of September 30, 2016: | | | | | | | | | | | | |
C&I loans | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 35,194 |
| | $ | 7,435,179 |
| | $ | 7,470,373 |
|
CRE construction loans | | — |
| | — |
| | — |
| | — |
| | 122,718 |
| | 122,718 |
|
CRE loans | | — |
| | — |
| | — |
| | 4,230 |
| | 2,549,841 |
| | 2,554,071 |
|
Tax-exempt loans | | — |
| | — |
| | — |
| | — |
| | 740,944 |
| | 740,944 |
|
Residential mortgage loans: | | | | | | | | | | | | |
First mortgage loans | | 1,766 |
| | — |
| | 1,766 |
| | 41,746 |
| | 2,377,357 |
| | 2,420,869 |
|
Home equity loans/lines | | — |
| | — |
| | — |
| | 37 |
| | 20,663 |
| | 20,700 |
|
SBL | | — |
| | — |
| | — |
| | — |
| | 1,904,827 |
| | 1,904,827 |
|
Total loans held for investment, net | | $ | 1,766 |
| | $ | — |
| | $ | 1,766 |
| | $ | 81,207 |
| | $ | 15,151,529 |
| | $ | 15,234,502 |
|
The preceding table includes $61 million and $15 million at September 30, 2021 and 2020, respectively, of nonaccrual loans which were current pursuant to their contractual terms. The table also includes CRE and residential first mortgage loan TDRs of $12 million and $13 million, respectively, at September 30, 2021, and $6 million and $15 million, respectively, at September 30, 2020.
| |
(1) | Includes $18 million and $54 million of nonaccrual loans at September 30, 2017 and 2016, respectively, which are performing pursuant to their contractual terms.
|
| |
(2) | Excludes any net unearned income and deferred expenses. |
Other real estate owned, included in “Other assets” on our Consolidated Statements of Financial Condition, was insignificant at September 30, 2021 and 2020.
Collateral-dependent loans
A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale of the underlying collateral. At September 30, 2021, we had $20 million of collateral-dependent CRE loans, which were fully collateralized by retail and industrial real estate, and $5 million at bothof collateral-dependent residential loans, which were fully collateralized by single family homes. Collateral-dependent loans do not include loans to borrowers who have been granted forbearance as result of the COVID-19 pandemic or loans for which the borrower had requested a loan modification, where the request had been initiated but had not been approved or completed as of September 30, 2017 and September 30, 2016.2021. Such loans may be considered collateral-dependent after the forbearance period expires. The recorded investment in mortgage loans secured by one-to-four family residential properties for which formal foreclosure proceedings were in process was $18$4 million and $21$6 million at September 30, 20172021 and 2016,2020, respectively.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Impaired loans and troubled debt restructurings
The following table provides a summary of RJ Bank’s impaired loans:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2017 | | 2016 |
$ in thousands | | Gross recorded investment | | Unpaid principal balance | | Allowance for losses | | Gross recorded investment | | Unpaid principal balance | | Allowance for losses |
Impaired loans with allowance for loan losses: (1) | | | | | | | | | | |
C&I loans | | $ | 5,221 |
| | $ | 6,160 |
| | $ | 1,963 |
| | $ | 35,194 |
| | $ | 35,872 |
| | $ | 13,351 |
|
Residential - first mortgage loans | | 23,977 |
| | 31,100 |
| | 2,504 |
| | 30,393 |
| | 41,337 |
| | 3,147 |
|
Total | | 29,198 |
| | 37,260 |
| | 4,467 |
| | 65,587 |
| | 77,209 |
| | 16,498 |
|
| | | | | | | | | | | | |
Impaired loans without allowance for loan losses: (2) | | |
| | |
| | |
| | |
| | |
|
CRE loans | | — |
| | — |
| | — |
| | 4,230 |
| | 11,611 |
| | — |
|
Residential - first mortgage loans | | 16,737 |
| | 24,899 |
| | — |
| | 17,809 |
| | 26,486 |
| | — |
|
Total | | 16,737 |
| | 24,899 |
| | — |
| | 22,039 |
| | 38,097 |
| | — |
|
Total impaired loans | | $ | 45,935 |
| | $ | 62,159 |
| | $ | 4,467 |
| | $ | 87,626 |
| | $ | 115,306 |
| | $ | 16,498 |
|
| |
(1) | Impaired loan balances have had reserves established based upon management’s analysis. |
| |
(2) | When the discounted cash flow, collateral value or market value equals or exceeds the carrying value of the loan, then the loan does not require an allowance. These are generally loans in process of foreclosure that have already been adjusted to fair value. |
The preceding table includes $27 million of residential first mortgage TDR’s at September 30, 2017, and $4 million CRE and $28 million residential first mortgage TDR’s at September 30, 2016.
The average balance of the total impaired loans and the related interest income recognized in the Consolidated Statements of Income and Comprehensive Income are as follows:
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | 2016 | | 2015 |
Average impaired loan balance: | | | | | | |
C&I loans | | $ | 17,540 |
| | $ | 18,112 |
| | $ | 11,311 |
|
CRE loans | | 694 |
| | 4,474 |
| | 14,694 |
|
Residential - first mortgage loans | | 43,845 |
| | 51,554 |
| | 59,049 |
|
Total | | $ | 62,079 |
| | $ | 74,140 |
| | $ | 85,054 |
|
Interest income recognized: | | |
| | |
| | |
|
Residential - first mortgage loans | | $ | 1,253 |
| | $ | 1,413 |
| | $ | 1,426 |
|
Total | | $ | 1,253 |
| | $ | 1,413 |
| | $ | 1,426 |
|
Credit quality indicators
The credit quality of RJ Bank’sour bank loan portfolio is summarized monthly by management using internal risk ratings, which align with the standard asset classification system utilized by bank regulators for the SBL and residential mortgage loan portfolios and internal risk ratings, which correspond to the same standard asset classifications for the corporate loan portfolios.regulators. These classifications are divided into three groups: Not Classified (Pass), Special Mention, and Classified or Adverse Rating (Substandard, Doubtful and Loss). These terms are defined as follows:
Pass – Loans which are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less costs to acquire and sell, of any underlying collateral in a timely manner.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Special Mention – Loans which have potential weaknesses that deserve management’s close attention. These loans are not adversely classified and do not expose RJ Bankus to sufficient risk to warrant an adverse classification.
Substandard – Loans which are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Loans with this classification are characterized by the distinct possibility that RJ Bankwe will sustain some loss if the deficiencies are not corrected.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Doubtful – Loans which have all the weaknesses inherent in loans classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently-known facts, conditions and values.
Loss – Loans which are considered by management to be uncollectible and of such little value that their continuance on RJ Bank’sour books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted. RJ Bank doesWe do not have any loan balances within this classification because, in accordance with itsour accounting policy, loans, or a portion thereof considered to be uncollectible are charged-off prior to the assignment of this classification.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The credit quality of RJ Bank’sfollowing tables present our held for investment bank loan portfolio was as follows:by credit quality indicator.
|
| | | | | | | | | | | | | | | | | | | | |
$ in thousands | | Pass | | Special mention | | Substandard | | Doubtful | | Total |
September 30, 2017 | | | | | | | | | | |
C&I | | $ | 7,232,777 |
| | $ | 63,964 |
| | $ | 89,169 |
| | $ | — |
| | $ | 7,385,910 |
|
CRE construction | | 112,681 |
| | — |
| | — |
| | — |
| | 112,681 |
|
CRE | | 3,048,847 |
| | 57,315 |
| | 128 |
| | — |
| | 3,106,290 |
|
Tax-exempt | | 1,017,791 |
| | — |
| | — |
| | — |
| | 1,017,791 |
|
Residential mortgage: | | | | | | | | | |
|
First mortgage | | 3,068,290 |
| | 8,467 |
| | 45,515 |
| | — |
| | 3,122,272 |
|
Home equity | | 26,352 |
| | 75 |
| | 31 |
| | — |
| | 26,458 |
|
SBL | | 2,386,697 |
| | — |
| | — |
| | — |
| | 2,386,697 |
|
Total | | $ | 16,893,435 |
| | $ | 129,821 |
| | $ | 134,843 |
| | $ | — |
| | $ | 17,158,099 |
|
| | | | | | | | | | |
September 30, 2016 | | | | | | | | | |
C&I | | $ | 7,241,055 |
| | $ | 117,046 |
| | $ | 112,272 |
| | $ | — |
| | $ | 7,470,373 |
|
CRE construction | | 122,718 |
| | — |
| | — |
| | — |
| | 122,718 |
|
CRE | | 2,549,672 |
| | — |
| | 4,399 |
| | — |
| | 2,554,071 |
|
Tax-exempt | | 740,944 |
| | — |
| | — |
| | — |
| | 740,944 |
|
Residential mortgage: | | | | | | | | | |
|
First mortgage | | 2,355,393 |
| | 11,349 |
| | 54,127 |
| | — |
| | 2,420,869 |
|
Home equity | | 20,413 |
| | 182 |
| | 105 |
| | — |
| | 20,700 |
|
SBL | | 1,904,827 |
| | — |
| | — |
| | — |
| | 1,904,827 |
|
Total | | $ | 14,935,022 |
| | $ | 128,577 |
| | $ | 170,903 |
| | $ | — |
| | $ | 15,234,502 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | September 30, 2020 | | | | | |
| | Loans by origination year | | | | | | | | | | | | | |
$ in millions | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Revolving loans | | | | Total | | Total | | | | | |
C&I loans | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 999 | | $ | 1,273 | | $ | 1,180 | | $ | 1,408 | | $ | 935 | | $ | 1,633 | | $ | 739 | | | | $ | 8,167 | | $ | 6,939 | | | | | |
Special mention | | — | | — | | 41 | | — | | 26 | | 54 | | 1 | | | | 122 | | 235 | | | | | |
Substandard | | — | | — | | 24 | | 84 | | — | | 28 | | — | | | | 136 | | 247 | | | | | |
Doubtful | | — | | — | | 15 | | — | | — | | — | | — | | | | 15 | | — | | | | | |
Total C&I loans | | $ | 999 | | $ | 1,273 | | $ | 1,260 | | $ | 1,492 | | $ | 961 | | $ | 1,715 | | $ | 740 | | | | $ | 8,440 | | $ | 7,421 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CRE loans | | | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 533 | | $ | 459 | | $ | 442 | | $ | 652 | | $ | 223 | | $ | 174 | | $ | 62 | | | | $ | 2,545 | | $ | 2,141 |
Special mention | | — | | 45 | | 58 | | 36 | | — | | — | | — | | | | 139 | | 213 |
Substandard | | — | | — | | 32 | | 98 | | 8 | | 50 | | — | | | | 188 | | 135 |
Doubtful | | — | | — | | — | | — | | — | | — | | — | | | | — | | — |
Total CRE loans | | $ | 533 | | $ | 504 | | $ | 532 | | $ | 786 | | $ | 231 | | $ | 224 | | $ | 62 | | | | $ | 2,872 | | $ | 2,489 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
REIT loans | | | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 235 | | $ | 95 | | $ | 75 | | $ | 60 | | $ | 46 | | $ | 167 | | $ | 237 | | | | $ | 915 | | $ | 1,138 |
Special mention | | — | | — | | 13 | | 11 | | 33 | | 106 | | 6 | | | | 169 | | 43 |
Substandard | | — | | — | | 21 | | — | | 4 | | — | | 3 | | | | 28 | | 29 |
Doubtful | | — | | — | | — | | — | | — | | — | | — | | | | — | | — |
Total REIT loans | | $ | 235 | | $ | 95 | | $ | 109 | | $ | 71 | | $ | 83 | | $ | 273 | | $ | 246 | | | | $ | 1,112 | | $ | 1,210 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tax-exempt loans | | | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 158 | | $ | 57 | | $ | 124 | | $ | 204 | | $ | 272 | | $ | 506 | | $ | — | | | | $ | 1,321 | | $ | 1,259 |
Special mention | | — | | — | | — | | — | | — | | — | | — | | | | — | | — |
Substandard | | — | | — | | — | | — | | — | | — | | — | | | | — | | — |
Doubtful | | — | | — | | — | | — | | — | | — | | — | | | | — | | — |
Total tax-exempt loans | | $ | 158 | | $ | 57 | | $ | 124 | | $ | 204 | | $ | 272 | | $ | 506 | | $ | — | | | | $ | 1,321 | | $ | 1,259 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential mortgage loans | | | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 1,861 | | $ | 1,266 | | $ | 640 | | $ | 386 | | $ | 451 | | $ | 666 | | $ | 20 | | | | $ | 5,290 | | $ | 4,944 |
Special mention | | — | | — | | — | | — | | — | | 5 | | — | | | | 5 | | 6 |
Substandard | | — | | — | | — | | 1 | | 2 | | 20 | | — | | | | 23 | | 23 |
Doubtful | | — | | — | | — | | — | | — | | — | | — | | | | — | | — |
Total residential mortgage loans | | $ | 1,861 | | $ | 1,266 | | $ | 640 | | $ | 387 | | $ | 453 | | $ | 691 | | $ | 20 | | | | $ | 5,318 | | $ | 4,973 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SBL and other | | | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 3 | | $ | 45 | | $ | 12 | | $ | — | | $ | — | | $ | — | | $ | 6,046 | | | | $ | 6,106 | | $ | 4,087 |
Special mention | | — | | — | | — | | — | | — | | — | | — | | | | — | | — |
Substandard | | — | | — | | — | | — | | — | | — | | — | | | | — | | — |
Doubtful | | — | | — | | — | | — | | — | | — | | — | | | | — | | — |
Total SBL and other | | $ | 3 | | $ | 45 | | $ | 12 | | $ | — | | $ | — | | $ | — | | $ | 6,046 | | | | $ | 6,106 | | $ | 4,087 |
Loans classified as special mention, substandard or doubtful are all considered to be “criticized” loans.
TheWe also monitor the credit quality of RJ Bank’s performing residential first mortgage loan portfolio is additionally assessed utilizing updated LTV ratios. Current LTVs are updated using the most recently available information (generally updated every six months) and are estimated based on the initial appraisal obtained at the time of origination, adjusted using relevant market indices for housing price changes that have occurred since origination. The value of the homes could vary from actual market values due to changes in the condition of the underlying property, variations in housing price changes within current valuation indices, and other factors. Residential mortgage loans with estimated LTV s in excess of 100% represent less than 1% of the residential mortgage loan portfolio.portfolio utilizing FICO scores and LTV ratios. A FICO score measures a borrower’s creditworthiness by considering factors such as payment and credit history. LTV measures the carrying value of the loan as a percentage of the value of the property securing the loan.
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents the held for investment residential mortgage loan portfolio by FICO score and by LTV ratio at origination.
| | | | | | | | | | | | | | |
$ in millions | | September 30, 2021 | | September 30, 2020 |
FICO score: | | | | |
Below 600 | | $ | 67 | | | $ | 67 | |
600 - 699 | | 416 | | | 363 | |
700 - 799 | | 3,772 | | | 3,463 | |
800 + | | 1,058 | | | 1,076 | |
FICO score not available | | 5 | | | 4 | |
Total | | $ | 5,318 | | | $ | 4,973 | |
| | | | |
LTV ratio: | | | | |
Below 80% | | $ | 4,123 | | | $ | 3,852 | |
80%+ | | 1,195 | | | 1,121 | |
Total | | $ | 5,318 | | | $ | 4,973 | |
Allowance for loancredit losses and reserve for unfunded lending commitments
Changes in the allowance for loan losses of RJ Bank by portfolio segment are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Loans held for investment |
$ in thousands | | C&I | | CRE construction | | CRE | | Tax-exempt | | Residential mortgage | | SBL | | Total |
Year ended September 30, 2017 | | |
| | |
| | |
| | | | |
| | |
| | |
|
Balance at beginning of year | | $ | 137,701 |
| | $ | 1,614 |
| | $ | 36,533 |
| | $ | 4,100 |
| | $ | 12,664 |
| | $ | 4,766 |
| | $ | 197,378 |
|
Provision/(benefit) for loan losses | | 7,502 |
| | (101 | ) | | (172 | ) | | 2,281 |
| | 3,944 |
| | (467 | ) | | 12,987 |
|
Net (charge-offs)/recoveries: | | |
| | |
| | |
| | | | |
| | |
| | |
|
Charge-offs | | (26,088 | ) | | — |
| | — |
| | — |
| | (918 | ) | | — |
| | (27,006 | ) |
Recoveries | | 340 |
| | — |
| | 5,013 |
| | — |
| | 1,001 |
| | — |
| | 6,354 |
|
Net (charge-offs)/recoveries | | (25,748 | ) | | — |
| | 5,013 |
| | — |
| | 83 |
| | — |
| | (20,652 | ) |
Foreign exchange translation adjustment | | 446 |
| | (92 | ) | | 375 |
| | — |
| | — |
| | — |
| | 729 |
|
Balance at end of year | | $ | 119,901 |
| | $ | 1,421 |
| | $ | 41,749 |
| | $ | 6,381 |
| | $ | 16,691 |
| | $ | 4,299 |
| | $ | 190,442 |
|
| | | | | | | | | | | | | | |
Year ended September 30, 2016 | | |
| | |
| | |
| | | | |
| | |
| | |
|
Balance at beginning of year | | $ | 117,623 |
| | $ | 2,707 |
| | $ | 30,486 |
| | $ | 5,949 |
| | $ | 12,526 |
| | $ | 2,966 |
| | $ | 172,257 |
|
Provision/(benefit) for loan losses | | 23,051 |
| | (1,023 | ) | | 5,997 |
| | (1,849 | ) | | 191 |
| | 1,800 |
| | 28,167 |
|
Net (charge-offs)/recoveries: | | |
| | |
| | |
| | | | |
| | |
| | |
Charge-offs | | (2,956 | ) | | — |
| | — |
| | — |
| | (1,470 | ) | | — |
| | (4,426 | ) |
Recoveries | | — |
| | — |
| | — |
| | — |
| | 1,417 |
| | — |
| | 1,417 |
|
Net (charge-offs)/recoveries | | (2,956 | ) | | — |
| | — |
| | — |
| | (53 | ) | | — |
| | (3,009 | ) |
Foreign exchange translation adjustment | | (17 | ) | | (70 | ) | | 50 |
| | — |
| | — |
| | — |
| | (37 | ) |
Balance at end of year | | $ | 137,701 |
| | $ | 1,614 |
| | $ | 36,533 |
| | $ | 4,100 |
| | $ | 12,664 |
| | $ | 4,766 |
| | $ | 197,378 |
|
| | | | | | | | | | | | | | |
Year ended September 30, 2015 | | |
| | |
| | |
| | | | |
| | |
| | |
|
Balance at beginning of year | | $ | 103,179 |
| | $ | 1,594 |
| | $ | 25,022 |
| | $ | 1,380 |
| | $ | 14,350 |
| | $ | 2,049 |
| | $ | 147,574 |
|
Provision/(benefit) for loan losses | | 16,091 |
| | 1,176 |
| | 2,205 |
| | 4,569 |
| | (1,388 | ) | | 917 |
| | 23,570 |
|
Net (charge-offs)/recoveries: | | |
| | |
| | |
| | | | |
| | |
| | |
Charge-offs | | (1,191 | ) | | — |
| | — |
| | — |
| | (1,667 | ) | | — |
| | (2,858 | ) |
Recoveries | | 611 |
| | — |
| | 3,773 |
| | — |
| | 1,231 |
| | — |
| | 5,615 |
|
Net (charge-offs)/recoveries | | (580 | ) | | — |
| | 3,773 |
| | — |
| | (436 | ) | | — |
| | 2,757 |
|
Foreign exchange translation adjustment | | (1,067 | ) | | (63 | ) | | (514 | ) | | — |
| | — |
| | — |
| | (1,644 | ) |
Balance at end of year | | $ | 117,623 |
| | $ | 2,707 |
| | $ | 30,486 |
| | $ | 5,949 |
| | $ | 12,526 |
| | $ | 2,966 |
| | $ | 172,257 |
|
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents changes in the allowance for credit losses on held for investment bank loans by portfolio segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | C&I loans | | CRE loans | | REIT loans | | Tax-exempt loans | | Residential mortgage loans | | SBL and other | | Total |
Year ended September 30, 2021 | | | | | | | | | | | | | | |
Balance at beginning of year | | $ | 200 | | | $ | 81 | | | $ | 36 | | | $ | 14 | | | $ | 18 | | | $ | 5 | | | $ | 354 | |
Impact of CECL adoption | | 19 | | | (11) | | | (9) | | | (12) | | | 24 | | | (2) | | | 9 | |
Provision/(benefit) for credit losses | | (25) | | | 5 | | | (5) | | | — | | | (8) | | | 1 | | | (32) | |
Net (charge-offs)/recoveries: | | | | | | | | | | | | | | |
Charge-offs | | (4) | | | (10) | | | — | | | — | | | — | | | — | | | (14) | |
Recoveries | | — | | | — | | | — | | | — | | | 1 | | | — | | | 1 | |
Net (charge-offs)/recoveries | | (4) | | | (10) | | | — | | | — | | | 1 | | | — | | | (13) | |
Foreign exchange translation adjustment | | 1 | | | 1 | | | — | | | — | | | — | | | — | | | 2 | |
Balance at end of year | | $ | 191 | | | $ | 66 | | | $ | 22 | | | $ | 2 | | | $ | 35 | | | $ | 4 | | | $ | 320 | |
| | | | | | | | | | | | | | |
Year ended September 30, 2020 | | | | | | | | | | | | | | |
Balance at beginning of year | | $ | 139 | | | $ | 34 | | | $ | 15 | | | $ | 9 | | | $ | 16 | | | $ | 5 | | | $ | 218 | |
Provision/(benefit) for credit losses | | 157 | | | 48 | | | 23 | | | 5 | | | — | | | — | | | 233 | |
Net (charge-offs)/recoveries: | | | | | | | | | | | | | | |
Charge-offs | | (96) | | | (2) | | | (2) | | | — | | | — | | | — | | | (100) | |
Recoveries | | — | | | — | | | — | | | — | | | 2 | | | — | | | 2 | |
Net (charge-offs)/recoveries | | (96) | | | (2) | | | (2) | | | — | | | 2 | | | — | | | (98) | |
Foreign exchange translation adjustment | | — | | | 1 | | | — | | | — | | | — | | | — | | | 1 | |
Balance at end of year | | $ | 200 | | | $ | 81 | | | $ | 36 | | | $ | 14 | | | $ | 18 | | | $ | 5 | | | $ | 354 | |
The allowance for credit losses on held for investment bank loans decreased $43 million to $320 million since the adoption of CECL on October 1, 2020, largely attributable to improved forecasts for certain macroeconomic inputs to our CECL model since our adoption date, including improved outlooks on unemployment, gross domestic product and property price indices, as well as improved credit ratings within our corporate loan portfolio, segment, RJ Bank’s recorded investment (excluding any net unearned income and deferred expenses) and thepartially offset by provisions for credit losses related to loan growth.
The allowance for loan losses.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Loans held for investment |
| | Allowance for loan losses | | Recorded investment |
$ in thousands | | Individually evaluated for impairment | | Collectively evaluated for impairment | | Total | | Individually evaluated for impairment | | Collectively evaluated for impairment | | Total |
September 30, 2017 | | | | | | | | | | | | |
C&I | | $ | 1,963 |
| | $ | 117,938 |
| | $ | 119,901 |
| | $ | 5,221 |
| | $ | 7,380,689 |
| | $ | 7,385,910 |
|
CRE construction | | — |
| | 1,421 |
| | 1,421 |
| | — |
| | 112,681 |
| | 112,681 |
|
CRE | | — |
| | 41,749 |
| | 41,749 |
| | — |
| | 3,106,290 |
| | 3,106,290 |
|
Tax-exempt | | — |
| | 6,381 |
| | 6,381 |
| | — |
| | 1,017,791 |
| | 1,017,791 |
|
Residential mortgage | | 2,506 |
| | 14,185 |
| | 16,691 |
| | 47,368 |
| | 3,101,362 |
| | 3,148,730 |
|
SBL | | — |
| | 4,299 |
| | 4,299 |
| | — |
| | 2,386,697 |
| | 2,386,697 |
|
Total | | $ | 4,469 |
| | $ | 185,973 |
| | $ | 190,442 |
| | $ | 52,589 |
| | $ | 17,105,510 |
| | $ | 17,158,099 |
|
| | | | | | | | | | | | |
September 30, 2016 | | | | | | | | | | | | |
C&I | | $ | 13,351 |
| | $ | 124,350 |
| | $ | 137,701 |
| | $ | 35,194 |
| | $ | 7,435,179 |
| | $ | 7,470,373 |
|
CRE construction | | — |
| | 1,614 |
| | 1,614 |
| | — |
| | 122,718 |
| | 122,718 |
|
CRE | | — |
| | 36,533 |
| | 36,533 |
| | 4,230 |
| | 2,549,841 |
| | 2,554,071 |
|
Tax-exempt | | — |
| | 4,100 |
| | 4,100 |
| | — |
| | 740,944 |
| | 740,944 |
|
Residential mortgage | | 3,156 |
| | 9,508 |
| | 12,664 |
| | 56,735 |
| | 2,384,834 |
| | 2,441,569 |
|
SBL | | — |
| | 4,766 |
| | 4,766 |
| | — |
| | 1,904,827 |
| | 1,904,827 |
|
Total | | $ | 16,507 |
| | $ | 180,871 |
| | $ | 197,378 |
| | $ | 96,159 |
| | $ | 15,138,343 |
| | $ | 15,234,502 |
|
The reserve forcredit losses on unfunded lending commitments, which is included in “Other payables” on our Consolidated Statements of Financial Condition, was $11$13 million and $12 million at both September 30, 20172021 and 2016.
NOTE 9 - OTHER ASSETS
2020, respectively. The following table detailsincrease in the components of Other assets:
|
| | | | | | | | |
| | September 30, |
$ in thousands | | 2017 | | 2016 |
Investments in company-owned life insurance | | $ | 504,108 |
| | $ | 417,137 |
|
Prepaid expenses | | 96,059 |
| | 91,129 |
|
Investment in FHLB stock | | 52,187 |
| | 38,813 |
|
Indemnification asset | | 26,160 |
| | 35,325 |
|
Investment in FRB stock | | 24,706 |
| | 24,706 |
|
Prepaid compensation arising from 3Macs acquisition | | 17,276 |
| | 24,285 |
|
Guaranteed LIHTC Fund financing asset | | 15,786 |
| | 20,543 |
|
Prepaid compensation associated with DBRSU awards | | 9,899 |
| | 15,170 |
|
All other | | 34,244 |
| | 51,727 |
|
Total other assets | | $ | 780,425 |
| | $ | 718,835 |
|
Asallowance for credit losses on unfunded lending commitments as of September 30, 2017,2021 compared with September 30, 2020 was due to the cumulative face valueadoption impact of CECL of $8 million, partially offset by improved forecasts for certain macroeconomic inputs to our company-owned life insurance (“COLI”) policies was $1.87 billion.CECL model and lower unfunded exposure in the CRE portfolio.
Our indemnification asset pertains to legal matters for which Regions (as hereinafter defined) has indemnified RJF in connection with our acquisition of Morgan Keegan. The liabilities related to such matters were included in “Other payables” on our Consolidated Statements of Financial Condition. See Note 172 for additional information.further information about the adoption of CECL and the impact to the allowance for credit losses.
As part of our 2016 acquisition of 3Macs, a portion of the amount paid to selling shareholders who became continuing employees as of the closing date was treated as a prepaid compensation asset as the shareholders may be required to repay such amounts if they leave 3Macs during the five year period after the closing date, depending on the circumstances of their departure. This prepaid asset is being amortized as compensation expense over the five-year post-combination period.
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In fiscal year 2010, we sold an investment in a low-income housing tax credit fund and we guaranteed the return on investment
NOTE 9 – LOANS TO FINANCIAL ADVISORS, NET
Loans to onefinancial advisors are primarily comprised of the purchasers. As a result of selling this investment and providing a guaranteed return to its buyer, we are the primary beneficiary of the fund that was sold (see Note 10 for further information) and we accounted for this saleloans originated as a financing transaction. We continuepart of our recruiting activities. See Note 2 for a discussion of our accounting policies related to account for the asset transferredloans to the purchaser and maintain a related liability corresponding to our obligations under the guarantee. As the benefits are delivered to the purchaser of the investment, this financing assetfinancial advisors and the related liability decrease. Aallowance for credit losses. The following table presents the balances for our loans to financial advisors and the related financing liabilityaccrued interest receivable.
| | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2021 | | 2020 |
Currently affiliated with the firm (1) | | $ | 1,074 | | | $ | 1,001 | |
No longer affiliated with the firm (2) | | 10 | | | 15 | |
Total loans to financial advisors | | 1,084 | | | 1,016 | |
Allowance for credit losses | | (27) | | | (4) | |
Loans to financial advisors, net | | $ | 1,057 | | | $ | 1,012 | |
Accrued interest receivable on loans to financial advisors | | $ | 4 | | | $ | 4 | |
(1) These loans were predominantly current.
(2) These loans were predominantly past due for a period of 180 days or more.
Accrued interest receivables presented in the amount of $16 million and $21 million was includedpreceding table are reported in “Other payables”receivables, net” on ourthe Consolidated Statements of Financial ConditionCondition.
The allowance for credit losses was 2.49% of the loan portfolio as of September 30, 20172021 and 2016, respectively.was determined using the CECL methodology, which we adopted on October 1, 2020. The allowance for credit losses as of September 30, 2020 was determined under the incurred loss methodology and has not been restated. The increase in the allowance from September 30, 2020 to September 30, 2021 was primarily due to the impact of the October 1, 2020 CECL adoption, which resulted in an increase in our allowance for credit losses of $25 million. See Note 17 for additional information.
See Note 202 for further information about prepaid compensation associated withon the DBRSU awards that were assumed as part of our 2016 acquisition of Alex. Brown.CECL adoption.
NOTE 10 – VARIABLE INTEREST ENTITIES
A VIE requires consolidation by the entity’s primary beneficiary. We evaluate all of the entities in which we are involved to determine if the entity is a VIE and if so, whether we hold a variable interest and are the primary beneficiary. See the “Evaluation of VIEsRefer to determine whether consolidation is required” section of Note 2 for a discussion of our principal involvement with the VIEs and the accounting policies regarding determination of whether we are deemed to be the primary beneficiary of VIEs.
VIEs where we are the primary beneficiary
Of the VIEs in which we hold an interest, we have determined that certain Private Equity Interests, a LIHTC Fund in which RJ Bank is an investor and an affiliate of RJTCF is the managing member, any LIHTC Funds where RJTCF provides an investor member with a guaranteed return on their investment, certain other LIHTC funds and the Restricted Stock Trust Fund require consolidation in our financial statements, as we are deemed the primary beneficiary of such VIEs. The aggregate assets and liabilities of the VIEs we consolidate are provided in the table below.following table. Aggregate assets and aggregate liabilities may differ from the consolidated carrying value of assets and liabilities due to the elimination of intercompany assets and liabilities held by the consolidated VIE.
| | | | | | | | | | | | | | |
$ in millions | | Aggregate assets | | Aggregate liabilities |
September 30, 2021 | | | | |
Private Equity Interests | | $ | 66 | | | $ | 4 | |
LIHTC funds | | 111 | | | 52 | |
Restricted Stock Trust Fund | | 15 | | | 15 | |
Total | | $ | 192 | | | $ | 71 | |
| | | | |
September 30, 2020 | | | | |
Private Equity Interests | | $ | 39 | | | $ | 4 | |
LIHTC funds | | 168 | | | 76 | |
Restricted Stock Trust Fund | | 14 | | | 14 | |
Total | | $ | 221 | | | $ | 94 | |
|
| | | | | | | | |
$ in thousands | | Aggregate assets | | Aggregate liabilities |
September 30, 2017 | | | | |
Private Equity Interests | | $ | 104,414 |
| | $ | 3,851 |
|
LIHTC Fund in which RJ Bank is an investor member | | 57,719 |
| | 1,055 |
|
Guaranteed LIHTC Fund | | 51,400 |
| | 2,872 |
|
Other LIHTC Funds | | 7,418 |
| | 2,544 |
|
Restricted Stock Trust Fund | | 12,122 |
| | 12,122 |
|
Total | | $ | 233,073 |
| | $ | 22,444 |
|
| | | | |
September 30, 2016 | | |
| | |
|
Private Equity Interests | | $ | 140,870 |
| | $ | 4,888 |
|
LIHTC Fund in which RJ Bank is an investor member | | 55,550 |
| | 240 |
|
Guaranteed LIHTC Fund | | 63,415 |
| | 2,556 |
|
Restricted Stock Trust Fund | | 9,949 |
| | 9,949 |
|
Total | | $ | 269,784 |
| | $ | 17,633 |
|
In connection with the Guaranteed LIHTC Fund, RJTCF has provided one investor member with a guaranteed return on their investment in the fund. See Note 9 for information regarding the financing asset associated with this fund and Note 17 for additional information regarding this commitment.
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents information about the carrying value of the assets liabilities and equityliabilities of the VIEs which we consolidate and which are included withinon our Consolidated Statements of Financial Condition. The noncontrolling interests presentedIntercompany balances are eliminated in this table represent the portion of these net assets which areconsolidation and not ours.
|
| | | | | | | | |
| | September 30, |
$ in thousands | | 2017 | | 2016 |
Assets: | | | | |
Cash and cash equivalents | | $ | 2,052 |
| | $ | 8,302 |
|
Assets segregated pursuant to regulations and other segregated assets | | 4,590 |
| | 2,833 |
|
Other receivables | | 168 |
| | 28,463 |
|
Intercompany receivables | | 454 |
| | 475 |
|
Other investments | | 101,905 |
| | 103,630 |
|
Investments in real estate partnerships held by consolidated variable interest entities | | 111,743 |
| | 116,133 |
|
Trust fund investment in RJF common stock | | 12,120 |
| | 9,948 |
|
Other assets | | 41 |
| | — |
|
Total assets | | $ | 233,073 |
| | $ | 269,784 |
|
| | | | |
Liabilities and equity: | | |
| | |
|
Other payables | | $ | 9,667 |
| | $ | 3,617 |
|
Intercompany payables | | 16,520 |
| | 16,416 |
|
Total liabilities | | 26,187 |
| | 20,033 |
|
RJF equity | | 101,445 |
| | 117,023 |
|
Noncontrolling interests | | 105,441 |
| | 132,728 |
|
Total equity | | 206,886 |
| | 249,751 |
|
Total liabilities and equity | | $ | 233,073 |
| | $ | 269,784 |
|
The trust fund investment in RJF common stockreflected in the table above is the Restricted Stock Trust Fund, which is included in “Treasury stock” in our Consolidated Statements of Financial Condition.following table.
| | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2021 | | 2020 |
Assets: | | | | |
Cash and cash equivalents and assets segregated for regulatory purposes and restricted cash | | $ | 10 | | | $ | 9 | |
| | | | |
Other investments | | 63 | | | 37 | |
Other assets | | 105 | | | 164 | |
Total assets | | $ | 178 | | | $ | 210 | |
Liabilities: | | | | |
Other payables | | $ | 45 | | | $ | 76 | |
Total liabilities | | $ | 45 | | | $ | 76 | |
Noncontrolling interests | | $ | 58 | | | $ | 62 | |
VIEs where we hold a variable interest but are not the primary beneficiary
As discussed in Note 2, we have concluded that for certain VIEs we are not the primary beneficiary and therefore do not consolidate these VIEs. Such VIEs include certain Private Equity Interests, certain LIHTC funds, NMTC Funds and other limited partnerships. Our risk of loss for these VIEs is limited to our investments in, advances to, and/or receivables due from these VIEs.
Aggregate assets, liabilities and risk of loss
The aggregate assets, liabilities, and our exposure to loss from those VIEs in which we hold a variable interest, but as to which we have concluded we are not the primary beneficiary, are provided in the table below.following table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2021 | | 2020 |
$ in millions | | Aggregate assets | | Aggregate liabilities | | Our risk of loss | | Aggregate assets | | Aggregate liabilities | | Our risk of loss |
Private Equity Interests | | $ | 7,318 | | | $ | 47 | | | $ | 82 | | | $ | 7,738 | | | $ | 96 | | | $ | 67 | |
LIHTC funds | | 7,032 | | | 2,280 | | | 71 | | | 6,516 | | | 1,993 | | | 66 | |
Other | | 519 | | | 155 | | | 10 | | | 227 | | | 136 | | | 6 | |
Total | | $ | 14,869 | | | $ | 2,482 | | | $ | 163 | | | $ | 14,481 | | | $ | 2,225 | | | $ | 139 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
$ in thousands | | 2017 | | 2016 |
| | Aggregate assets | | Aggregate liabilities | | Our risk of loss | | Aggregate assets | | Aggregate liabilities | | Our risk of loss |
LIHTC Funds | | $ | 5,372,367 |
| | $ | 2,134,600 |
| | $ | 60,959 |
| | $ | 4,217,812 |
| | $ | 1,429,085 |
| | $ | 83,562 |
|
NMTC Funds | | 30,297 |
| | 105 |
| | 9 |
| | 65,338 |
| | 68 |
| | 12 |
|
Private Equity Interests | | 10,485,611 |
| | 174,354 |
| | 73,457 |
| | 14,286,950 |
| | 132,334 |
| | 70,336 |
|
Other | | 169,462 |
| | 88,615 |
| | 3,163 |
| | 144,579 |
| | 83,174 |
| | 2,240 |
|
Total | | $ | 16,057,737 |
| | $ | 2,397,674 |
| | $ | 137,588 |
| | $ | 18,714,679 |
| | $ | 1,644,661 |
| | $ | 156,150 |
|
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 11 - PROPERTY AND EQUIPMENT
|
| | | | | | | | |
| | September 30, |
$ in thousands | | 2017 | | 2016 |
Land | | $ | 29,079 |
| | $ | 24,150 |
|
Software, including development in progress | | 345,734 |
| | 271,864 |
|
Buildings, leasehold and land improvements | | 324,452 |
| | 260,800 |
|
Furniture, fixtures and equipment | | 224,418 |
| | 200,947 |
|
Construction in process | | 12,056 |
| | 3,711 |
|
Total property and equipment | | 935,739 |
| | 761,472 |
|
Less: Accumulated depreciation | | (498,365 | ) | | (440,015 | ) |
Total property and equipment, net | | $ | 437,374 |
| | $ | 321,457 |
|
NOTE 1211 - GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS, NET
The following areOur goodwill and identifiable intangible assets result from various acquisitions. See Note 2 for a discussion of our goodwill and intangible assets accounting policies. The following table presents our goodwill and net identifiable intangible asset balances as of the dates indicated:indicated.
| | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2021 | | 2020 |
Goodwill | | $ | 660 | | | $ | 466 | |
Identifiable intangible assets, net | | 222 | | | 134 | |
Total goodwill and identifiable intangible assets, net | | $ | 882 | | | $ | 600 | |
|
| | | | | | | | |
| | September 30, |
$ in thousands | | 2017 | | 2016 |
Goodwill | | $ | 410,723 |
| | $ | 408,072 |
|
Identifiable intangible assets, net | | 82,460 |
| | 94,974 |
|
Total goodwill and identifiable intangible assets, net | | $ | 493,183 |
| | $ | 503,046 |
|
Goodwill
The following table summarizes our goodwill by segment along withand the balancebalances and activity for the years indicated:indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | Total |
Year ended September 30, 2021 | | | | | | | | |
Goodwill as of beginning of year | | $ | 277 | | | $ | 120 | | | $ | 69 | | | $ | 466 | |
Additions | | 139 | | | 54 | | | — | | | 193 | |
Foreign currency translations | | 1 | | | — | | | — | | | 1 | |
| | | | | | | | |
Goodwill as of end of year | | $ | 417 | | | $ | 174 | | | $ | 69 | | | $ | 660 | |
| | | | | | | | |
Year ended September 30, 2020 | | | | | | | | |
Goodwill as of beginning of year | | $ | 275 | | | $ | 120 | | | $ | 69 | | | $ | 464 | |
| | | | | | | | |
Foreign currency translations | | 2 | | | — | | | — | | | 2 | |
| | | | | | | | |
Goodwill as of end of year | | $ | 277 | | | $ | 120 | | | $ | 69 | | | $ | 466 | |
|
| | | | | | | | | | | | |
| | Segment | | |
$ in thousands | | Private Client Group | | Capital Markets | | Total |
Fiscal Year 2017 | | | | | | |
Goodwill beginning of year | | $ | 275,521 |
| | $ | 132,551 |
| | $ | 408,072 |
|
Additions | | — |
| | — |
| | — |
|
Foreign currency translation | | 1,192 |
| | 1,459 |
| | 2,651 |
|
Goodwill end of year | | $ | 276,713 |
| | $ | 134,010 |
| | $ | 410,723 |
|
| | | | | | |
Fiscal Year 2016 | | | | | | |
Goodwill beginning of year | | $ | 186,733 |
| | $ | 120,902 |
| | $ | 307,635 |
|
Additions | | 86,351 |
| | 9,012 |
| | 95,363 |
|
Foreign currency translation | | 2,437 |
| | 2,637 |
| | 5,074 |
|
Goodwill end of year | | $ | 275,521 |
| | $ | 132,551 |
| | $ | 408,072 |
|
During fiscal year 2017, there were noThe additions to goodwill. Thegoodwill during the year ended September 30, 2021 arose from our acquisitions of NWPS in the Private Client Group segment goodwill additions in fiscal year 2016 were attributable to our acquisitions of Alex. Brownand Financo and Cebile in the amount of $82 million and 3Macs in the amount of $5 million. The addition to goodwill associated with Alex. Brown is deductible for tax purposes over 15 years. The addition to goodwill attributable to 3Macs is not deductible for tax purposes. The Capital Markets segment goodwill addition in fiscal year 2016 was attributable to our acquisition of Mummert. This goodwill is not deductible for tax purposes.segment. See Note 3 for additional information regarding ourdiscussion of these acquisitions.
Qualitative assessments
As described in Note 2, we perform goodwill impairment testing on an annual basis or when an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. During the year ended September 30, 2017, we changed our annual goodwill impairment test date for all reporting units from December 31 to January 1; however, the results of our test did not change as we continue to evaluate balances as of December 31. We performed our latest annual goodwill impairment testing during the quarter ended March 31, 2017,as of our January 1, 2021 evaluation date, evaluating balances as of December 31, 2016, and no impairment was identified.2020. In that testing, we performed both a qualitative impairment assessment for certaineach of our reporting units and a quantitative impairment assessment for our two RJ Ltd. reporting units operating in Canada.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
We assign goodwill to reporting units. Our reporting units include: a domestic Private Client Group (RJ&A domestic retail brokerage operations and our subsidiary The Producers Choice LLC (“TPC”)) and a Canadian Private Client Group (RJ Ltd. Private Client Group), each included in our Private Client Group segment; and RJ&A Fixed Income, U.S. Managed Equity Capital Markets, and RJ Ltd. Capital Markets, each included in our Capital Markets segment.
Qualitative Assessments
For each reporting unit on which we performed a qualitative assessment, we determined whether it was more likely than not that the carrying value of the reporting unit, including the recorded goodwill, was in excess of the fair value of the reporting unit. In any instance in which we are unable to qualitatively conclude that it is more likely than not that the fair value of the reporting unit exceeds the reporting unit carrying value including goodwill, a quantitative analysis of the fair value of the reporting unit would be performed.had goodwill. Based upon the outcome of our qualitative assessments, we determined that no quantitative analysis ofimpairment was identified.
Our qualitative assessments consider macroeconomic indicators, such as trends in equity and fixed income markets, gross domestic product, unemployment rates, interest rates, and housing markets. We also consider regulatory changes, reporting unit results, and changes in key personnel and strategy. Changes in these indicators, and our ability to respond to such changes, may trigger the fair value of any of the reporting units we elected to qualitatively analyze was required, and we concluded that none of the goodwill allocated to any of those reporting units was impaired.need for impairment testing at a point other than our annual assessment date. No events have occurred since our annual assessment date that would cause us to update this impairment testing.
Quantitative Assessments
For our two RJ Ltd. reporting units, we elected not to perform a qualitative assessment and instead performed quantitative assessments of the equity value of each RJ Ltd. reporting unit that had an allocation of goodwill. In our determination of the reporting unit fair value of equity, we used a combination of the income approach and the market approach. Under the income approach, we used discounted cash flow models applied to each respective reporting unit. Under the market approach, we calculated an estimated fair value based on a combination of multiples of earnings of guideline companies in the brokerage and capital markets industry that are publicly traded on organized exchanges, and the book value of comparable transactions. The estimated fair value of the equity of the reporting unit resulting from each of these valuation approaches was dependent upon the estimates of future business unit revenues and costs. Such estimates were subject to critical assumptions regarding the nature and health of financial markets in future years as well as the discount rate to apply to the projected future cash flows. In estimating future cash flows, a balance sheet as of December 31, 2016 and a statement of operations for the last twelve months of activity for each reporting unit were compiled. Future balance sheets and statements of operations were then projected, and estimated future cash flows were determined by the combination of these projections. The cash flows were discounted at the reporting unit’s estimated cost of equity, which was derived through application of the capital asset pricing model. The valuation result from the market approach was dependent upon the selection of the comparable guideline companies and transactions and the earnings multiple applied to each respective reporting unit’s projected earnings. Finally, significant management judgment was applied in determining the weight assigned to the outcome of the market approach and the income approach, which resulted in one single estimate of the fair value of the equity of the reporting unit.
The following summarizes certain key assumptions utilized in our quantitative analysis:
|
| | | | | | | | | | | | | | | | | |
| | | | | | Key assumptions |
| | | | | | | | | | Weight assigned to the outcome of: |
Segment | | Reporting unit | | Goodwill as of December 31, 2016 (in thousands) | | Discount rate used in the income approach | | Multiple applied to revenue/EPS in the market approach | | Income approach | | Market approach |
Private Client Group: | | RJ Ltd. Private Client Group | | $ | 22,735 |
| | 14.5 | % | | 1.2x/12.9x | | 75 | % | | 25 | % |
Capital Markets: | | RJ Ltd. Capital Markets | | $ | 18,997 |
| | 14.5 | % | | 1.2x/13.3x | | 75 | % | | 25 | % |
The assumptions and estimates utilized in determining the fair value of reporting unit equity are sensitive to changes, including, but not limited to, a decline in overall market conditions, adverse business trends and changes in the regulations.
Based upon the outcome of our quantitative assessments, we concluded that none of the goodwill associated with our two RJ Ltd. reporting units was impaired.
No events have occurred since our quantitative assessments during the quarter ended March 31, 2017 that would cause us to update this impairment testing.
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Identifiable intangible assets, net
The following table sets forth our identifiable intangible asset balances by segment, net of accumulated amortization, and activity for the years indicated:indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | Total |
Year ended September 30, 2021 | | | | | | | | |
Net identifiable intangible assets as of beginning of year | | $ | 31 | | | $ | 13 | | | $ | 90 | | | $ | 134 | |
Additions | | 96 | | | 13 | | | — | | | 109 | |
Amortization expense | | (7) | | | (9) | | | (5) | | | (21) | |
| | | | | | | | |
| | | | | | | | |
Net identifiable intangible assets as of end of year | | $ | 120 | | | $ | 17 | | | $ | 85 | | | $ | 222 | |
| | | | | | | | |
Year ended September 30, 2020 | | | | | | | | |
Net identifiable intangible assets as of beginning of year | | $ | 35 | | | $ | 17 | | | $ | 95 | | | $ | 147 | |
| | | | | | | | |
Amortization expense | | (4) | | | (4) | | | (5) | | | (13) | |
| | | | | | | | |
| | | | | | | | |
Net identifiable intangible assets as of end of year | | $ | 31 | | | $ | 13 | | | $ | 90 | | | $ | 134 | |
|
| | | | | | | | | | | | | | | | |
| | Segment | | |
$ in thousands | | Private Client Group | | Capital Markets | | Asset Management | | Total |
Fiscal Year 2017 | | | | | | | | |
Net identifiable intangible assets beginning of year
| | $ | 52,936 |
| | $ | 27,937 |
| | $ | 14,101 |
| | $ | 94,974 |
|
Amortization expense | | (6,001 | ) | | (4,845 | ) | | (2,004 | ) | | (12,850 | ) |
Foreign currency translation | | 91 |
| | (15 | ) | | 260 |
| | 336 |
|
Net identifiable intangible assets end of year | | $ | 47,026 |
| | $ | 23,077 |
| | $ | 12,357 |
| | $ | 82,460 |
|
| | | | | | | | |
Fiscal Year 2016 | | | | | | | | |
Net identifiable intangible assets beginning of year
| | $ | 18,182 |
| | $ | 32,532 |
| | $ | 17,137 |
| | $ | 67,851 |
|
Additions | | 36,624 |
| | 1,013 |
| | — |
|
| 37,637 |
|
Amortization expense | | (1,870 | ) | | (5,619 | ) | | (2,226 | ) | | (9,715 | ) |
Foreign currency translation
| | — |
| | 11 |
| | (810 | ) | | (799 | ) |
Net identifiable intangible assets end of year | | $ | 52,936 |
| | $ | 27,937 |
| | $ | 14,101 |
| | $ | 94,974 |
|
The additions of identifiable intangible asset additionsassets during the year ended September 30, 2021 arose from our acquisitions of NWPS in fiscal year 2016 were primarily attributable to the acquisition of Alex. BrownPrivate Client Group segment and 3MacsFinanco and included customer relationships, trade names, seller relationship agreements and non-compete agreements.Cebile in the Capital Markets segment. See Note 3 for additional information regarding ourdiscussion of these acquisitions.
The following table summarizes our identifiable intangible assets by type:type.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2021 | | 2020 |
$ in millions | | Gross carrying value | | Accumulated amortization | | Gross carrying value | | Accumulated amortization |
Customer relationships | | $ | 238 | | | $ | (79) | | | $ | 134 | | | $ | (61) | |
Non-amortizing customer relationships | | 52 | | | — | | | 52 | | | — | |
Trade name | | 12 | | | (5) | | | 10 | | | (4) | |
Seller relationship agreements | | 4 | | | (3) | | | 4 | | | (2) | |
Other | | 6 | | | (3) | | | 6 | | | (5) | |
Total | | $ | 312 | | | $ | (90) | | | $ | 206 | | | $ | (72) | |
|
| | | | | | | | | | | | | | | | |
| | September 30, |
| | 2017 | | 2016 |
$ in thousands | | Gross carrying value | | Accumulated amortization | | Gross carrying value | | Accumulated amortization |
Customer relationships | | $ | 99,749 |
| | $ | (31,098 | ) | | $ | 99,470 |
| | $ | (22,895 | ) |
Trade name | | 8,366 |
| | (2,076 | ) | | 8,172 |
| | (499 | ) |
Developed technology | | 1,630 |
| | (706 | ) | | 12,630 |
| | (10,280 | ) |
Intellectual property | | 542 |
| | (131 | ) | | 516 |
| | (73 | ) |
Non-compete agreements | | 3,336 |
| | (1,551 | ) | | 3,314 |
| | (612 | ) |
Seller relationship agreements | | 5,300 |
| | (901 | ) | | 5,300 |
| | (69 | ) |
Total | | $ | 118,923 |
| | $ | (36,463 | ) | | $ | 129,402 |
| | $ | (34,428 | ) |
The following table sets forth the projected amortization expense by fiscal year associated with our identifiable intangible assets:assets with finite lives.
| | | | | | | | |
Fiscal year ended September 30, | | $ in millions |
2022 | | $ | 22 | |
2023 | | 15 | |
2024 | | 14 | |
2025 | | 13 | |
2026 | | 10 | |
Thereafter | | 96 | |
Total | | $ | 170 | |
Qualitative assessments
As described in Note 2, we perform impairment testing for our non-amortizing customer relationships intangible asset on an annual basis or when an event occurs or circumstances change that would more likely than not reduce the fair value of the asset below its carrying value. We performed our latest annual impairment testing as of our January 1, 2021 evaluation date, evaluating the balance as of December 31, 2020. In that testing, we performed a qualitative assessment for our non-amortizing customer relationships intangible asset. Based upon the outcome of our qualitative assessment, no impairment was identified. No events have occurred since such assessment that would cause us to update this impairment testing.
|
| | | | |
Fiscal year ended September 30, | | $ in thousands |
2018 | | $ | 11,056 |
|
2019 | | 10,591 |
|
2020 | | 9,812 |
|
2021 | | 9,056 |
|
2022 | | 8,436 |
|
Thereafter | | 33,509 |
|
| | $ | 82,460 |
|
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 12 - OTHER ASSETS
The following table details the components of other assets. See Note 2 for a discussion of the accounting polices related to certain of these components.
| | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2021 | | 2020 |
Investments in company-owned life insurance policies | | $ | 952 | | | $ | 773 | |
Property and equipment, net | | 499 | | | 535 | |
Lease ROU assets | | 446 | | | 321 | |
Prepaid expenses | | 127 | | | 123 | |
| | | | |
Investments in FHLB and FRB stock | | 72 | | | 77 | |
| | | | |
All other | | 161 | | | 231 | |
Total other assets | | $ | 2,257 | | | $ | 2,060 | |
As of September 30, 2021, the cumulative face value of our company-owned life insurance policies was $2.04 billion.
See Note 13 for further information regarding our property and equipment and Note 14 for further information regarding our leases.
NOTE 13 - PROPERTY AND EQUIPMENT, NET
The following table presents the components of our property and equipment, net as of the dates indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2021 | | 2020 |
$ in millions | | Gross carrying value | | Accumulated depreciation/ software amortization | | Property and equipment, net | | Gross carrying value | | Accumulated depreciation/ software amortization | | Property and equipment, net |
Land | | $ | 29 | | | $ | — | | | $ | 29 | | | $ | 29 | | | $ | — | | | $ | 29 | |
Software, including development in progress | | 606 | | | (362) | | | 244 | | | 565 | | | (302) | | | 263 | |
Buildings, building components, leasehold and land improvements | | 397 | | | (225) | | | 172 | | | 406 | | | (215) | | | 191 | |
Furniture, fixtures and equipment | | 321 | | | (267) | | | 54 | | | 294 | | | (242) | | | 52 | |
Total | | $ | 1,353 | | | $ | (854) | | | $ | 499 | | | $ | 1,294 | | | $ | (759) | | | $ | 535 | |
Depreciation expense associated with property and equipment was $51 million, $52 million, and $48 million for the years ended September 30, 2021, 2020, and 2019, respectively, and is included in “Occupancy and equipment” expense on our Consolidated Statements of Income and Comprehensive Income. Amortization expense associated with computer software was $62 million, $54 million, and $49 million for the years ended September 30, 2021, 2020, and 2019, respectively, and is included in “Communications and information processing” expense on our Consolidated Statements of Income and Comprehensive Income. We also incur software licensing fees, which are also included in “Communications and information processing” expense on our Consolidated Statements of Income and Comprehensive Income.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 14 - LEASES
The following table presents balances related to our leases on our Consolidated Statements of Financial Condition. See Note 2 for a discussion of our accounting policies related to leases.
| | | | | | | | | | | | | | |
$ in millions | | September 30, 2021 | | September 30, 2020 |
ROU assets (included in Other assets) | | $ | 446 | | | $ | 321 | |
Lease liabilities (included in Other payables) | | $ | 450 | | | $ | 345 | |
The weighted-average remaining lease term and discount rate for our leases is presented in the following table.
| | | | | | | | | | | | | | |
| | September 30, 2021 | | September 30, 2020 |
Weighted-average remaining lease term | | 6.7 years | | 5.0 years |
Weighted-average discount rate | | 3.45 | % | | 3.86 | % |
Lease expense
The following table details the components of lease expense, which is included in “Occupancy and equipment” expense on our Consolidated Statements of Income and Comprehensive Income.
| | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2021 | | 2020 |
Lease costs | | $ | 110 | | | $ | 98 | |
Variable lease costs | | $ | 27 | | | $ | 26 | |
Variable lease costs in the preceding table include payments for common area maintenance charges and other variable costs that are not reflected in the measurement of ROU assets and lease liabilities.
Lease liabilities
The maturities by fiscal year of our lease liabilities as of September 30, 2021 are presented in the following table.
| | | | | | | | |
| | $ in millions |
2022 | | $ | 102 | |
2023 | | 94 | |
2024 | | 72 | |
2025 | | 56 | |
2026 | | 46 | |
Thereafter | | 136 | |
Gross lease payments | | 506 | |
Less: interest | | (56) | |
Present value of lease liabilities | | $ | 450 | |
Lease payments in the preceding table exclude $20 million of legally binding minimum lease payments for leases signed but not yet commenced. These leases are estimated to commence between fiscal year 2022 and 2023 with lease terms ranging from three to seven years.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 15 – BANK DEPOSITS
Bank deposits include savings and money market accounts, certificates of deposit with Raymond James Bank, Negotiable Order of Withdrawal (“NOW”) accounts and demand deposits, savings and money market accounts and certificates of deposit of RJ Bank.deposits. The following table presents a summary of bank deposits, includingas well as the weighted-average rate, theinterest rates on such deposits. The calculation of which wasthe weighted-average rates were based on the actual deposit balances and rates at September 30, 2017 and 2016, respectively.each respective period end.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2021 | | 2020 |
$ in millions | | Balance | | Weighted-average rate | | Balance | | Weighted-average rate |
Savings and money market accounts | | $ | 31,415 | | | 0.01 | % | | $ | 25,604 | | | 0.01 | % |
Certificates of deposit | | 878 | | | 1.87 | % | | 1,017 | | | 1.94 | % |
NOW accounts | | 164 | | | 1.84 | % | | 156 | | | 1.92 | % |
Demand deposits (non-interest-bearing) | | 38 | | | — | | | 24 | | | — | |
Total bank deposits | | $ | 32,495 | | | 0.07 | % | | $ | 26,801 | | | 0.09 | % |
|
| | | | | | | | | | | | | | |
| | September 30, |
| | 2017 | | 2016 |
$ in thousands | | Balance | | Weighted-average rate | | Balance | | Weighted-average rate |
Savings and money market accounts | | $ | 17,391,091 |
| | 0.14 | % | | $ | 13,935,089 |
| | 0.05 | % |
Certificates of deposit | | 314,685 |
| | 1.60 | % | | 315,236 |
| | 1.55 | % |
NOW accounts | | 5,197 |
| | 0.01 | % | | 4,958 |
| | 0.01 | % |
Demand deposits (non-interest-bearing) | | 21,389 |
| | — |
| | 7,264 |
| | — |
|
Total bank deposits | | $ | 17,732,362 |
| | 0.17 | % | | $ | 14,262,547 |
| | 0.08 | % |
Total bank deposits in the preceding table above excludesexclude affiliate deposits of $243$301 million and $353$185 million at September 30, 20172021 and 2016,2020, respectively. These affiliate deposits include $192 million and $350 million asAs of September 30, 20172021, these affiliate deposits included $229 million and 2016, respectively,$72 million held in a deposit accountaccounts at RJRaymond James Bank on behalf of RJF (seeand Raymond James Trust Company of New Hampshire, respectively. As of September 30, 2020, these affiliate deposits were held by Raymond James Bank on behalf of RJF. See Note 2527 for additional information).information.
Savings and money market accounts in the preceding table above consist primarily of deposits that are cash balances swept to Raymond James Bank from the client investment accounts maintained at RJ&A to RJ Bank.&A. These balances are held in Federal Deposit Insurance Corporation (“FDIC”) insuredFDIC-insured bank accounts through the Raymond James Bank Deposit Program (“RJBDP”).RJBDP. The aggregate amount of individual time deposit account balances that exceeded the FDIC insurance limit at September 30, 20172021 was $23approximately $42 million.
ScheduledThe following table sets forth the scheduled maturities of certificates of deposit are as follows:deposit.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2021 | | 2020 |
$ in millions | | Denominations greater than or equal to $100,000 | | Denominations less than $100,000 | | Denominations greater than or equal to $100,000 | | Denominations less than $100,000 |
Three months or less | | $ | 22 | | | $ | 87 | | | $ | 59 | | | $ | 76 | |
Over three through six months | | 21 | | | 76 | | | 26 | | | 18 | |
Over six through twelve months | | 32 | | | 54 | | | 19 | | | 26 | |
Over one through two years | | 93 | | | 170 | | | 43 | | | 206 | |
Over two through three years | | 37 | | | 166 | | | 67 | | | 170 | |
Over three through four years | | 6 | | | 99 | | | 37 | | | 165 | |
Over four through five years | | 9 | | | 6 | | | 7 | | | 98 | |
Total certificates of deposit | | $ | 220 | | | $ | 658 | | | $ | 258 | | | $ | 759 | |
|
| | | | | | | | | | | | | | | | |
| | September 30, |
| | 2017 | | 2016 |
$ in thousands | | Denominations greater than or equal to $100,000 | | Denominations less than $100,000 | | Denominations greater than or equal to $100,000 | | Denominations less than $100,000 |
Three months or less | | $ | 8,704 |
| | $ | 4,132 |
| | $ | 14,252 |
| | $ | 12,663 |
|
Over three through six months | | 4,692 |
| | 3,894 |
| | 14,191 |
| | 9,750 |
|
Over six through twelve months | | 34,005 |
| | 11,865 |
| | 15,452 |
| | 12,321 |
|
Over one through two years | | 38,713 |
| | 20,019 |
| | 32,816 |
| | 11,060 |
|
Over two through three years | | 48,082 |
| | 27,847 |
| | 43,730 |
| | 22,148 |
|
Over three through four years | | 21,819 |
| | 12,761 |
| | 58,425 |
| | 28,863 |
|
Over four through five years | | 50,805 |
| | 27,347 |
| | 26,173 |
| | 13,392 |
|
Total | | $ | 206,820 |
| | $ | 107,865 |
| | $ | 205,039 |
| | $ | 110,197 |
|
Interest expense on deposits, excluding interest expense related to affiliate deposits, is summarized as follows:in the following table.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2021 | | 2020 | | 2019 |
Savings, money market, and NOW accounts | | $ | 6 | | | $ | 21 | | | $ | 120 | |
Certificates of deposit | | 17 | | | 20 | | | 12 | |
Total interest expense on deposits | | $ | 23 | | | $ | 41 | | | $ | 132 | |
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | 2016 | | 2015 |
Certificates of deposit | | $ | 4,325 |
| | $ | 5,402 |
| | $ | 5,839 |
|
Money market, savings and NOW accounts | | 12,859 |
| | 4,816 |
| | 2,543 |
|
Total interest expense on deposits | | $ | 17,184 |
| | $ | 10,218 |
| | $ | 8,382 |
|
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1416 – OTHER BORROWINGS
The following table details the components of other borrowings:borrowings.
| | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2021 | | 2020 |
FHLB advances | | $ | 850 | | | $ | 875 | |
| | | | |
| | | | |
Mortgage notes payable | | 8 | | | 13 | |
Total other borrowings | | $ | 858 | | | $ | 888 | |
|
| | | | | | | | |
| | September 30, |
$ in thousands | | 2017 | | 2016 |
FHLB advances | | $ | 875,000 |
| | $ | 575,000 |
|
Unsecured lines of credit | | 350,000 |
| | — |
|
Secured lines of credit | | 260,000 |
| | — |
|
Mortgage notes payable | | 28,813 |
| | 33,391 |
|
ClariVest revolving credit facility | | 199 |
| | 267 |
|
Total other borrowings | | $ | 1,514,012 |
| | $ | 608,658 |
|
FHLB advances
Borrowings from the FHLB were comprised of floating-rate advances of $850 million as of September 30, 2017 were comprised of both2021, and floating and fixed-rate advances. Asadvances of $850 million and $25 million, respectively, as of September 30, 20172020. The fixed-rate advance, which incurred interest at 3.4%, matured and was repaid in October 2020. The interest rates on the floating-rate advances, which mature in June 2019 and have interest rates whichDecember 2022, reset quarterly totaled $850 million.and are generally based on LIBOR. We use interest rate swaps to manage the risk of increases in interest rates associated with these floating-rate advances by converting the balances subject to variable interest rates to a fixed interest rate. Refer to Note 62 for information regarding these interest rate swaps, which are accounted for as hedging instruments. The fixed-rate advance,weighted-average interest rate on our floating-rate FHLB advances was 0.26% and 0.45% as of September 30, 2021 and September 30, 2020, respectively. The interest rates on the FHLB borrowings will transition to a Secured Overnight Financing Rate (“SOFR”)-based rate in the amount of $25 million, matures in October 2020 and bears interest at a fixed rate of 3.4%.December 2021. All of the advances were secured by a blanket lien granted to the FHLB on our residential mortgage loan portfolio. The weighted average interest rate on these advances as of September 30, 2017 was 1.41%.
Borrowings from the FHLB as of September 30, 2016 were comprised of floating-rate advances that have interest rates which reset quarterly, totaling $550 million,Secured and a fixed-rate advance in the amount of $25 millionunsecured financing arrangements
In February 2019, RJF and bears interest at a rate of 3.4%. The weighted average interest rate on these advances as of September 30, 2016 was 1.01%.
RJF is a party to aRJ&A entered into an unsecured revolving credit facility agreement (the “RJF Credit“Credit Facility”) with a maturity datesyndicate of May 2022 in whichlenders. In April 2021, we amended our Credit Facility, extending the lenders areterm from February 2024 to April 2026 and incorporating a numberlower cost of financial institutions.borrowing under the Credit Facility and certain favorable covenant modifications. This committed unsecured borrowing facility provides for maximum borrowings of up to $500 million, with a sublimit of $300 million atfor RJF. RJ&A may borrow up to $500 million under the Credit Facility, depending on the amount of outstanding borrowings of RJF. The interest rates on borrowings under the Credit Facility are variable ratesand were based on LIBOR as of interest.September 30, 2021, as adjusted for RJF’s credit rating; however, the administrative agent has the right to select a commercially available alternative reference rate to LIBOR if adequate and reasonable means do not exist for ascertaining LIBOR. There were no borrowings outstanding on the RJF Credit Facility as of either September 30, 2017 or 2016. The interest rate2021. There is a facility fee associated with the RJF Credit Facility, is a variable rate that, among other factors,which also varies depending uponwith RJF’s credit rating. Based upon RJF’s credit rating as of September 30, 2017, the variable borrowing rate was 1.50% per annum over LIBOR. There is a variable rate commitment fee associated with the RJF Credit Facility, which varies depending upon RJF’s credit rating. Based upon RJF’s credit rating as of September 30, 2017,2021, the variable rate commitmentfacility fee, which is applied to any difference between the daily borrowed amount and the committed amount, was 0.20%0.175% per annum. Any borrowings on
In addition to the Credit Facility, we maintain various secured and unsecured lines of credit, with the exception of the RJF Credit Facility, were day-to-day and were generally utilized for cash management purposes.
Any borrowings on secured lines of credit were day-to-day and werewhich are generally utilized to finance certain fixed income securities. In addition wesecurities or for cash management purposes. Borrowings during the year were generally day-to-day and there were no borrowings outstanding on these arrangements as of September 30, 2021. The interest rates for these arrangements are variable and are based on a daily bank quoted rate, which may reference LIBOR, the Fed Funds rate, a lender’s prime rate, the Canadian prime rate, or another commercially available rate, as applicable.
We also have other collateralized financings included in “Securities sold under agreements to repurchase”“Collateralized financings” on our Consolidated Statements of Financial Condition. See Note 7 for information regarding our other collateralized financing arrangements.
The interest rates for all of our U.S. and Canadian secured and unsecured financing facilities are variable and are based on the Fed Funds rate, LIBOR, a lenders prime rate, or the Canadian prime rate, as applicable. For the fiscal year ended September 30, 2017, interest rates on the U.S. facilities that were utilized during the year, other than the ClariVest Facility and the RJF Credit Facility which are each previously described, ranged from 0.35% to 3.41%. The interest rate on our Canadian facility which was utilized from time-to-time during the fiscal year September 30, 2017 was 1.75%.Mortgage notes payable
Mortgage notes payable pertain to mortgage loans on certain of our corporate headquarters offices located in St. Petersburg, Florida. These mortgage loans are secured by land, buildings, and improvements. These mortgage loans bear a fixed interest atrate of 5.7% with repayment terms of monthly interest and principal debt service and have a January 2023 maturity.
ClariVest Asset Management, LLC (“ClariVest”), a subsidiary of Eagle, is a party to a revolving line of credit provided by a third party lender (the “ClariVest Facility”). The maximum amount available to borrow under the ClariVest Facility is $500 thousand, bearing interest at a variable rate which is 1% over the lender’s prime rate. The weighted average interest rate on the ClariVest Facility during the fiscal year ended September 30, 2017 was 4.91%. The ClariVest Facility expires in September 2018.
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Our other borrowings as of September 30, 2017, mature as follows based on their contractual terms:
|
| | | | |
Fiscal year ended September 30, | | $ in thousands |
2018 | | $ | 615,045 |
|
2019 | | 855,130 |
|
2020 | | 5,430 |
|
2021 | | 30,748 |
|
2022 | | 6,084 |
|
Thereafter | | 1,575 |
|
Total | | $ | 1,514,012 |
|
NOTE 1517 – SENIOR NOTES PAYABLE
The following table summarizes our senior notes payable:payable.
| | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2021 | | 2020 |
4.65% senior notes, due 2030 | | $ | 500 | | | $ | 500 | |
4.95% senior notes, due 2046 | | 800 | | | 800 | |
3.75% senior notes, due 2051 | | 750 | | | — | |
5.625% senior notes, due 2024 | | — | | | 250 | |
3.625% senior notes, due 2026 | | — | | | 500 | |
Total principal amount | | 2,050 | | | 2,050 | |
Unaccreted premiums/(discounts) | | 5 | | | 10 | |
Unamortized debt issuance costs | | (18) | | | (15) | |
Total senior notes payable | | $ | 2,037 | | | $ | 2,045 | |
|
| | | | | | | | |
| | September 30, |
$ in thousands | | 2017 | | 2016 |
5.625% senior notes, due 2024 | | $ | 250,000 |
| | $ | 250,000 |
|
3.625% senior notes, due 2026 | | 500,000 |
| | 500,000 |
|
4.95% senior notes, due 2046 | | 800,000 |
| | 300,000 |
|
6.90% senior notes, due 2042 | | — |
| | 350,000 |
|
8.60% senior notes, due 2019 | | — |
| | 300,000 |
|
| | 1,550,000 |
| | 1,700,000 |
|
Unaccreted premium/(discount) | | 11,905 |
| | (1,601 | ) |
Unamortized debt issuance costs | | (13,066 | ) | | (17,812 | ) |
Total senior notes payable | | $ | 1,548,839 |
| | $ | 1,680,587 |
|
In March 2012,2020, we sold in a registered underwritten public offering $250$500 million in aggregate principal amount of 5.625%4.65% senior notes due April 2024.2030 in a registered underwritten public offering. Interest on these senior notes is payable semi-annually. We may redeem some or all of these senior notes at any time prior to their maturity,January 1, 2030, at a redemption price equal to the greater of (i) 100% of the principal amount of the notes redeemed, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon, discounted to the redemption date at a discount rate equal to a designated U.S. Treasury rate, plus 50 basis points,points; and on or after January 1, 2030, at 100% of the principal amount of the notes redeemed; plus, in each case, accrued and unpaid interest thereon to the redemption date.
In July 2016, we sold in a registered underwritten public offering $500 million in aggregate principal amount of 3.625% senior notes due September 2026. Interest on these senior notes is payable semi-annually. We may redeem some or all of these senior notes at any time prior to their maturity, at a redemption price equal to the greater of (i) 100% of the principal amount of the notes redeemed, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon, discounted to the redemption date at a discount rate equal to a designated U.S. Treasury rate, plus 35 basis points, plus accrued and unpaid interest thereon to the redemption date.
In July 2016, we sold in a registered underwritten public offering $300 million in aggregate principal amount of 4.95% senior notes due July 2046.2046 in a registered underwritten public offering. In May 2017, we reopened the offering and sold, in a registered underwritten public offering, an additional $500 million in aggregate principal amount of 4.95% senior notes due July 2046. These additional senior notes were consolidated, formed into a single series, and are fully fungible with the $300 million in aggregate principal amount of 4.95% senior notes issued in July 2016. Interest on these senior notes is payable semi-annually. We may redeem some or all of these senior notes at any time prior to their maturity, at a redemption price equal to the greater of (i) 100% of the principal amount of the notes redeemed, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon, discounted to the redemption date at a discount rate equal to a designated U.S. Treasury rate, plus 45 basis points, plus accrued and unpaid interest thereon to the redemption date.
Redemption at parIn April 2021, we sold $750 million in aggregate principal amount of certain senior notes
On March 15, 2017 (the “March Redemption Date”), we redeemed all of our outstanding 6.90%3.75% senior notes due March 2042, which were originally soldApril 2051 in a registered underwritten public offering in 2012. The aggregate principal amount outstandingoffering. Interest on these senior notes is payable semi-annually. We may redeem some or all of the 6.90% Senior Notes was $350 million. Thethese senior notes at any time prior to October 1, 2050, at a redemption price on the March Redemption Date was equal to the principal, plus accrued and unpaid interest thereon to the March Redemption Date. Unamortized debt issuance costs asgreater of (i) 100% of the March Redemption Date of $8 million were accelerated and were included in “Losses on extinguishment of debt” in our Consolidated Statements of Income and Comprehensive Income for the year ended September 30, 2017.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On September 25, 2017 (the “September Redemption Date”), we redeemed all of our outstanding 8.60% senior notes due August 2019, which were originally sold in a registered underwritten public offering in 2009. The aggregate principal amount outstanding of the 8.60% senior notes was $300 million. The redemption price on the September Redemption Date was equal to accrued and unpaid interest as of the September Redemption Date plusredeemed, or (ii) the sum of the present valuevalues of the remaining scheduled payments which consist of principal and interest thereon, discounted to the September Redemption Date on a semi-annual basisredemption date at a discount rate equal to a designated U.S. Treasury Rate,rate, plus 5020 basis points. A make-whole premium relatedpoints; and on or after October 1, 2050, at 100% of the principal amount of the notes redeemed; plus, in each case, accrued and unpaid interest thereon to the redemption date.
Tender offers and redemptions of $37certain senior notes
Concurrently with the launch of our offering of $750 million in aggregate principal amount of 3.75% senior notes due April 2051 described above, we commenced cash tender offers (the “Tender Offers”) for any and all of our then outstanding 5.625% senior notes due 2024 and 3.625% senior notes due 2026 (the “Pre-existing Notes”). Pursuant to the Tender Offers, in April 2021 we repurchased an aggregate of $332 million outstanding Pre-existing Notes for an aggregate purchase price of $373 million.
In addition, in April 2021 we issued notices of redemption to holders of the Pre-existing Notes pursuant to the indentures governing such notes, to redeem any Pre-existing Notes that remained outstanding following the closing of the Tender Offers. In May 2021 we redeemed the remaining outstanding balance of the Pre-existing Notes of $418 million for an aggregate redemption price of $473 million.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
These repurchases and redemptions of the Pre-existing Notes were funded with the net proceeds from our 3.75% senior notes due April 2051 and cash on hand, and resulted in a loss of $98 million which was includedcomprised of make-whole premiums, unamortized debt issuance costs which were accelerated, and certain legal and professional fees. This loss was presented in “Losses on extinguishment of debt” inon our Consolidated Statements of Income and Comprehensive Income for theour fiscal year ended September 30, 2017.2021.
Our senior notes payable outstanding as of September 30, 2017, mature at varying dates between 2024 and 2046.
NOTE 1618 – INCOME TAXES
For a discussion of our income tax accounting policies and other income tax-related information see Note 2.
TotalIncome taxes
The following table details the total income tax provision/(benefit) was allocated as follows:
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | 2016 | | 2015 |
Recorded in: | | | | | | |
Net income including noncontrolling interests | | $ | 289,111 |
| | $ | 271,293 |
| | $ | 296,034 |
|
Equity, arising from cash flow hedges recorded through OCI | | 14,239 |
| | (7,252 | ) | | (2,850 | ) |
Equity, arising from cumulative currency translation adjustments and net investment hedges recorded through OCI | | (7,427 | ) | | (3,525 | ) | | 31,078 |
|
Equity, arising from available-for-sale securities recorded through OCI | | 856 |
| | (3,295 | ) | | (2,246 | ) |
Equity, arising from compensation expense for tax purposes which was (in excess of)/less than amounts recognized for financial reporting purposes | | — |
| | (35,121 | ) | | 8,115 |
|
Total | | $ | 296,779 |
| | $ | 222,100 |
| | $ | 330,131 |
|
Effective October 1, 2016, we adopted the new accounting guidance related to stock compensation. The amended guidance involves several aspects of the accountingallocation for share-based payment transactions, including the income tax consequences. Under the new guidance, all tax effects related to share-based payments are recorded through tax expense in the periods during which the awards are exercised or vest, as applicable. See Note 2 and Note 20 for additional information on our adoption of this new accounting guidance during theeach respective period.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2021 | | 2020 | | 2019 |
Recorded in: | | | | | | |
Net income | | $ | 388 | | | $ | 234 | | | $ | 341 | |
Equity, arising from available-for-sale securities recorded through OCI | | (32) | | | 23 | | | 27 | |
Equity, arising from currency translations, net of the impact of net investment hedges recorded through OCI | | (10) | | | 2 | | | 7 | |
Equity, arising from cash flow hedges recorded through OCI | | 8 | | | (12) | | | (23) | |
Total provision for income taxes | | $ | 354 | | | $ | 247 | | | $ | 352 | |
Our
The following table details our provision/(benefit) for income taxes
consisted of the following:included in net income for each respective period. | | | | | | | | | | Year ended September 30, |
| | Year ended September 30, | |
$ in thousands | | 2017 | | 2016 | | 2015 | |
$ in millions | | $ in millions | | 2021 | | 2020 | | 2019 |
Current: | | | | | | | Current: | | | | | | |
Federal | | $ | 255,555 |
| | $ | 287,350 |
| | $ | 266,359 |
| Federal | | $ | 321 | | | $ | 215 | | | $ | 286 | |
State and local | | 37,553 |
| | 32,101 |
| | 48,130 |
| State and local | | 79 | | | 49 | | | 63 | |
Foreign | | 7,620 |
| | 10,640 |
| | 5,007 |
| Foreign | | 25 | | | 9 | | | 15 | |
| | 300,728 |
| | 330,091 |
| | 319,496 |
| |
Total current | | Total current | | 425 | | | 273 | | | 364 | |
Deferred: | | | | | | | Deferred: | | | | | | |
Federal | | (11,316 | ) | | (51,383 | ) | | (20,567 | ) | Federal | | (28) | | | (36) | | | (22) | |
State and local | | (959 | ) | | (6,267 | ) | | (5,127 | ) | State and local | | (6) | | | (3) | | | (1) | |
Foreign | | 658 |
| | (1,148 | ) | | 2,232 |
| Foreign | | (3) | | | — | | | — | |
| | (11,617 | ) | | (58,798 | ) | | (23,462 | ) | |
Total provision for income tax | | $ | 289,111 |
| | $ | 271,293 |
| | $ | 296,034 |
| |
Total deferred | | Total deferred | | (37) | | | (39) | | | (23) | |
Total provision for income taxes | | Total provision for income taxes | | $ | 388 | | | $ | 234 | | | $ | 341 | |
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A reconciliation of the U.S. federal statutory income tax rate to our effective income tax rate is as follows:detailed in the following table.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
| | 2021 | | 2020 | | 2019 |
Provision calculated at statutory rate | | 21.0 | % | | 21.0 | % | | 21.0 | % |
State income tax, net of federal benefit | | 3.3 | % | | 3.6 | % | | 3.6 | % |
Gains on company-owned life insurance policies which are not subject to tax | | (1.8) | % | | (1.0) | % | | (0.1) | % |
Federal tax credits | | (0.7) | % | | (1.1) | % | | (0.9) | % |
| | | | | | |
| | | | | | |
Excess tax benefits related to share-based compensation | | (0.2) | % | | (0.6) | % | | (0.4) | % |
Other, net | | 0.1 | % | | 0.3 | % | | 1.6 | % |
Total provision for income tax | | 21.7 | % | | 22.2 | % | | 24.8 | % |
|
| | | | | | | | | |
| | Year ended September 30, |
| | 2017 | | 2016 | | 2015 |
Provision calculated at statutory rate | | 35.0 | % | | 35.0 | % | | 35.0 | % |
State income tax, net of federal benefit | | 2.7 | % | | 1.7 | % | | 3.6 | % |
Tax-exempt interest income | | (1.0 | )% | | (0.9 | )% | | (0.5 | )% |
Excess tax benefits related to share-based compensation (1) | | (2.5 | )% | | — |
| | — |
|
(Income)/losses associated with COLI which are not (subject to tax)/tax deductible | | (1.7 | )% | | (1.1 | )% | | 0.4 | % |
Federal tax credits | | (1.6 | )% | | (1.0 | )% | | (0.9 | )% |
Other, net | | 0.3 | % | | 0.2 | % | | (0.5 | )% |
Total provision for income tax | | 31.2 | % | | 33.9 | % |
| 37.1 | % |
(1) Does not include excess state tax benefits related to share-based compensation, which had an impact of reducingThe following table presents our effective tax rate by (0.2)% for 2017. See Note 2 and Note 20 for more information regarding the adoption of new accounting guidance related to stock compensation.
U.S. and foreign components of pre-tax income excluding noncontrolling interests and before provision for income taxes were as follows:each respective period.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2021 | | 2020 | | 2019 |
U.S. | | $ | 1,701 | | | $ | 1,019 | | | $ | 1,340 | |
Foreign | | 90 | | | 33 | | | 35 | |
Pre-tax income | | $ | 1,791 | | | $ | 1,052 | | | $ | 1,375 | |
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | 2016 | | 2015 |
U.S. | | $ | 915,711 |
| | $ | 765,421 |
| | $ | 782,146 |
|
Foreign | | 9,635 |
| | 35,222 |
| | 16,028 |
|
Income excluding noncontrolling interests and before provision for income taxes | | $ | 925,346 |
| | $ | 800,643 |
| | $ | 798,174 |
|
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The cumulative effects of temporary differences that give rise to significant portions of the deferred tax asset/(liability) items are as follows:detailed in the following table.
| | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2021 | | 2020 |
Deferred tax assets: | | | | |
Deferred compensation | | $ | 287 | | | $ | 229 | |
Allowances for credit losses | | 81 | | | 89 | |
Unrealized loss associated with foreign currency translations | | 3 | | | 8 | |
Unrealized loss associated with available-for-sale securities | | 2 | | | — | |
Unrealized loss associated with cash flow hedges | | 9 | | | 18 | |
Accrued expenses | | 46 | | | 34 | |
Partnership investments | | 9 | | | 13 | |
Lease liabilities | | 115 | | | 80 | |
Other | | 18 | | | 16 | |
| | | | |
| | | | |
Total deferred tax assets | | 570 | | | 487 | |
Deferred tax liabilities: | | | | |
Goodwill and identifiable intangible assets | | (64) | | | (34) | |
Property and equipment | | (85) | | | (81) | |
Lease ROU assets | | (114) | | | (80) | |
Unrealized gain associated with available-for-sale securities | | — | | | (30) | |
Other | | (2) | | | — | |
Total deferred tax liabilities | | (265) | | | (225) | |
Net deferred tax assets | | $ | 305 | | | $ | 262 | |
|
| | | | | | | | |
| | September 30, |
$ in thousands | | 2017 | | 2016 |
Deferred tax assets: | | | | |
Deferred compensation | | $ | 235,171 |
| | $ | 192,397 |
|
Allowances for loan losses and reserves for unfunded commitments | | 74,909 |
| | 78,552 |
|
Unrealized loss associated with foreign currency translations | | 1,928 |
| | 22,184 |
|
Unrealized loss associated with available-for-sale securities | | 3,342 |
| | 4,314 |
|
Accrued expenses | | 41,545 |
| | 44,419 |
|
Other | | 13,665 |
| | 24,897 |
|
Total gross deferred tax assets | | 370,560 |
| | 366,763 |
|
Less: valuation allowance | | (9 | ) | | (9 | ) |
Total deferred tax assets | | 370,551 |
| | 366,754 |
|
| | | | |
Deferred tax liabilities: | | | | |
Partnership investments | | (6,326 | ) | | (8,518 | ) |
Goodwill and other intangibles | | (38,364 | ) | | (26,384 | ) |
Undistributed earnings of foreign subsidiaries | | — |
| | (9,636 | ) |
Other | | (12,375 | ) | | (192 | ) |
Total deferred tax liabilities | | (57,065 | ) | | (44,730 | ) |
Net deferred tax assets | | $ | 313,486 |
| | $ | 322,024 |
|
We hadDeferred income taxes are provided for the effects of temporary differences between the tax basis of an asset or liability and its reported amount in the financial statements. Deferred income tax assets are subject to a net deferred tax asset at September 30, 2017 and 2016. This asset includes net operating losses that will expire between 2018 and 2030. A valuation allowance for the fiscal year ended September 30, 2017 has been established for certain state net operating losses due toif, in management’s belief that, based on our historical operating income, projection of future taxable income, scheduled reversal of taxable temporary differences, and implemented tax planning strategies,opinion, it is more likely than not that these benefits will not be realized. Our deferred income taxes principally relate to deferred compensation, allowances for credit losses and other accrued expenses.
Substantially all of our deferred tax assets relate to U.S. federal and state taxing jurisdictions. As of September 30, 2021, the deferred tax carryforwards will expire unutilized.assets aggregated to $570 million. We continue to believe that the realization of the remaining netour deferred tax asset of $313 millionassets is more likely than not based on the ability to carry back losses against prior year taxable income and expectations of future taxable income.
As of September 30, 2017,2021, we considerconsidered substantially all undistributed earnings of non-U.S. subsidiaries to be permanently reinvestedreinvested. Due to the fact that the Tax Cut and therefore,Jobs Act (“TCJA”) enacted on December 22, 2017 reduces our incremental tax cost of repatriating offshore earnings, we have not provided for any U.S. deferred income taxes.taxes related to such subsidiaries. The TCJA instituted a territorial system of international taxation. Under the system, dividends received by a U.S. corporation from its 10%-or-greater-owned foreign subsidiaries are generally exempt from U.S. tax if attributable to non-U.S. source earnings, but are subject to tax on “Global intangible low-taxed income” which is applicable regardless of whether the income is repatriated. As of September 30, 2017,2021, we had approximately $219$331 million of cumulative undistributed earnings attributable to foreign subsidiaries for which no provisions have been recorded for income taxes that could arise
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
upon repatriation.subsidiaries. Because the time orand manner of repatriation is uncertain, we cannot determine the impact of local taxes, withholding taxes and foreign tax credits associated with the future repatriation of such earnings, and therefore, cannot quantify the tax liability that would be payable in the event all such foreign earnings are repatriated.
As of September 30, 2017,2021, the current tax receivable, which is included in “Other receivables” inon our Consolidated Statements of Financial Condition, was $102$12 million,, and the current tax payable, which is included in “Other payables,” was $23 million.$51 million. As of September 30, 2016,2020, the current tax receivable was $48$17 million and the current tax payable was $29 million.$82 million.
Balances associated with unrecognizedUncertain tax benefitspositions
We recognize the accrual of interest and penalties related to income tax matters in interest expense and other expense, respectively. As of September 30, 20172021 and 2016,2020, accrued interest and penalties were approximately $3$7 million and $4$8 million,, respectively.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents the aggregate changes in the balances for uncertain tax positions were as follows:positions.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2021 | | 2020 | | 2019 |
Uncertain tax positions beginning of year | | $ | 45 | | | $ | 42 | | | $ | 31 | |
Increases for tax positions related to the current year | | 5 | | | 5 | | | 11 | |
Increases for tax positions related to prior years | | 2 | | | 3 | | | 7 | |
Decreases for tax positions related to prior years | | (7) | | | (1) | | | — | |
Decreases due to lapsed statute of limitations | | (5) | | | (4) | | | (2) | |
Decreases related to settlements | | (4) | | | — | | | (5) | |
Uncertain tax positions end of year | | $ | 36 | | | $ | 45 | | | $ | 42 | |
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | 2016 | | 2015 |
Balance for uncertain tax positions at beginning of year | | $ | 22,173 |
| | $ | 22,454 |
| | $ | 15,804 |
|
Increases for tax positions related to the current year | | 3,238 |
| | 6,496 |
| | 4,954 |
|
Increases for tax positions related to prior years (1) | | 438 |
| | 1,284 |
| | 3,466 |
|
Decreases for tax positions related to prior years | | (717 | ) | | (1,592 | ) | | (204 | ) |
Decreases due to lapsed statute of limitations | | (2,497 | ) | | (1,447 | ) | | (1,566 | ) |
Decreases related to settlements | | (2,629 | ) | | (5,022 | ) | | — |
|
Balance for uncertain tax positions at end of year | | $ | 20,006 |
| | $ | 22,173 |
| | $ | 22,454 |
|
| |
(1) | The increases are primarily due to tax positions taken in previously filed tax returns with certain states. We continue to evaluate these positions and intend to contest any proposed adjustments made by taxing authorities. |
The total amount of uncertain tax positions that, if recognized, would impact the effective tax rate (the items included in the preceding table above after considering the federal tax benefit associated with any state tax provisions) was $15$31 million,, $16 $40 million,, and $15$38 million at September 30, 2017, 2016, 2015,2021, 2020 and 2019, respectively. We anticipate that the uncertain tax position liability balance will not change significantlydecrease by approximately $10 million over the next 12 months. months due to expiration of statutes of limitations of federal and state tax returns and settlements of positions with the Internal Revenue Service.
We file U.S. federal income tax returns as well as returns with various state, local and foreign jurisdictions. With few exceptions, we are generally no longer subject to U.S. federal, state and local, or foreign income tax examination by tax authorities for years prior to fiscal year 20142018 for federal tax returns, fiscal year 20132017 for state and local tax returns and fiscal year 20132017 for foreign tax returns. Various foreign and state audits in process are expected to be completed in fiscal year 2018.2022.
NOTE 1719 – COMMITMENTS, CONTINGENCIES AND GUARANTEES
Commitments and contingencies
Loan and Underwriting Commitmentscommitments
In the normal course of business, we enter into commitments for either fixed income ordebt and equity underwritings. As of September 30, 2017,2021, we had two3 such open underwriting commitments, both of which were subsequently settled in open market transactions and none of which resulteddid not result in significant loss.losses.
As partLending commitments and other credit-related financial instruments
Raymond James Bank has outstanding, at any time, a significant number of our recruiting efforts, we offer loanscommitments to prospectiveextend credit and other credit-related off-balance-sheet financial advisorsinstruments, such as standby letters of credit and certain key revenue producers primarily for recruiting, transitional cost assistance,loan purchases, which then extend over varying periods of time. These arrangements are subject to strict underwriting assessments and retention purposes (see Note 2 foreach customer’s credit worthiness is evaluated on a discussion of our accounting policies governing these transactions). Thesecase-by-case basis. Fixed-rate commitments are contingent upon certain events occurring, including, but notsubject to market risk resulting from fluctuations in interest rates and our exposure is limited to the individual joining us. Asreplacement value of September 30, 2017, we had made commitments through the extension of formal offers totaling approximately $139 million that had not yet been funded; however, it is possible that not all of our offers will be accepted and therefore, we would not fund the total amount of the offers extended. As of September 30, 2017, $59 million of the total amount extended consisted of unfunded commitments to prospective financial advisors that had accepted our offers, or recently hired producers.those commitments.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of September 30, 2017, we had not settled purchases of $162 million in syndicated loans. These loan purchases are expected to be settled within 90 days.
See Note 22 for additional information regarding ourThe following table presents Raymond James Bank’s commitments to extend credit and other credit-related off-balance sheet financial instruments such as standby lettersoutstanding.
| | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2021 | | 2020 |
Open-end consumer lines of credit (primarily SBL) | | $ | 17,515 | | | $ | 12,148 | |
Commercial lines of credit | | $ | 2,075 | | | $ | 1,482 | |
Unfunded lending commitments | | $ | 548 | | | $ | 532 | |
Standby letters of credit | | $ | 22 | | | $ | 33 | |
Open-end consumer lines of credit and loan purchases.primarily represent the unfunded amounts of bank loans to consumers that are secured by marketable securities at advance rates consistent with industry standards. The proceeds from repayment or, if necessary, the liquidation of collateral, which is monitored daily, are expected to satisfy the amounts drawn against these existing lines of credit. These lines of credit are primarily uncommitted, as we reserve the right to not make any advances or may terminate these lines at any time.
Investment Commitments
A subsidiary of RJ Bank has committed $80 million as an investor member in a LIHTC fund in which a subsidiary of RJTCF is the managing member (see Note 2 for information regarding the accounting policies governing these investments). As of September 30, 2017, the RJ Bank subsidiary had invested $61 million of the committed amount.
We have unfunded commitments to various private equity partnerships, which aggregate to $36 million as of September 30, 2017. Of the total, we have unfunded commitments of $18 million to internally-sponsored private equity limited partnerships in which we control the general partner.
Acquisition-Related Commitments and Contingencies
On April 20, 2017, we announced we had entered into a definitive agreement to acquire the Scout Group. This acquisition closed on November 17, 2017. See Note 3 for more information.
As part of the terms governing our fiscal year 2015 acquisition of TPC, on certain dates specified in the TPC purchase agreement there are a number of earn-out computations to be performed. The result of these computations could result in additional cash paid to the sellers of TPC over a measurement period of up to three years after the TPC closing date, which was July 31, 2015. During the year ended September 30, 2017 certain earn-out payments were measured and applicable amounts paid to the sellers of TPC. The remaining elements of contingent consideration will be determined in the future based upon the outcome of either specific performance of defined tasks, or the achievement of specified revenue growth hurdles. Our initial estimate of the fair value of the elements of contingent consideration as of the TPC closing date was included in our determination of the goodwill arising from this acquisition. As of September 30, 2017, we computed an estimate of the fair value of the contingent consideration based upon the latest information available to us, and the excess of this fair value determination over the initial estimate was included in “Other expenses” on our Consolidated Statements of Income and Comprehensive Income.
As a part of the terms governing the fiscal year 2016 Mummert acquisition (see Note 3 for additional information regarding this acquisition), on certain dates specified in the Mummert purchase agreement, there are earn-out computations to be performed or contingent consideration provisions that may apply. These elements of contingent consideration will be finally determined in the future based upon the achievement of specified revenue amounts and the continued employment of specified associates. Since the ultimate payment of these elements of contingent consideration are conditioned upon continued employment as of the measurement dates which are three and five years from the Mummert acquisition date of June 1, 2016, these obligations, including any adjustments to the estimated fair value, are being recognized as a component of our compensation expense over such periods.
Lease Commitments
Long-term lease agreements expire at various times through fiscal year 2031. Minimum annual rental payments under such agreements for the succeeding five fiscal years are presented below:
|
| | | | |
Fiscal year ended September 30, | | $ in thousands |
2018 | | $ | 96,756 |
|
2019 | | 89,711 |
|
2020 | | 78,164 |
|
2021 | | 61,959 |
|
2022 | | 42,846 |
|
Thereafter | | 79,491 |
|
Total | | $ | 448,927 |
|
Certain leases contain rent holidays, leasehold improvement incentives, renewal options and/or escalation clauses. Rental expense incurred under all leases, including equipment under short-term agreements, aggregated to $115 million, $97 million and $89 million for fiscal years 2017, 2016 and 2015, respectively.
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Because many of Raymond James Bank’s lending commitments expire without being funded in whole or in part, the contractual amounts are not estimates of our actual future credit exposure or future liquidity requirements. The allowance for credit losses calculated under CECL provides for potential losses related to the unfunded lending commitments. See Notes 2 and 8 for further discussion of this allowance for credit losses related to unfunded lending commitments.
Other Commitments
RJF has committed an amountRJ&A enters into margin lending arrangements which allow customers to borrow against the value of up to $225 million, subject to certain limitations and to annual review and renewalqualifying securities. Margin loans are collateralized by the RJF Boardsecurities held in the customer’s account at RJ&A. Collateral levels and established credit terms are monitored daily and we require customers to deposit additional collateral or reduce balances as necessary.
We offer loans to prospective financial advisors for recruiting and retention purposes (see Notes 2 and 9 for further discussion of Directors,our loans to either lendfinancial advisors). These offers are contingent upon certain events occurring, including the individuals joining us and meeting certain other conditions outlined in their offer. We had unfunded commitments of $21 million for loans to RJTCF or to guarantee RJTCF’s obligations, in connection with RJTCF’s low-income housing development/rehabilitation and syndication activities. Asfinancial advisors who have met such conditions as of September 30, 2017, 2021.
Investment commitments
We had unfunded commitments to various investments, including private equity investments and certain Raymond James Bank investments, of $36 million as of September 30, 2021.
Other commitments
RJTCF had $42 million outstanding against this commitment. RJTCF may borrow from RJF in order to makesells investments in, or fund loans or advances to, either project partnerships that purchase and develop properties qualifying for tax credits or LIHTC Funds. Investments in project partnerships are sold to various LIHTC Funds,funds, which have third partythird-party investors, and for which RJTCF serves as the managing member or general partner. RJTCF typically sells investments in project partnerships to LIHTC Fundsfunds within 90 days of their acquisition,acquisition. Until such investments are sold to LIHTC funds, RJTCF is responsible for funding investment commitments to such partnerships. As of September 30, 2021, RJTCF had committed approximately $61 million to project partnerships that had not yet been sold to LIHTC funds. Because we expect to sell these project partnerships to LIHTC funds and the proceeds fromequity funding events arise over future periods, the salescontractual commitments are usednot expected to repay RJTCF’s borrowings from RJF.materially impact our future liquidity requirements. RJTCF may also make short-term loans or advances to project partnerships and LIHTC Funds.funds.
As a part of our fixed income public finance operations, we enter into forward commitments to purchase GNMA or FNMA MBS (see the discussion of these activities within “financial instruments, financial instruments sold but not yet purchased at fair value” in Note 2).agency MBS. At September 30, 2017,2021, we had approximately $793$198 million of principal amount of outstanding forward MBS purchase commitments, which arewere expected to be purchased over thewithin 90 days following 90 days.commitment. In order to hedge the market interest rate risk to which we would otherwise be exposed between the date of the commitment and the date of sale of the MBS, we enter into TBA security contracts with investors for generic MBS at specific rates and prices to be delivered on settlement dates in the future. We may be subject to loss if the timing of, or the actual amount of, the MBS differs significantly from the term and notional amount of the TBA security contract to which we entered. These TBA securities and related purchase commitmentcommitments are accounted for at fair value. As of September 30, 2017,2021, the fair value of the TBA securities and the estimated fair value of the purchase commitments were not significant.insignificant.
ContingenciesFor information regarding our acquisition commitments associated with our intended acquisitions of Charles Stanley and TriState Capital, see Note 3. For information regarding our lease commitments, including the maturities of our lease liabilities, see Note 14.
As a result of extensive regulation of financial holding companies, banks, broker-dealers and investment advisory entities, RJF and certain of its subsidiaries are subject to regular reviews and inspections by regulatory authorities and self-regulatory organizations. The reviews can result in the imposition of sanctions for regulatory violations, ranging from non-monetary censures to fines and, in serious cases, temporary or permanent suspension from conducting business, or limitations on certain business activities. In addition, regulatory agencies and self-regulatory organizations institute investigations from time to time into industry practices, which can also result in the imposition of such sanctions. Refer to the “Legal and regulatory matter contingencies” discussion within this footnote for information about related loss contingency reserves.
Guarantees
RJF guarantees interest rate swap obligations of RJ Cap Services. See Note 6 for additional information regarding interest rate swaps.
RJF guarantees the existing mortgage debt of RJ&A of $29 million. See Note 14 for information regarding this borrowing.
Our U.S. broker-dealer subsidiaries are required by federal law to be members of the Securities Investors Protection Corporation (“SIPC”). The SIPC fund provides protection for securities held in client accounts up to $500 thousand per client withfor securities and cash held in client accounts, including a limitation of $250 thousand on claims for cash balances. We have purchased excess SIPC coverage through various syndicates of Lloyd’s of London. For RJ&A, our clearing broker-dealer, the additional protection currently provided has an aggregate firm limit of $750 million for cash and securities, including a sub-limit of $1.9 million per client for cash above basic SIPC. Account protection applies when a SIPC member fails financially and is unable to meet its obligations to clients. This coverage does not protect against market fluctuations. RJF has provided an indemnity to Lloyd’s of London against any and all losses they may incur associated with the excess SIPC policies.
RJTCF issues certain guarantees to various third parties related to project partnerships whose interests have been sold toWe guarantee the debt of one or more of our private equity investments. The amount of such debt, including the funds in which RJTCF is the managing member or general partner. In some instances, RJTCF is not the primary guarantorundrawn portion of these obligations, which aggregate to $3a revolving credit facility, was $13 million as of September 30, 2017.
RJTCF has provided a guaranteed return on investment to a third party investor2021. The debt, which matures in the Guaranteed LIHTC Fund and RJF has guaranteed RJTCF’s performance under the arrangement. Under the terms2022, is secured by substantially all of the performance guarantee, shouldassets of the underlying LIHTC project partnerships held by the Guaranteed LIHTC Fund fail to deliver a certain amount of tax credits and other tax benefits to this investor over the next five years, RJTCF is obligated to pay the investor an amount that results in the investor achieving a minimum specified return on their investment. A $16 million financing asset is included in “Other assets” (see Note 9 for additional information), and a related $16 million liability is included in “Other payables” on our Consolidated Statements of Financial Condition as of September 30, 2017 related to this obligation. The maximum exposure to loss under this guarantee was $17 million as of September 30, 2017, which represents the undiscounted future payments due the investor.borrower.
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Legal and regulatory matter contingencies
In addition to the matters specifically described below, in the normal course of our business, we have been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with our activities as a diversified financial services institution.
WeRJF and certain of its subsidiaries are also subject to regular reviews and inspections by regulatory authorities and self-regulatory organizations. Reviews can result in the imposition of sanctions for regulatory violations, ranging from non-monetary censures to fines and, in serious cases, temporary or permanent suspension from conducting business, or limitations on certain business activities. In addition, regulatory agencies and self-regulatory organizations institute investigations from time to time, toamong other reviews, investigationsthings, into industry practices, which can also result in the imposition of such sanctions.
We may contest liability and/or the amount of damages, as appropriate, in each pending matter. Over the last several years, the level of litigation and proceedingsinvestigatory activity (both formal and informal) by governmentalgovernment and self-regulatory agencies regarding our business. Such proceedings may involve, among other things, our sales and trading activities, financial products or offerings we sponsored, underwrote or sold, and operational matters. Some of these proceedings have resulted, and may in the future result, in adverse judgments, settlements, fines, penalties, injunctionsfinancial services industry continues to be significant. There can be no assurance that material losses will not be incurred from claims that have not yet been asserted or other relief and/or require usare not yet determined to undertake remedial actions.be material.
WeFor many legal and regulatory matters, we are unable to estimate a range of reasonably possible loss as we cannot predict if, how or when such proceedings or investigations will be resolved or what the eventual settlement, fine, penalty or other relief, if any, may be. A large number of factors may contribute to this inherent unpredictability: the proceeding is in its early stages; the damages sought are unspecified, unsupported or uncertain; it is unclear whether a case brought as a class action will be allowed to proceed on that basis; the other party is seeking relief other than or in addition to compensatory damages (including, in the case of regulatory and governmental proceedings, potential fines and penalties); the matters present significant legal uncertainties; we have not engaged in settlement discussions; discovery is not complete; there are significant facts in dispute; and numerous parties are named as defendants (including where it is uncertain how liability might be shared among defendants).
We contest liability and/or the amount of damages, as appropriate, in each pending matter. Over the last several years, the level of litigation and investigatory activity (both formal and informal) by government and self-regulatory agencies has increased significantly in the financial services industry. While we have identified below certain proceedings that we believe could be material, individually or collectively, there can be no assurance that material losses will not be incurred from claims that have not yet been asserted or are not yet determined to be material.
We include in some of the descriptions of individual matters below certain quantitative information about the plaintiff’s claim against us as alleged in the plaintiff’s pleadings or other public filings. Although this information may provide insight into the potential magnitude of a matter, it does not represent our estimate of reasonably possible loss or our judgment as to any currently appropriate accrual related thereto.
Subject to the foregoing, we believe, after consultation with counsel, and consideration of the accrued liability amounts included in the accompanying consolidated financial statements,we believe that the outcome of such litigation and regulatory proceedings will not have a material adverse effect on our consolidated financial condition. However, the outcome of such litigation and regulatory proceedings could be material to our operating results and cash flows for a particular future period, depending on, among other things, our revenues or income for such period.
There are certain matters for which we are unable to estimate the upper end of the range of reasonably possible loss. With respect to legal and regulatory matters for which management has been able to estimate a range of reasonably possible loss (and excluding amounts subject to the below-described indemnification from Regions), as of September 30, 2017,2021, we estimated the upper end of the range of reasonably possible aggregate loss to be approximately $65$90 million in excess of the aggregate reservesaccruals for such matters. Refer to Note 2 for a discussion of our criteria for recognizing liabilities for contingencies.
Morgan Keegan Litigation
Indemnification from Regions136
Under the agreement with Regions governing our 2012 acquisition of Morgan Keegan, Regions is obligated to indemnify us for losses we may incur in connection with any Morgan Keegan legal proceedings pending as of the closing date for that transaction, which was April 2, 2012, or commenced after the closing date but related to pre-closing matters that were received prior to April 2, 2015.
The Morgan Keegan matter described below is subject to such indemnification provisions. As of September 30, 2017, management estimated the range of potential liability of all Morgan Keegan matters subject to indemnification, including the cost of defense, to be from $12 million to $44 million. Any loss arising from such matters, after application of any contractual thresholds and other reductions, as set forth in the agreement, will be borne by Regions. As of September 30, 2017, our Consolidated Statements of Financial Condition include an indemnification asset of $26 million which is included in “Other assets” (see Note 9 for additional information), and a liability for potential losses of $26 million which is included within “Other payables,” pertaining to the Morgan Keegan matters subject to indemnification. The amount included within “Other payables” is the amount within the range of potential liability related to such matters which management estimates is more likely than any other amount within such range.
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Morgan Keegan matter (subject to indemnification)
In July 2006, Morgan Keegan & Company, Inc., a Morgan Keegan affiliate, and one of its former analysts were named as defendants in a lawsuit filed by Fairfax Financial Holdings Limited and an affiliate in the Superior Court of New Jersey, Law Division, in Morris County, New Jersey. Plaintiffs made claims under a civil RICO statute, for commercial disparagement, tortious interference with contractual relationships, tortious interference with prospective economic advantage and common law conspiracy. Plaintiffs alleged that defendants engaged in a multi-year conspiracy to publish and disseminate false and defamatory information about plaintiffs in order to improperly drive down the stock price of Fairfax, so that others could profit from short positions. Plaintiffs alleged that the defendants’ actions disparaged them and harmed their business relationships. Plaintiffs alleged various categories of damages, including lost insurance business, losses on stock and bond offerings, reputational loss, increased audit fees and directors’ and officers’ insurance premiums, and lost acquisitions. They requested actual and punitive damages and treble damages under their RICO claims. On May 11, 2012, the trial court dismissed the plaintiffs’ RICO claims. On June 27, 2012, the trial court dismissed plaintiffs’ tortious interference with prospective relations claim, but allowed the other claims to go forward. Prior to commencement of a jury trial, the court dismissed the remaining claims with prejudice, and the plaintiffs appealed. On April 27, 2017, the Superior Court of New Jersey, Appellate Division, affirmed the trial court's dismissal of certain claims against Morgan Keegan, including the RICO allegations, while remanding to the trial court the claims of disparagement, tortious interference with prospective business relations, and civil conspiracy, and limiting the actual damages to certain lost insurance business. Plaintiffs petitioned the Supreme Court of New Jersey for review of the Appellate Division’s opinion, but on October 17, 2017, the Supreme Court of New Jersey denied the petition.
NOTE 18 -20 – ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
Other comprehensive income/(loss)
The activity in other comprehensive income/(loss), net of the respective tax effect, was as follows:
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | 2016 | | 2015 |
Unrealized gain/(loss) on available-for-sale securities and non-credit portion of other-than-temporary impairment losses | | $ | 1,684 |
| | $ | (5,576 | ) | | $ | (3,325 | ) |
Unrealized gain/(loss) on currency translations, net of the impact of net investment hedges | | 15,618 |
| | 2,179 |
| | (30,640 | ) |
Unrealized gain/(loss) on cash flow hedges | | 23,232 |
| | (11,833 | ) | | (4,650 | ) |
Net other comprehensive income/(loss) | | $ | 40,534 |
| | $ | (15,230 | ) | | $ | (38,615 | ) |
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Accumulated other comprehensive income/(loss)
All of the components of other comprehensive income/(loss) described below,OCI, net of tax, arewere attributable to RJF. The following table presents the net change in AOCI as well as the changes, and the related tax effects, of each component of accumulated other comprehensive income/(loss):AOCI.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | Net investment hedges | | Currency translations | | Subtotal: net investment hedges and currency translations | | Available-for-sale securities | | Cash flow hedges | | Total |
Year ended September 30, 2021 | | | | | | | | | | | | |
AOCI as of beginning of year | | $ | 115 | | | $ | (140) | | | $ | (25) | | | $ | 89 | | | $ | (53) | | | $ | 11 | |
OCI: | | | | | | | | | | | | |
OCI before reclassifications and taxes | | (44) | | | 48 | | | 4 | | | (119) | | | 19 | | | (96) | |
Amounts reclassified from AOCI, before tax | | — | | | 2 | | | 2 | | | (7) | | | 15 | | | 10 | |
Pre-tax net OCI | | (44) | | | 50 | | | 6 | | | (126) | | | 34 | | | (86) | |
Income tax effect | | 10 | | | — | | | 10 | | | 32 | | | (8) | | | 34 | |
OCI for the year, net of tax | | (34) | | | 50 | | | 16 | | | (94) | | | 26 | | | (52) | |
AOCI as of end of year | | $ | 81 | | | $ | (90) | | | $ | (9) | | | $ | (5) | | | $ | (27) | | | $ | (41) | |
| | | | | | | | | | | | |
Year ended September 30, 2020 | | | | | | | | | | | | |
AOCI as of beginning of year | | $ | 110 | | | $ | (135) | | | $ | (25) | | | $ | 21 | | | $ | (19) | | | $ | (23) | |
OCI: | | | | | | | | | | | | |
OCI before reclassifications and taxes | | 7 | | | (5) | | | 2 | | | 94 | | | (51) | | | 45 | |
Amounts reclassified from AOCI, before tax | | — | | | — | | | — | | | (3) | | | 5 | | | 2 | |
Pre-tax net OCI | | 7 | | | (5) | | | 2 | | | 91 | | | (46) | | | 47 | |
Income tax effect | | (2) | | | — | | | (2) | | | (23) | | | 12 | | | (13) | |
OCI for the year, net of tax | | 5 | | | (5) | | | — | | | 68 | | | (34) | | | 34 | |
AOCI as of end of year | | $ | 115 | | | $ | (140) | | | $ | (25) | | | $ | 89 | | | $ | (53) | | | $ | 11 | |
| | | | | | | | | | | | |
Year ended September 30, 2019 | | | | | | | | | | | | |
AOCI as of beginning of year | | $ | 88 | | | $ | (111) | | | $ | (23) | | | $ | (46) | | | $ | 42 | | | $ | (27) | |
Cumulative effect of adoption of ASU 2016-01 | | — | | | — | | | — | | | (4) | | | — | | | (4) | |
OCI: | | | | | | | | | | | | |
OCI before reclassifications and taxes | | 29 | | | (24) | | | 5 | | | 98 | | | (79) | | | 24 | |
Amounts reclassified from AOCI, before tax | | — | | | — | | | — | | | — | | | (5) | | | (5) | |
Pre-tax net OCI | | 29 | | | (24) | | | 5 | | | 98 | | | (84) | | | 19 | |
Income tax effect | | (7) | | | — | | | (7) | | | (27) | | | 23 | | | (11) | |
OCI for the year, net of tax | | 22 | | | (24) | | | (2) | | | 71 | | | (61) | | | 8 | |
AOCI as of end of year | | $ | 110 | | | $ | (135) | | | $ | (25) | | | $ | 21 | | | $ | (19) | | | $ | (23) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
$ in thousands | | Net investment hedges | | Currency translations | | Sub-total: net investment hedges and currency translations | | Available-for-sale securities | | Cash flow hedges | | Total |
Year ended September 30, 2017 | | | | | | | | | | | | |
Accumulated other comprehensive income/(loss) as of the beginning of the year | | $ | 86,482 |
| | $ | (121,576 | ) | | $ | (35,094 | ) | | $ | (4,156 | ) | | $ | (16,483 | ) | | $ | (55,733 | ) |
Other comprehensive income/(loss) before reclassifications and taxes | | (41,997 | ) | | 43,541 |
| | 1,544 |
| | 443 |
| | 31,843 |
| | 33,830 |
|
Amounts reclassified from accumulated other comprehensive income/(loss), before tax | | — |
| | 6,647 |
| | 6,647 |
| | 2,097 |
| | 5,628 |
| | 14,372 |
|
Pre-tax net other comprehensive income/(loss) | | (41,997 | ) | | 50,188 |
| | 8,191 |
| | 2,540 |
| | 37,471 |
| | 48,202 |
|
Income tax effect | | 15,716 |
| | (8,289 | ) | | 7,427 |
| | (856 | ) | | (14,239 | ) | | (7,668 | ) |
Net other comprehensive income/(loss) for the year, net of tax | | (26,281 | ) | | 41,899 |
| | 15,618 |
| | 1,684 |
| | 23,232 |
| | 40,534 |
|
Accumulated other comprehensive income/(loss) as of the end of the year | | $ | 60,201 |
| | $ | (79,677 | ) | | $ | (19,476 | ) | | $ | (2,472 | ) | | $ | 6,749 |
| | $ | (15,199 | ) |
Year ended September 30, 2016 | | | | | | | | | | | | |
Accumulated other comprehensive income/(loss) as of the beginning of the year | | $ | 93,203 |
| | $ | (130,476 | ) | | $ | (37,273 | ) | | $ | 1,420 |
| | $ | (4,650 | ) | | $ | (40,503 | ) |
Other comprehensive income/(loss) before reclassifications and taxes | | (10,743 | ) | | 9,397 |
| | (1,346 | ) | | (9,231 | ) | | (25,535 | ) | | (36,112 | ) |
Amounts reclassified from accumulated other comprehensive income/(loss), before tax | | — |
| | — |
| | — |
| | 360 |
| | 6,450 |
| | 6,810 |
|
Pre-tax net other comprehensive income/(loss) | | (10,743 | ) | | 9,397 |
| | (1,346 | ) | | (8,871 | ) | | (19,085 | ) | | (29,302 | ) |
Income tax effect | | 4,022 |
| | (497 | ) | | 3,525 |
| | 3,295 |
| | 7,252 |
| | 14,072 |
|
Net other comprehensive income/(loss) for the year, net of tax | | (6,721 | ) | | 8,900 |
| | 2,179 |
| | (5,576 | ) | | (11,833 | ) | | (15,230 | ) |
Accumulated other comprehensive income/(loss) as of the end of the year | | $ | 86,482 |
| | $ | (121,576 | ) | | $ | (35,094 | ) | | $ | (4,156 | ) | | $ | (16,483 | ) | | $ | (55,733 | ) |
Reclassifications from AOCI to net income, excluding taxes, for the years ended September 30, 2021 and 2020 were primarily recorded in “Other” revenue and “Interest expense” on the Consolidated Statements of Income and Comprehensive Income. Reclassifications from AOCI to net income, excluding taxes, for the year ended September 30, 2019 were recorded in “Interest expense” on the Consolidated Statements of Income and Comprehensive Income.
As of October 1, 2018, we adopted accounting guidance (ASU 2016-01) that generally requires changes in the fair value of equity securities to be recorded in net income. Accordingly, as of the date of adoption, we reclassified a cumulative unrealized gain on such securities, net of tax, from AOCI to retained earnings.
Our net investment hedges and cash flow hedges relate to our derivatives associated with RJRaymond James Bank’s business operations (see Noteoperations. See Notes 2 and 6 for additional information on these derivatives).derivatives.
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 21 - REVENUES
Reclassifications out of AOCI
The following table presents the income statement line items impactedtables present our sources of revenues by reclassifications out of accumulated other comprehensive income/(loss), and thesegment. For further information about our significant accounting policies related tax effects, for the years ended September 30, 2017 and 2016:
|
| | | | | | |
Accumulated other comprehensive income/(loss) components $ in thousands | | Increase/(decrease) in amounts reclassified from accumulated other comprehensive income/(loss) | | Affected line items in income statement |
Year ended September 30, 2017 | | | | |
Available-for-sale securities: | | | | |
Auction rate securities | | $ | 1,458 |
| | Other revenue |
RJ Bank available-for-sale securities | | 639 |
| | Other revenue |
RJ Bank cash flow hedges | | 5,628 |
| | Interest expense |
Currency translations | | 6,647 |
| | Other expense |
| | 14,372 |
| | Total before tax |
Income tax effect | | (5,460 | ) | | Provision for income taxes |
Total reclassifications for the year | | $ | 8,912 |
| | Net of tax |
Year ended September 30, 2016 | | | | |
Available-for-sale securities: | | | | |
Auction rate securities | | $ | 87 |
| | Other revenue |
RJ Bank available-for-sale securities | | 273 |
| | Other revenue |
RJ Bank cash flow hedges | | 6,450 |
| | Interest expense |
| | 6,810 |
| | Total before tax |
Income tax effect | | (2,590 | ) | | Provision for income taxes |
Total reclassifications for the year | | $ | 4,220 |
| | Net of tax |
to revenue recognition, see Note 2. See Note 626 for additional information regarding the RJ Bank cash flow hedges, and Note 4 for additional fair value information regarding these derivatives.on our segment results.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, 2021 |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | Raymond James Bank | | Other and intersegment eliminations | | Total |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees | | $ | 4,056 | | | $ | 4 | | | $ | 837 | | | $ | — | | | $ | (29) | | | $ | 4,868 | |
Brokerage revenues: | | | | | | | | | | | | |
Securities commissions: | | | | | | | | | | | | |
Mutual and other fund products | | 670 | | | 6 | | | 10 | | | — | | | (3) | | | 683 | |
Insurance and annuity products | | 438 | | | — | | | — | | | — | | | — | | | 438 | |
Equities, ETFs and fixed income products | | 388 | | | 143 | | | — | | | — | | | (1) | | | 530 | |
Subtotal securities commissions | | 1,496 | | | 149 | | | 10 | | | — | | | (4) | | | 1,651 | |
Principal transactions (1) | | 50 | | | 511 | | | — | | | — | | | — | | | 561 | |
Total brokerage revenues | | 1,546 | | | 660 | | | 10 | | | — | | | (4) | | | 2,212 | |
Account and service fees: | | | | | | | | | | | | |
Mutual fund and annuity service fees | | 408 | | | — | | | — | | | — | | | (2) | | | 406 | |
RJBDP fees | | 259 | | | 1 | | | — | | | — | | | (184) | | | 76 | |
Client account and other fees | | 157 | | | 7 | | | 18 | | | — | | | (29) | | | 153 | |
Total account and service fees | | 824 | | | 8 | | | 18 | | | — | | | (215) | | | 635 | |
Investment banking: | | | | | | | | | | | | |
Merger & acquisition and advisory | | — | | | 639 | | | — | | | — | | | — | | | 639 | |
Equity underwriting | | 47 | | | 285 | | | — | | | — | | | — | | | 332 | |
Debt underwriting | | — | | | 172 | | | — | | | — | | | — | | | 172 | |
Total investment banking | | 47 | | | 1,096 | | | — | | | — | | | — | | | 1,143 | |
Other: | | | | | | | | | | | | |
Tax credit fund revenues | | — | | | 105 | | | — | | | — | | | — | | | 105 | |
All other (1) | | 25 | | | 6 | | | 2 | | | 30 | | | 61 | | | 124 | |
Total other | | 25 | | | 111 | | | 2 | | | 30 | | | 61 | | | 229 | |
Total non-interest revenues | | 6,498 | | | 1,879 | | | 867 | | | 30 | | | (187) | | | 9,087 | |
Interest income (1) | | 123 | | | 16 | | | — | | | 684 | | | — | | | 823 | |
Total revenues | | 6,621 | | | 1,895 | | | 867 | | | 714 | | | (187) | | | 9,910 | |
Interest expense | | (10) | | | (10) | | | — | | | (42) | | | (88) | | | (150) | |
Net revenues | | $ | 6,611 | | | $ | 1,885 | | | $ | 867 | | | $ | 672 | | | $ | (275) | | | $ | 9,760 | |
During the year ended September 30, 2017, we sold our interests
(1) These revenues are generally not in a number of Latin American joint ventures which had operations in Uruguay and Argentina. As a component of our computationscope of the gain or loss resultingaccounting guidance for revenue from such sales, we recognized the sold entities’ cumulative currency translation balances which, prior to such reclassification, had been a component of the accumulated other comprehensive loss.contracts with customers.
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, 2020 |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | Raymond James Bank | | Other and intersegment eliminations | | Total |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees | | $ | 3,162 | | | $ | 7 | | | $ | 688 | | | $ | — | | | $ | (23) | | | $ | 3,834 | |
Brokerage revenues: | | | | | | | | | | | | |
Securities commissions: | | | | | | | | | | | | |
Mutual and other fund products | | 567 | | | 7 | | | 8 | | | — | | | (3) | | | 579 | |
Insurance and annuity products | | 397 | | | — | | | — | | | — | | | — | | | 397 | |
Equities, ETFs and fixed income products | | 355 | | | 137 | | | — | | | — | | | — | | | 492 | |
Subtotal securities commissions | | 1,319 | | | 144 | | | 8 | | | — | | | (3) | | | 1,468 | |
Principal transactions (1) | | 64 | | | 427 | | | — | | | 1 | | | (4) | | | 488 | |
Total brokerage revenues | | 1,383 | | | 571 | | | 8 | | | 1 | | | (7) | | | 1,956 | |
Account and service fees: | | | | | | | | | | | | |
Mutual fund and annuity service fees | | 348 | | | — | | | 1 | | | — | | | (1) | | | 348 | |
RJBDP fees | | 330 | | | 1 | | | — | | | — | | | (181) | | | 150 | |
Client account and other fees | | 129 | | | 5 | | | 15 | | | — | | | (23) | | | 126 | |
Total account and service fees | | 807 | | | 6 | | | 16 | | | — | | | (205) | | | 624 | |
Investment banking: | | | | | | | | | | | | |
Merger & acquisition and advisory | | — | | | 290 | | | — | | | — | | | — | | | 290 | |
Equity underwriting | | 41 | | | 185 | | | — | | | — | | | 1 | | | 227 | |
Debt underwriting | | — | | | 133 | | | — | | | — | | | — | | | 133 | |
Total investment banking | | 41 | | | 608 | | | — | | | — | | | 1 | | | 650 | |
Other: | | | | | | | | | | | | |
Tax credit fund revenues | | — | | | 83 | | | — | | | — | | | — | | | 83 | |
All other (1) | | 27 | | | 7 | | | 2 | | | 26 | | | (41) | | | 21 | |
Total other | | 27 | | | 90 | | | 2 | | | 26 | | | (41) | | | 104 | |
Total non-interest revenues | | 5,420 | | | 1,282 | | | 714 | | | 27 | | | (275) | | | 7,168 | |
Interest income (1) | | 155 | | | 25 | | | 1 | | | 800 | | | 19 | | | 1,000 | |
Total revenues | | 5,575 | | | 1,307 | | | 715 | | | 827 | | | (256) | | | 8,168 | |
Interest expense | | (23) | | | (16) | | | — | | | (62) | | | (77) | | | (178) | |
Net revenues | | $ | 5,552 | | | $ | 1,291 | | | $ | 715 | | | $ | 765 | | | $ | (333) | | | $ | 7,990 | |
(1) These revenues are generally not in scope of the accounting guidance for revenue from contracts with customers.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, 2019 |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | Raymond James Bank | | Other and intersegment eliminations | | Total |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees | | $ | 2,820 | | | $ | 6 | | | $ | 645 | | | $ | — | | | $ | (20) | | | $ | 3,451 | |
Brokerage revenues: | | | | | | | | | | | | |
Securities commissions: | | | | | | | | | | | | |
Mutual and other fund products | | 599 | | | 6 | | | 10 | | | — | | | (4) | | | 611 | |
Insurance and annuity products | | 412 | | | — | | | — | | | — | | | — | | | 412 | |
Equities, ETFs and fixed income products | | 304 | | | 123 | | | — | | | — | | | — | | | 427 | |
Subtotal securities commissions | | 1,315 | | | 129 | | | 10 | | | — | | | (4) | | | 1,450 | |
Principal transactions (1) | | 74 | | | 285 | | | — | | | — | | | (2) | | | 357 | |
Total brokerage revenues | | 1,389 | | | 414 | | | 10 | | | — | | | (6) | | | 1,807 | |
Account and service fees: | | | | | | | | | | | | |
Mutual fund and annuity service fees | | 334 | | | — | | | 2 | | | — | | | (10) | | | 326 | |
RJBDP fees | | 453 | | | — | | | 3 | | | — | | | (176) | | | 280 | |
Client account and other fees | | 122 | | | 5 | | | 26 | | | — | | | (21) | | | 132 | |
Total account and service fees | | 909 | | | 5 | | | 31 | | | — | | | (207) | | | 738 | |
Investment banking: | | | | | | | | | | | | |
Merger & acquisition and advisory | | — | | | 379 | | | — | | | — | | | — | | | 379 | |
Equity underwriting | | 32 | | | 100 | | | — | | | — | | | — | | | 132 | |
Debt underwriting | | — | | | 85 | | | — | | | — | | | — | | | 85 | |
Total investment banking | | 32 | | | 564 | | | — | | | — | | | — | | | 596 | |
Other: | | | | | | | | | | | | |
Tax credit fund revenues | | — | | | 86 | | | — | | | — | | | — | | | 86 | |
All other (1) | | 26 | | | 4 | | | 2 | | | 26 | | | 6 | | | 64 | |
Total other | | 26 | | | 90 | | | 2 | | | 26 | | | 6 | | | 150 | |
Total non-interest revenues | | 5,176 | | | 1,079 | | | 688 | | | 26 | | | (227) | | | 6,742 | |
Interest income (1) | | 225 | | | 38 | | | 3 | | | 975 | | | 40 | | | 1,281 | |
Total revenues | | 5,401 | | | 1,117 | | | 691 | | | 1,001 | | | (187) | | | 8,023 | |
Interest expense | | (42) | | | (34) | | | — | | | (155) | | | (52) | | | (283) | |
Net revenues | | $ | 5,359 | | | $ | 1,083 | | | $ | 691 | | | $ | 846 | | | $ | (239) | | | $ | 7,740 | |
(1) These revenues are generally not in scope of the accounting guidance for revenue from contracts with customers.
At September 30, 2021 and September 30, 2020, net receivables related to contracts with customers were $416 million and $342 million, respectively.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1922 – INTEREST INCOME AND INTEREST EXPENSE
The following table details the components of interest income and interest expense are as follows:expense.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2021 | | 2020 | | 2019 |
Interest income: | | | | | | |
Cash and cash equivalents | | $ | 12 | | | $ | 41 | | | $ | 83 | |
Assets segregated for regulatory purposes and restricted cash | | 15 | | | 28 | | | 59 | |
Available-for-sale securities | | 85 | | | 83 | | | 69 | |
Brokerage client receivables | | 77 | | | 84 | | | 122 | |
Bank loans, net of unearned income and deferred expenses | | 593 | | | 702 | | | 871 | |
All other | | 41 | | | 62 | | | 77 | |
Total interest income | | 823 | | | 1,000 | | | 1,281 | |
Interest expense: | | | | | | |
Bank deposits | | 23 | | | 41 | | | 132 | |
Brokerage client payables | | 3 | | | 11 | | | 21 | |
Other borrowings | | 19 | | | 20 | | | 21 | |
Senior notes payable | | 96 | | | 85 | | | 73 | |
All other | | 9 | | | 21 | | | 36 | |
Total interest expense | | 150 | | | 178 | | | 283 | |
Net interest income | | 673 | | | 822 | | | 998 | |
Bank loan (provision)/benefit for credit losses | | 32 | | | (233) | | | (22) | |
Net interest income after bank loan (provision)/benefit for credit losses | | $ | 705 | | | $ | 589 | | | $ | 976 | |
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | 2016 | | 2015 |
Interest income: | | | | | | |
Margin balances | | $ | 85,699 |
| | $ | 68,712 |
| | $ | 67,573 |
|
Assets segregated pursuant to regulations and other segregated assets | | 37,270 |
| | 22,287 |
| | 13,792 |
|
Bank loans, net of unearned income | | 572,171 |
| | 487,366 |
| | 405,578 |
|
Available-for-sale securities | | 27,946 |
| | 7,596 |
| | 5,100 |
|
Trading instruments | | 21,068 |
| | 19,362 |
| | 19,450 |
|
Securities loaned | | 14,049 |
| | 8,777 |
| | 12,036 |
|
Loans to financial advisors | | 13,333 |
| | 8,207 |
| | 7,056 |
|
Corporate cash and all other | | 30,590 |
| | 18,090 |
| | 12,697 |
|
Total interest income | | $ | 802,126 |
| | $ | 640,397 |
| | $ | 543,282 |
|
| | | | | | |
Interest expense: | | |
| | |
| | |
|
Brokerage client liabilities | | $ | 4,884 |
| | $ | 2,084 |
| | $ | 940 |
|
Retail bank deposits | | 17,184 |
| | 10,218 |
| | 8,382 |
|
Trading instruments sold but not yet purchased | | 6,138 |
| | 5,035 |
| | 4,503 |
|
Securities borrowed | | 6,690 |
| | 3,174 |
| | 5,237 |
|
Borrowed funds | | 16,559 |
| | 12,957 |
| | 6,079 |
|
Senior notes | | 94,665 |
| | 78,533 |
| | 76,088 |
|
Other | | 7,658 |
| | 4,055 |
| | 4,845 |
|
Total interest expense | | 153,778 |
| | 116,056 |
| | 106,074 |
|
Net interest income | | 648,348 |
| | 524,341 |
| | 437,208 |
|
Bank loan loss provision | | (12,987 | ) | | (28,167 | ) | | (23,570 | ) |
Net interest income after bank loan loss provision | | $ | 635,361 |
| | $ | 496,174 |
| | $ | 413,638 |
|
Interest expense related to retail bank deposits in the abovepreceding table for the years ended September 30, 2017 and 2016 is presented net ofexcludes interest expense associated with affiliate deposits, which havehas been eliminated in consolidation. The impact of such expense in the year ended September 30, 2015 was not significant.
NOTE 2023 - SHARE-BASED AND OTHER COMPENSATION
Our profit sharing plan and employee stock ownership plan (“ESOP”) provide certain death, disability or retirement benefits for all employees who meet certain service requirements. The plans are noncontributory. Our contributions, if any, are determined annually by our Board of Directors on a discretionary basis and are recognized as compensation cost throughout the year. Benefits become fully vested after six years of qualified service, at 65, or if a participant separates from service due to death or disability.
All shares owned by the ESOP are included in earnings per share calculations. Cash dividends paid to the ESOP are reflected as a reduction of retained earnings. The number of shares of our common stock held by the ESOP at September 30, 2017 and 2016 was approximately 4,690,000 and 4,873,000, respectively. The market value of our common stock held by the ESOP at September 30, 2017 was approximately $396 million, of which approximately $4 million was unearned (not yet vested) by ESOP plan participants.
We also offer a plan pursuant to section 401(k) of the Internal Revenue Code, which is a qualified plan that may provide for a discretionary contribution or a matching contribution each year. Matching contributions are 75% of the first $1,000 and 25% of the next $1,000 of eligible compensation deferred by each participant annually.
Our LTIP is a non-qualified deferred compensation plan that provides benefits to employees who meet certain compensation or production requirements. We have purchased and hold life insurance on the lives of certain current and former employee participants (COLI - see Note 9 for information regarding the carrying value of these insurance policies) to earn a competitive rate of return for participants and to provide the primary source of funds available to satisfy our obligations under this plan.
Contributions to the qualified plans and the LTIP, are approved annually by the Board of Directors or a committee thereof.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
We have a Voluntary Deferred Compensation Plan (the “VDCP”), a non-qualified and voluntary opportunity for certain highly compensated employees to defer compensation. Eligible participants may elect to defer a percentage or specific dollar amount of their compensation into the VDCP. COLI is the primary source of funding for this plan.
We also maintain non-qualified deferred compensation plans or arrangements for the benefit of certain employees that provide a return to the participating employees based upon the performance of various referenced investments. Under the terms of each applicable plan or arrangement, we invest directly as a principal in such investments, which are directly related to our obligations under the respective deferred compensation plan and are included in “Other investments” in our Consolidated Statements of Financial Condition (see Note 4 for the fair value of these investments as of September 30, 2017, and 2016).
Compensation expense associated with all of the qualified and non-qualified plans described above totaled $131 million, $117 million and $117 million for the fiscal years ended September 30, 2017, 2016 and 2015, respectively.
Share-based compensation plans
We have one1 share-based compensation plan for our employees, Board of Directors and non-employees (comprised of independent contractor financial advisors).advisors. The Amended and Restated 2012 Stock Incentive Plan (the “2012 Plan”) authorizes us to grant 40,244,00078.4 million new shares, including the shares available for grant under six6 predecessor plans. We generally issue newAs of September 30, 2021, 17.5 million shares were available under the 2012 Plan. Generally, we reissue our treasury shares under the 2012 Plan,Plan; however, we are also permitted to reissueissue new shares. Our share-based compensation accounting policies are described in Note 2.
We had stock options outstanding as of September 30, 2021 which had been issued to our treasury shares.
Share-based awards grantedemployees and independent contractors. As of our fiscal first quarter 2017, we no longer issue stock options to our employees and instead issue RSUs. We issue stock options to our independent contractor financial advisors are measured at fair value on a quarterly basis until vesting, with changescontractors in the fair value included in compensation expense. In addition, we classify non-employee option awards as liabilities at fair value upon vesting, with changes in fair value reported in earnings until these awards are exercised or forfeited. The outstanding stocklimited quantities. Stock options and restricted stock units granted to our independent contractors, were not material as ofwell as the related expense for the years ended September 30, 2017.
Stock option awards
Options may be granted to key employees2021, 2020 and employee financial advisors who achieve certain gross commission levels. Options are exercisable in the 36th to 84th months following the date of grant and only in the event that the grantee is an employee of ours or has terminated within 45 days, disabled, deceased or, in some instances, retired. Options are granted with an exercise price equal to the market price of our stock on the grant date.
Expense and income tax benefit related to our2019 were insignificant. Cash received from stock options awards granted toexercised by our employees and independent contractor financial advisors is presented below:
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | 2016 | | 2015 |
Total share-based expense | | $ | 13,597 |
| | $ | 11,648 |
| | $ | 10,196 |
|
Income tax benefit related to share-based expense | | $ | 1,783 |
| | $ | 1,181 |
| | $ | 821 |
|
Forcontractors during the year ended September 30, 2017, we realized $3 million of excess tax benefits related to our stock option awards which favorably impacted income tax expense in our Consolidated Statements of Income and Comprehensive Income as a result of our adoption of stock compensation simplification guidance (see Note 2 and Note 16 for additional information on our adoption of this new accounting guidance during the period).2021 was $23 million.
These amounts may not be representative of future share-based compensation expense since the estimated fair value of stock options is amortized over the requisite service period using the straight-line method and, in certain instances, the graded vesting attribution method, and additional options may be granted in future years. The fair value of each fixed employee option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for stock option grants in the fiscal years ended September 30, 2017, 2016 and 2015:
|
| | | | | | | | | |
| | Year ended September 30, |
| | 2017 | | 2016 | | 2015 |
Dividend yield | | 1.03 | % | | 1.41 | % | | 1.30 | % |
Expected volatility | | 30.91 | % | | 28.85 | % | | 29.55 | % |
Risk-free interest rate | | 1.81 | % | | 1.65 | % | | 1.66 | % |
Expected lives (in years) | | 5.36 |
| | 5.37 |
| | 5.48 |
|
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The dividend yield assumption is based on our declared dividend as a percentage of the stock price at the date of the grant. The expected volatility assumption is based on our historical stock price and is a weighted average combining recent and historical volatility of RJF stock. The risk-free interest rate assumption is based on the U.S. Treasury yield curve in effect at the time of grant of the options. The expected lives assumption is based on the average of (1) the assumption that all outstanding options will be exercised at the midpoint between their vesting date and full contractual term and (2) the assumption that all outstanding options will be exercised at their full contractual term.
A summary of option activity for grants to employees for the fiscal year ended September 30, 2017 is presented below:
|
| | | | | | | | | | | | | |
| | Options for shares (in thousands) | | Weighted- average exercise price (per share) | | Weighted- average remaining contractual term (in years) | | Aggregate intrinsic value ($ in thousands) |
| | | | | | | | |
Outstanding at October 1, 2016 | | 3,710 |
| | $ | 44.88 |
| | | | |
Granted | | 224 |
| | $ | 72.09 |
| | | | |
Exercised | | (1,051 | ) | | $ | 32.22 |
| | | | |
Forfeited | | (47 | ) | | $ | 51.62 |
| | | | |
Outstanding at September 30, 2017 | | 2,836 |
| | $ | 51.63 |
| | 3.58 | | $ | 92,762 |
|
Exercisable at September 30, 2017 | | 451 |
| | $ | 41.62 |
| | 2.37 | | $ | 19,246 |
|
The following stock option activity occurred under the 2012 Plan for grants to employees:
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands, except per option amounts | | 2017 | | 2016 | | 2015 |
Weighted-average grant date fair value per option | | $ | 19.96 |
| | $ | 13.96 |
| | $ | 14.36 |
|
Total intrinsic value of stock options exercised | | $ | 42,178 |
| | $ | 16,273 |
| | $ | 29,574 |
|
Total grant date fair value of stock options vested | | $ | 10,768 |
| | $ | 7,690 |
| | $ | 10,483 |
|
Pre-tax expense not yet recognized for stock option awards granted to employees and independent contractor financial advisors, net of estimated forfeitures, and the remaining period over which the expense will be recognized as of September 30, 2017, are presented below:
|
| | | | | | |
| | Pre-tax expense not yet recognized (in thousands) | | Remaining weighted-average amortization period (in years) |
Employees | | $ | 14,655 |
| | 2.5 |
Independent contractor financial advisors | | $ | 2,904 |
| | 3.0 |
Cash received from stock option exercises during the fiscal year ended September 30, 2017 was $31 million.
Restricted stock and restricted stock unitRSU awards
We may grant RSU awards under the 2012 Plan in connection with initial employment or under various retention programs for individuals who are responsible for a contributioncontributing to our management, growth, and/or profitability. Through our Canadian subsidiary, we established a trust fund,the Restricted Stock Trust Fund, which we funded to enable the trust fund to acquire our common stock in the open market to be used to settle RSUs granted as a retention vehicle for certain employees of theour Canadian subsidiary (see Note 10 for discussion of our consolidation of this trust fund, which is a VIE).subsidiaries. We may also grant awards to officers and certain other employees in lieu of cash for 10% to 50% of annual bonus amounts in excess of $250,000.$250,000. Under the plan, the awards are generally restricted for a three- to five yearfive-year period, during which time the awards are generally forfeitable in the event of termination other than for death, disability or retirement.
PriorWe grant RSUs annually to February 2011, non-employee members of our Board of Directors had been granted stock option awards annually. Commencing in February 2011, RSUs are issued annually to such members of our Board of Directors, in lieu of stock option awards.Directors. The RSUs granted to these Directors vest over a one year1-year period from their grant date provided that the director is still serving onor upon retirement from our Board of Directors at the end of such period.Board.
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following restricted equitytable presents the RSU award activity, which includes restricted stock and RSUs for grants to employees and members of our Board of Directors, occurred duringfor the fiscal year ended September 30, 2017:2021.
| | | | | | | | | | | | | | |
| | Shares/Units (in millions) (1) | | Weighted- average grant date fair value (per share) (1) |
Non-vested as of beginning of year | | 7.9 | | | $ | 53.43 | |
Granted | | 2.3 | | | $ | 63.86 | |
Vested | | (1.8) | | | $ | 51.98 | |
Forfeited | | (0.2) | | | $ | 57.00 | |
Non-vested as of end of year | | 8.2 | | | $ | 56.61 | |
|
| | | | | | | |
| | Shares/Units (in thousands) | | Weighted- average grant date fair value (per share) |
Non-vested at October 1, 2016 | | 4,807 |
| | $ | 47.71 |
|
Granted | | 1,637 |
| | $ | 72.39 |
|
Vested | | (1,587 | ) | | $ | 38.68 |
|
Forfeited | | (113 | ) | | $ | 60.11 |
|
Non-vested at September 30, 2017 | | 4,744 |
| | $ | 58.94 |
|
(1) During our fiscal fourth quarter of 2021 the Board of Directors approved a 3-for-2 stock split, effected in the form of a 50% stock dividend, paid on September 21, 2021. All share and per share information has been retroactively adjusted to reflect this stock split.
ExpenseThe following table presents expense and income tax benefits related to our restricted equity awardsRSUs granted to our employees and members of our Board of Directors are presented below:for the periods indicated.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2021 | | 2020 | | 2019 |
Total share-based expense | | $ | 126 | | | $ | 110 | | | $ | 101 | |
Income tax benefits related to share-based expense | | $ | 29 | | | $ | 25 | | | $ | 23 | |
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | 2016 | | 2015 |
Total share-based expense | | $ | 78,624 |
| | $ | 62,674 |
| | $ | 57,716 |
|
Income tax benefits related to share-based expense | | $ | 27,658 |
| | $ | 21,979 |
| | $ | 20,516 |
|
Total share-based expense forFor the year ended September 30, 2017 includes $52021, we realized $19 million of excess tax benefits related to our RSUs, which is included as a component of “Acquisition-related expenses”favorably impacted income tax expense on our Consolidated Statements of Income and Comprehensive Income. See Note 318 for additional information regarding such expense.income taxes.
For the year endedAs of September 30, 2017, we realized $22 million of excess tax benefits related to our restricted equity awards which favorably impacted income tax expense in our Consolidated Statements of Income and Comprehensive Income as a result of our adoption of stock compensation simplification guidance (see Note 2 for additional information on our adoption of this new accounting guidance).
As of September 30, 2017,2021, there was $125$187 million of total pre-tax compensation costcosts not yet recognized net(net of estimated forfeitures,forfeitures) related to restricted equity awardsRSUs granted to employees and members of our Board of Directors. These costs are expected to be recognized over a weighted-average period of approximately 3.1three years. The total fair valuefollowing RSU activity occurred for the periods indicated.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions, except per unit award amounts (1) | | 2021 | | 2020 | | 2019 |
Weighted-average grant date fair value per unit award | | $ | 63.86 | | | $ | 58.20 | | | $ | 51.15 | |
Total fair value of shares and RSU awards vested | | $ | 87 | | | $ | 83 | | | $ | 63 | |
(1) During our fiscal fourth quarter of shares and unit awards vested under this plan during2021 the year ended September 30, 2017 was $59 million.
There are no outstanding RSUs related to our independent contractor financial advisors asBoard of September 30, 2017.
RestrictedDirectors approved a 3-for-2 stock awards associated with Alex. Brown
As part of our acquisition of Alex. Brown, we assumed certain DBRSU awards, including the associated plan terms and conditions. The DBRSU awards contain performance conditions based on Deutsche Bank and subsidiaries attaining certain financial results and will ultimately be settled in DB common stock, as traded on the NYSE, provided the performance metrics are achieved. These awards are generally restricted for a three to six year period from their grant date, during which time the awards are subject to forfeituresplit, effected in the eventform of termination other than for death, disability or retirement. The DBRSUs are accounted for as a derivative. See Note 6 for additional information regarding these derivatives.
The following table details the DBRSU activity for the year ended50% stock dividend, paid on September 30, 2017:
|
| | | |
| | Units (in thousands)
|
Non-vested DBRSUs at October 1, 2016 | | 1,358 |
|
DB rights offering | | 163 |
|
Forfeited | | (28 | ) |
Non-vested DBRSUs at September 30, 2017 | | 1,493 |
|
The per unit fair value of the DBRSUs at the AB Closing Date was $14.90,21, 2021. All share and the DBRSUs per unit fair value as of September 30, 2017 was $17.28.
As of September 30, 2017, there was a $10 million prepaid compensation asset included in “Other assets” in our Consolidated Statements of Financial Condition related to these DBRSUs (see Note 9). This asset is expected to be amortized over a weighted-average period
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
of approximately two years. As of September 30, 2017, there was a $26 million derivative liability included in “Derivative liabilities” in our Consolidated Statements of Financial Condition based on the September 30, 2017 per share price of DB shares of $17.28.information has been retroactively adjusted to reflect this stock split.
The net impact of the DBRSUs in our Consolidated Statements of Income and Comprehensive Income, including the related income tax effects, is presented below:
|
| | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | 2016 |
Amortization of DBRSU prepaid compensation asset | | $ | 5,270 |
| | $ | 355 |
|
Increase/(decrease) in fair value of derivative liability | | 8,031 |
| | (2,457 | ) |
Net expense/(gain) before tax | | $ | 13,301 |
| | $ | (2,102 | ) |
Income tax expense | | $ | 4,963 |
| | $ | 799 |
|
Included in the table above is the impact of a DB right offering during the year ended September 30, 2017, which increased the fair value of the derivative liability due to the DBRSU plan terms and conditions, and was reported in “Acquisition-related expenses” on the Consolidated Statements of Income and Comprehensive Income. Also includes the impact of DBRSUs forfeited during the year ended September 30, 2017.
We hold shares of DB as of September 30, 2017 as an economic hedge against this obligation. Such shares are included in “Other investments” on our Consolidated Statements of Financial Condition. The gains/losses on this hedge are included as a component of “Compensation, commissions and benefits expense” or “Acquisition-related expenses” as applicable, and offsets a portion of the gain/losses on the DBRSUs incurred during the periods discussed above.
Employee stock purchase plan
Under the 2003 Employee Stock Purchase Plan, we are authorized to issue up to 7,375,00013.1 million shares of common stock to our full-time employees, nearly all of whom are eligible to participate.employees. Under the terms of the plan, share purchases in any calendar year are limited to the lesser of 1,000 shares or shares with a fair value of $25,000. The purchase price of the stock is 85% of the average high and low market price on the day prior to the purchase date. Under the plan, we sold approximately 343,000, 557,000393 thousand, 699 thousand and 430,000636 thousand shares to employees during the years ended September 30, 2017, 20162021, 2020 and 2015,2019, respectively. The compensation cost is calculated as the value of the 15% discount from market value and was $4$5 million for each of the years ended September 30, 2021, 2020 and 2019.
Employee other compensation
Our profit sharing plan and employee stock ownership plan (“ESOP”) are qualified plans that provide certain death, disability or retirement benefits for all employees who meet certain service requirements. The plans are noncontributory and our contributions, if any, are determined annually by our Board of Directors, or a committee thereof, on a discretionary basis and are recognized as compensation expense throughout the year. Benefits become fully vested after five years of qualified service, age 65, or if a participant separates from service due to death or disability.
All shares owned by the ESOP are included in earnings per share calculations. Cash dividends paid to the ESOP are reflected as a reduction of retained earnings. The number of shares of our common stock held by the ESOP at September 30, 2021 and 2020 was 6.7 million and 7.0 million (as adjusted for the stock split), respectively. The market value of our common stock held by the ESOP at September 30, 2021 was $622 million, of which $7 million was unearned (not yet vested) by ESOP plan participants.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
We also offer a plan pursuant to section 401(k) of the Internal Revenue Code, which is a qualified plan that may provide for a discretionary contribution or a matching contribution each year. Matching contributions are 75% of the first $1,000 and 25% of the next $1,000 of eligible compensation deferred by each participant annually.
Our LTIP is a non-qualified deferred compensation plan that provides benefits to certain employees who meet certain compensation or production requirements. We have purchased and hold life insurance on the lives of certain current and former employee participants to earn a competitive rate of return for participants and to provide the primary source of funds available to satisfy our obligations under this plan. See Note 12 for information regarding the carrying value of these company-owned life insurance policies.
Contributions to the qualified plans and the LTIP are approved annually by the Board of Directors or a committee thereof.
The VDCP is a non-qualified deferred compensation plan for certain employees, in which eligible participants may elect to defer a percentage or specific dollar amount of their compensation. Company-owned life insurance is the primary source of funding for this plan.
Compensation expense associated with all of the qualified and non-qualified plans previously described totaled $175 million, $149 million and $162 million for the fiscal years ended September 30, 2017, 20162021, 2020 and 2015.2019, respectively.
Non-employee other compensation
We offer non-qualified deferred compensation plans that provide benefits to our independent contractor financial advisors who meet certain production requirements. COLICompany-owned life insurance is the primary source of funding for this plan.these plans. The contributions are made in amounts approved annually by management.
Certain independent contractor financial advisors are also eligible to participate in our VDCP. Eligible participants may elect to defer a percentage or specific dollar amount of their compensation into the VDCP. COLICompany-owned life insurance is the primary source of funding for this plan.
NOTE 2124 – REGULATORY CAPITAL REQUIREMENTS
RJF, as a bank holding company and financial holding company, RJRaymond James Bank, our broker-dealer subsidiaries and our broker-dealertrust subsidiaries are subject to capital requirements by various regulatory authorities. Capital levels of each entity are monitored to ensure compliance with our various regulatory capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions, by regulators that, if undertaken, could have a direct material effect on our financial results.
As a bank holding company under the Bank Holding Company Act of 1956, as amended (the “BHC Act”) that has made an election to be a financial holding company, RJF is subject to supervision, examination and regulation by the risk-basedFed. We are subject to the Fed’s capital requirementsrules which establish an integrated regulatory capital framework and implement, in the U.S., the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act. We apply the standardized approach for calculating risk-weighted assets and are also subject to the market risk provisions of the Federal Reserve Board. These risk-basedFed’s capital rules (“market risk rule”).
Under these rules, minimum requirements are expressed asestablished for both the quantity and quality of capital held by banking organizations. RJF and Raymond James Bank are required to maintain minimum ratios that compare measures of regulatorycommon equity tier 1 (“CET1”), tier 1 capital and total capital to risk-weighted assets, which involveas well as minimum leverage ratios (defined as tier 1 capital divided by adjusted average assets).These capital ratios incorporate quantitative measures of our assets, liabilities, and certain off-balance-sheetoff-balance sheet items as calculated under the regulatory accounting guidelines. RJF’scapital rules and RJ Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.
In July 2013, the OCC, the Fed and the FDIC released final U.S. rules implementing the Basel III capital framework developed by the Basel Committee on Banking Supervision and certain Dodd-Frank Act and other capital provisions and updated the prompt corrective action framework to reflect the new regulatory capital minimums (the “U.S. Basel III Rules”). RJF and RJ Bank report regulatory
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
capital under the Basel III standardized approach. Various aspects of the Basel III rules are subject to multi-year transition periods through December 31, 2018.
RJF and RJ Bank are required to maintain minimum amounts and ratios of Total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), Tier 1 capital to average assets (as defined), and under rules defined in Basel III, Common equity Tier 1 capital (“CET1”) to risk-weighted assets. RJF and RJRaymond James Bank each calculate these ratios in order to assess compliance with both regulatory requirements and their internal capital policies. Effective January 1, 2016, the minimum CET1, Tier 1 Capital, and Total Capital ratios of RJF and RJ Bank are supplemented by an incremental capital conservation buffer, consisting entirely of capital that qualifies as CET1, that phases in beginning on January 1, 2016 in increments of 0.625% per year until it reaches 2.5% of risk weighted assets on January 1, 2019. FailureIn order to maintain the capital conservation buffer could limit our ability to take certain capital actions, including dividends and common equity repurchases, and to make discretionary bonus payments.payments, we must hold a capital conservation buffer above our minimum risk-based capital requirements. As of September 30, 2017,2021, both RJF’s and RJRaymond James Bank’s capital levels exceeded the fully-phased in capital conservation buffer requirement and arewere each categorized as “well capitalized.“well-capitalized.”
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
To meet requirements for capital adequacy purposes or to be categorized as “well capitalized,“well-capitalized,” RJF must maintain minimum CET1, Tier 1 capital, Total capital and Tier 1 leverage amounts and ratios as set forth in the table below.following table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Actual | | Requirement for capital adequacy purposes | | To be well-capitalized under regulatory provisions |
$ in millions | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
RJF as of September 30, 2021: | | | | | | | | | | | | |
CET1 | | $ | 7,428 | | | 25.0 | % | | $ | 1,337 | | | 4.5 | % | | $ | 1,932 | | | 6.5 | % |
Tier 1 capital | | $ | 7,428 | | | 25.0 | % | | $ | 1,783 | | | 6.0 | % | | $ | 2,377 | | | 8.0 | % |
Total capital | | $ | 7,780 | | | 26.2 | % | | $ | 2,377 | | | 8.0 | % | | $ | 2,972 | | | 10.0 | % |
Tier 1 leverage | | $ | 7,428 | | | 12.6 | % | | $ | 2,363 | | | 4.0 | % | | $ | 2,954 | | | 5.0 | % |
| | | | | | | | | | | | |
RJF as of September 30, 2020: | | | | | | | | | | | | |
CET1 | | $ | 6,490 | | | 24.2 | % | | $ | 1,208 | | | 4.5 | % | | $ | 1,744 | | | 6.5 | % |
Tier 1 capital | | $ | 6,490 | | | 24.2 | % | | $ | 1,610 | | | 6.0 | % | | $ | 2,147 | | | 8.0 | % |
Total capital | | $ | 6,804 | | | 25.4 | % | | $ | 2,147 | | | 8.0 | % | | $ | 2,684 | | | 10.0 | % |
Tier 1 leverage | | $ | 6,490 | | | 14.2 | % | | $ | 1,824 | | | 4.0 | % | | $ | 2,280 | | | 5.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Actual | | Requirement for capital adequacy purposes | | To be well capitalized under regulatory provisions |
$ in thousands | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
RJF as of September 30, 2017: | | | | | | | | | | | | |
CET1 | | $ | 5,081,335 |
| | 23.0 | % | | $ | 994,950 |
| | 4.5 | % | | $ | 1,437,150 |
| | 6.5 | % |
Tier 1 capital | | $ | 5,081,335 |
| | 23.0 | % | | $ | 1,326,600 |
| | 6.0 | % | | $ | 1,768,800 |
| | 8.0 | % |
Total capital | | $ | 5,293,331 |
| | 23.9 | % | | $ | 1,768,800 |
| | 8.0 | % | | $ | 2,211,000 |
| | 10.0 | % |
Tier 1 leverage | | $ | 5,081,335 |
| | 15.0 | % | | $ | 1,359,168 |
| | 4.0 | % | | $ | 1,698,960 |
| | 5.0 | % |
| | | | | | | | | | | | |
RJF as of September 30, 2016: | | | | | | | | | | | | |
CET1 | | $ | 4,421,956 |
| | 20.6 | % | | $ | 966,341 |
| | 4.5 | % | | $ | 1,395,825 |
| | 6.5 | % |
Tier 1 capital | | $ | 4,421,956 |
| | 20.6 | % | | $ | 1,288,454 |
| | 6.0 | % | | $ | 1,717,939 |
| | 8.0 | % |
Total capital | | $ | 4,636,009 |
| | 21.6 | % | | $ | 1,717,939 |
| | 8.0 | % | | $ | 2,147,424 |
| | 10.0 | % |
Tier 1 leverage | | $ | 4,421,956 |
| | 15.0 | % | | $ | 1,177,840 |
| | 4.0 | % | | $ | 1,472,300 |
| | 5.0 | % |
TheAs of September 30, 2021, RJF’s regulatory capital increase was driven by an increase in equity, due to positive earnings net of dividends and share repurchases, partially offset by an increase in goodwill and identifiable intangible assets arising from our fiscal 2021 acquisitions. See Note 3 for additional information regarding our acquisitions. RJF’s Tier 1 and Total capital and Tier 1 capital ratios at September 30, 2017increased compared to September 30, 20162020, resulting from the increase in regulatory capital, partially offset by an increase in risk-weighted assets. The increase in risk-weighted assets was primarily the result of positive earnings during the year endeddriven by increases in our loan portfolio, assets segregated for regulatory purposes and restricted cash and available-for-sale securities. RJF’s Tier 1 leverage ratio at September 30, 2017,2021 decreased compared to September 30, 2020, due to increased average assets, driven by higher assets segregated for regulatory purposes and restricted cash due to an increase in client cash in the Client Interest Program (“CIP”), as well as growth in loans and available-for-sale securities. The increase in average assets was partially offset by the growth of RJ Bank’s assets, primarily bank loans.increase in regulatory capital.
To meet the requirements for capital adequacy or to be categorized as “well capitalized,“well-capitalized,” RJRaymond James Bank must maintain CET1, Tier 1 capital, Total capital and Tier 1 leverage amounts and ratios as set forth in the table below.following table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Actual | | Requirement for capital adequacy purposes | | To be well-capitalized under regulatory provisions |
$ in millions | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
Raymond James Bank as of September 30, 2021: | | | | | | | | | | | | |
CET1 | | $ | 2,626 | | | 13.4 | % | | $ | 883 | | | 4.5 | % | | $ | 1,275 | | | 6.5 | % |
Tier 1 capital | | $ | 2,626 | | | 13.4 | % | | $ | 1,177 | | | 6.0 | % | | $ | 1,569 | | | 8.0 | % |
Total capital | | $ | 2,873 | | | 14.6 | % | | $ | 1,569 | | | 8.0 | % | | $ | 1,962 | | | 10.0 | % |
Tier 1 leverage | | $ | 2,626 | | | 7.4 | % | | $ | 1,411 | | | 4.0 | % | | $ | 1,763 | | | 5.0 | % |
| | | | | | | | | | | | |
Raymond James Bank as of September 30, 2020: | | | | | | | | | | | | |
CET1 | | $ | 2,279 | | | 13.0 | % | | $ | 788 | | | 4.5 | % | | $ | 1,138 | | | 6.5 | % |
Tier 1 capital | | $ | 2,279 | | | 13.0 | % | | $ | 1,051 | | | 6.0 | % | | $ | 1,401 | | | 8.0 | % |
Total capital | | $ | 2,500 | | | 14.3 | % | | $ | 1,401 | | | 8.0 | % | | $ | 1,751 | | | 10.0 | % |
Tier 1 leverage | | $ | 2,279 | | | 7.7 | % | | $ | 1,183 | | | 4.0 | % | | $ | 1,479 | | | 5.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Actual | | Requirement for capital adequacy purposes | | To be well capitalized under regulatory provisions |
$ in thousands | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
RJ Bank as of September 30, 2017: | | | | | | | | | | | | |
CET1 | | $ | 1,821,306 |
| | 12.5 | % | | $ | 654,901 |
| | 4.5 | % | | $ | 945,968 |
| | 6.5 | % |
Tier 1 capital | | $ | 1,821,306 |
| | 12.5 | % | | $ | 873,201 |
| | 6.0 | % | | $ | 1,164,268 |
| | 8.0 | % |
Total capital | | $ | 2,003,461 |
| | 13.8 | % | | $ | 1,164,268 |
| | 8.0 | % | | $ | 1,455,335 |
| | 10.0 | % |
Tier 1 leverage | | $ | 1,821,306 |
| | 8.9 | % | | $ | 816,304 |
| | 4.0 | % | | $ | 1,020,379 |
| | 5.0 | % |
| | | | | | | | | | | | |
RJ Bank as of September 30, 2016: | | |
| | |
| | |
| | |
| | |
| | |
|
CET1 | | $ | 1,675,890 |
| | 12.7 | % | | $ | 592,864 |
| | 4.5 | % | | $ | 856,360 |
| | 6.5 | % |
Tier 1 capital | | $ | 1,675,890 |
| | 12.7 | % | | $ | 790,486 |
| | 6.0 | % | | $ | 1,053,981 |
| | 8.0 | % |
Total capital | | $ | 1,841,112 |
| | 14.0 | % | | $ | 1,053,981 |
| | 8.0 | % | | $ | 1,317,476 |
| | 10.0 | % |
Tier 1 leverage | | $ | 1,675,890 |
| | 9.9 | % | | $ | 675,939 |
| | 4.0 | % | | $ | 844,924 |
| | 5.0 | % |
The decrease in RJAs of September 30, 2021, Raymond James Bank’s Total and Tier 1 and Total capital ratios at September 30, 2017increased compared to September 30, 2016 was primarily2020 due to positive earnings, partially offset by higher risk-weighted assets, primarily resulting from increases in our loan portfolio and available-for-sale securities. Raymond James Bank’s Tier 1 leverage ratio at September 30, 2021 decreased compared to September 30, 2020, due to increased average assets, driven by the growth in assets, primarily bank loans.loans and available-for-sale securities.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Our intention is to maintain RJRaymond James Bank’s “well capitalized”“well-capitalized” status. In the unlikely event that RJRaymond James Bank failed to maintain its “well capitalized”“well-capitalized” status, the consequences could include a requirement to obtain a waiver from the FDIC prior to acceptance, renewal, or rollover of brokered deposits and result in higher FDIC premiums, but would not have a significantsignificantly impact on our operations.
RJRaymond James Bank may pay dividends to the parent companyRJF without prior approval of its regulator as long as the dividend does not exceed the sum of RJRaymond James Bank’s current calendar year and the previous two calendar years’ retained net income, and RJ
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Raymond James Bank maintains its targeted regulatory capital ratios. Dividends from Raymond James Bank may be limited to the extent that capital is needed to support its balance sheet growth.
Certain of our broker-dealer subsidiaries are subject to the requirements of the Uniform Net Capital Rule (Rule 15c3-1) under the Securities Exchange Act of 1934. RJ&A and RJFS, each beingAs a member firmsfirm of the Financial Industry Regulatory Authority (“FINRA”), areRJ&A is subject to the rules of FINRA, whoseFINRA’s capital requirements, which are substantially the same as Rule 15c3-1. Rule 15c3-1 requires that aggregate indebtedness, as defined, not exceed 15 times net capital, as defined. Rule 15c3-1 also provides for an “alternative net capital requirement,” which RJ&A and RJFS have eachhas elected. Regulations require that minimum net capital, as defined, be equal to the greater of $1$1.5 million, ($250 thousand for RJFS as of September 30, 2017) or two percent2% of aggregate debit items arising from client balances. FINRA may requireimpose certain restrictions, such as restricting withdrawals of equity capital, if a member firm were to reduce its business if itsfall below a certain threshold or fail to meet minimum net capital is less than four percentrequirements. As of aggregate debit items and may prohibit a member firm from expanding its business and declaring cash dividends if itsSeptember 30, 2021, RJ&A had excess net capital is less than five percentavailable to remit dividends to RJF, some of aggregate debit items.
which may be remitted without prior regulatory approval and the remainder may be remitted in conformity with all required regulatory rules or approvals. The following table presents the net capital position of RJ&A:&A.
| | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2021 | | 2020 |
| | |
Raymond James & Associates, Inc.: | | | | |
(Alternative Method elected) | | | | |
Net capital as a percent of aggregate debit items | | 72.1 | % | | 48.0 | % |
Net capital | | $ | 2,035 | | | $ | 1,245 | |
Less: required net capital | | (56) | | | (52) | |
Excess net capital | | $ | 1,979 | | | $ | 1,193 | |
|
| | | | | | | | |
| | September 30, |
$ in thousands | | 2017 | | 2016 |
Raymond James & Associates, Inc.: | | | | |
(Alternative Method elected) | | | | |
Net capital as a percent of aggregate debit items | | 21.37 | % | | 19.61 | % |
Net capital | | $ | 589,420 |
| | $ | 512,594 |
|
Less: required net capital | | (55,164 | ) | | (52,287 | ) |
Excess net capital | | $ | 534,256 |
| | $ | 460,307 |
|
The following table presents the net capital positionAs of RJFS:
|
| | | | | | | | |
| | September 30, |
$ in thousands | | 2017 | | 2016 |
Raymond James Financial Services, Inc.: | | | | |
(Alternative Method elected) | | | | |
Net capital | | $ | 34,488 |
| | $ | 27,013 |
|
Less: required net capital | | (250 | ) | | (250 | ) |
Excess net capital | | $ | 34,238 |
| | $ | 26,763 |
|
RJ Ltd. is subject to the Minimum Capital Rule (Dealer Member Rule No. 17 of the Investment Industry Regulatory Organization of Canada (“IIROC”)) and the Early Warning System (Dealer Member Rule No. 30 of the IIROC). The Minimum Capital Rule requires that every member shall have and maintain at all times risk-adjusted capital greater than zero calculated in accordance with Form 1 (Joint Regulatory Financial Questionnaire and Report) and with such requirements as the Board of Directors of the IIROC may from time to time prescribe. Insufficient risk-adjusted capital may result in suspension from membership in the stock exchanges or the IIROC.
The Early Warning System is designed to provide advance warning that a member firm is encountering financial difficulties. This system imposes certain sanctions on members who are designated in Early Warning Level 1 or Level 2 according to their capital, profitability, liquidity position, frequency of designation or at the discretion of the IIROC. Restrictions on business activities and capital transactions, early filing requirements, and mandated corrective measures are sanctions that may be imposed as part of the Early Warning System. RJ Ltd. was not in Early Warning Level 1 or Level 2 at either September 30, 2017 or 2016.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents the risk adjusted capital of RJ Ltd. (in Canadian dollars):
|
| | | | | | | | |
| | September 30, |
$ in thousands | | 2017 | | 2016 |
Raymond James Ltd.: | | | | |
Risk adjusted capital before minimum | | $ | 108,985 |
| | $ | 77,110 |
|
Less: required minimum capital | | (250 | ) | | (250 | ) |
Risk adjusted capital | | $ | 108,735 |
| | $ | 76,860 |
|
Raymond James Trust, N.A., (“RJ Trust”) is regulated by the OCC and is required to maintain sufficient capital. As of September 30, 2017 and 2016, RJ Trust met the requirements.
As of September 30, 2017,2021, all of our other active regulated domestic and international subsidiaries were in compliance with and metexceeded all applicable capital requirements.
RJF expects to continue paying cash dividends. However, the payment and rate of dividends on our common stock isare subject to several factors including our operating results, financial and regulatory requirements or restrictions, and the availability of funds from our subsidiaries, including our broker-dealer and bank subsidiaries, which may also be subject to restrictions under regulatory capital rules. The availability of funds from subsidiaries may also be subject to restrictions contained in loan covenants of certain broker-dealer loan agreements and restrictions by bank regulators on dividends to the parent from RJRaymond James Bank.
NOTE 22 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, we purchase and sell securities as either principal or agent on behalf of our clients. If either the client or counterparty fails to perform, we may be required to discharge the obligations of the nonperforming party. In such circumstances, we may sustain a loss if the market value of the security or futures contract is different from the contract value of the transaction.
The majority of our transactions and, consequently, the concentration of our credit exposure, is with clients, broker-dealers and other financial institutions in the U.S. These activities primarily involve collateralized financings and may result in credit exposure in the event that the counterparty fails to meet its contractual obligations. Our exposure to credit risk can be directly impacted by volatile securities markets, which may impair the ability of counterparties to satisfy their contractual obligations. We seek to control our credit risk through a variety of reporting and control procedures, including establishing credit limits based upon a review of the counterparties’ financial condition and credit ratings. We monitor collateral levels on a daily basis for compliance with regulatory and internal guidelines and request changes in collateral levels as appropriate.
Commitments to extend credit and other credit-related financial instruments
RJ Bank has outstanding at any time a significant number of commitments to extend credit and other credit-related off-balance sheet financial instruments such as standby letters of credit and loan purchases, which then extend over varying periods of time. These arrangements are subject to strict underwriting assessments and each customer’s credit worthiness is evaluated on a case-by-case basis. Fixed-rate commitments are also subject to market risk resulting from fluctuations in interest rates and our exposure is limited to the replacement value of those commitments.
The following table presents RJ Bank’s commitments to extend credit and other credit-related off-balance sheet financial instruments outstanding:
|
| | | | | | | | |
| | September 30, |
$ in thousands | | 2017 | | 2016 |
Standby letters of credit | | $ | 39,670 |
| | $ | 29,686 |
|
Open-end consumer lines of credit (primarily SBL) | | $ | 5,323,003 |
| | $ | 3,616,933 |
|
Commercial lines of credit | | $ | 1,673,272 |
| | $ | 1,430,630 |
|
Unfunded loan commitments | | $ | 386,950 |
| | $ | 354,556 |
|
In the normal course of business, RJ Bank issues or participates in the issuance of standby letters of credit whereby it provides an irrevocable guarantee of payment in the event the letter of credit is drawn down by the beneficiary. These standby letters of credit generally expire in one year or less. As of September 30, 2017, $40 million of such letters of credit were outstanding. In the event that a letter of credit is drawn down, RJ Bank would pursue repayment from the party under the existing borrowing relationship or
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
would liquidate collateral, or both. The proceeds from repayment or liquidation of collateral are expected to satisfy the amounts drawn down under the existing letters of credit. The credit risk involved in issuing letters of credit is essentially the same as that involved with extending loan commitments to clients and, accordingly, we use a credit evaluation process and collateral requirements similar to those for loan commitments.
Open end consumer lines of credit primarily represent the unfunded amounts of RJ Bank loans to customers that are secured by marketable securities at advance rates consistent with industry standards. The proceeds from repayment or, if necessary, the liquidation of collateral, which is monitored daily, are expected to satisfy the amounts drawn against these existing lines of credit.
Because many of our lending commitments expire without being funded in whole or part, the contract amounts are not estimates of our actual future credit exposure or future liquidity requirements. We maintain a reserve to provide for potential losses related to the unfunded lending commitments. See Note 8 for further discussion of this reserve for unfunded lending commitments. Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted. The credit risk amounts are equal to the contractual amounts, assuming that the amounts are fully advanced and that the collateral or other security is of no value. We use the same credit approval and monitoring process in extending loan commitments and other credit-related off-balance sheet instruments as we do in making loans.
Securities loaned and Securities borrowed
We 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 and others for which we have received cash or other collateral. We measure the market value of the securities borrowed and loaned against the amount of cash posted or received on a daily basis. Additional cash is obtained as necessary to ensure such transactions are adequately collateralized. If another party to the transaction fails to perform as agreed we may incur a loss if the market value of the security is different from the contract amount of the transaction. For example, if a borrowing institution or broker-dealer does not return a security, we may be obligated to purchase the security in order to return it to the owner. In such circumstances, we may incur a loss equal to the amount by which the market value of the security on the date of nonperformance exceeds the value of the collateral received from the financial institution or the broker-dealer. See Note 7 for more information on our securities borrowed and securities loaned.
Financial instruments sold, but not yet purchased
We have sold securities that we do not currently own and will, therefore, be obligated to borrow, purchase or enter into a reverse repurchase agreement for such securities at a future date. These securities are recorded at fair value and are included in “Trading instruments sold, but not yet purchased” in our Consolidated Statements of Financial Condition (see Notes 2 and 4 for further information). In certain cases, we utilize short positions to economically hedge long inventory positions. We may be subject to loss if the market value of a short position increases by more than the market value of the hedged long position or if the short position is not covered by a long hedged position.
We also enter into security transactions on behalf of our clients and other financial institutions involving forward settlement. Forward contracts provide for the delayed delivery of the underlying instrument. The contractual amounts related to these financial instruments reflect the volume and activity and do not reflect the amounts at risk. The gain or loss on these transactions is recognized on a trade date basis. Transactions involving future settlement give rise to market risk, which represents the potential loss that could be caused by a change in the market value of a particular financial instrument. Our exposure to market risk is determined by a number of factors, including the duration, size, composition and diversification of positions held, the absolute and relative levels of interest rates, and market volatility. The credit risk for these transactions is limited to the unrealized market valuation gains recorded in the Consolidated Statements of Financial Condition.
As a part of our fixed income public finance operations, we enter into forward commitments to purchase GNMA or FNMA MBS. See Note 2 and Note 17 for information on these commitments. We utilize TBA security contracts to hedge our interest rate risk associated with these commitments. We are subject to loss if the timing of, or the actual amount of, the MBS differs significantly from the term and notional amount of the TBA security contracts we enter into.
Forward foreign exchange contracts
RJ Ltd. is subject to foreign exchange risk primarily due to financial instruments denominated in U.S. dollars that may be impacted by fluctuation in foreign exchange rates. In order to mitigate this risk, RJ Ltd. enters into forward foreign exchange contracts. The fair value of these contracts is not significant. As of September 30, 2017, forward contracts outstanding to buy and sell U.S. dollars totaled
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
CDN $3 million and CDN $5 million, respectively. RJ Bank is also subject to foreign exchange risk related to its net investment in a Canadian subsidiary. See Note 6 for information regarding how RJ Bank utilizes derivatives to mitigate a significant portion of this risk.
NOTE 2325 – EARNINGS PER SHARE
During our fiscal fourth quarter of 2021 the Board of Directors approved a 3-for-2 stock split, effected in the form of a 50% stock dividend, paid on September 21, 2021. All share and per share information has been retroactively adjusted to reflect this stock split.
The following table presents the computation of basic and diluted earnings per share:common share.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions, except per share amounts | | 2021 | | 2020 | | 2019 |
Income for basic earnings per common share: | | | | | | |
Net income | | $ | 1,403 | | | $ | 818 | | | $ | 1,034 | |
Less allocation of earnings and dividends to participating securities | | (2) | | | (1) | | | (2) | |
Net income attributable to RJF common shareholders | | $ | 1,401 | | | $ | 817 | | | $ | 1,032 | |
Income for diluted earnings per common share: | | | | | | |
Net income | | $ | 1,403 | | | $ | 818 | | | $ | 1,034 | |
Less allocation of earnings and dividends to participating securities | | (2) | | | (1) | | | (2) | |
Net income attributable to RJF common shareholders | | $ | 1,401 | | | $ | 817 | | | $ | 1,032 | |
Common shares: | | | | | | |
Average common shares in basic computation | | 205.7 | | | 206.4 | | | 211.5 | |
Dilutive effect of outstanding stock options and certain RSUs | | 5.5 | | | 3.9 | | | 4.5 | |
Average common and common equivalent shares used in diluted computation | | 211.2 | | | 210.3 | | | 216.0 | |
Earnings per common share: | | | | | | |
Basic | | $ | 6.81 | | | $ | 3.96 | | | $ | 4.88 | |
Diluted | | $ | 6.63 | | | $ | 3.88 | | | $ | 4.78 | |
Stock options and certain RSUs excluded from weighted-average diluted common shares because their effect would be antidilutive | | 0.1 | | | 2.3 | | | 0.6 | |
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands, except per share amounts | | 2017 | | 2016 | | 2015 |
Income for basic earnings per common share: | | | | | | |
Net income attributable to RJF | | $ | 636,235 |
| | $ | 529,350 |
| | $ | 502,140 |
|
Less allocation of earnings and dividends to participating securities | | (1,376 | ) | | (1,256 | ) | | (1,610 | ) |
Net income attributable to RJF common shareholders | | $ | 634,859 |
| | $ | 528,094 |
| | $ | 500,530 |
|
| | | | | | |
Income for diluted earnings per common share: | | |
| | |
| | |
|
Net income attributable to RJF | | $ | 636,235 |
| | $ | 529,350 |
| | $ | 502,140 |
|
Less allocation of earnings and dividends to participating securities | | (1,350 | ) | | (1,236 | ) | | (1,580 | ) |
Net income attributable to RJF common shareholders | | $ | 634,885 |
| | $ | 528,114 |
| | $ | 500,560 |
|
| | | | | | |
Common shares: | | |
| | |
| | |
|
Average common shares in basic computation | | 143,275 |
| | 141,773 |
| | 142,548 |
|
Dilutive effect of outstanding stock options and certain restricted stock units | | 3,372 |
| | 2,740 |
| | 3,391 |
|
Average common shares used in diluted computation | | 146,647 |
| | 144,513 |
| | 145,939 |
|
| | | | | | |
Earnings per common share: | | |
| | |
| | |
|
Basic | | $ | 4.43 |
| | $ | 3.72 |
| | $ | 3.51 |
|
Diluted | | $ | 4.33 |
| | $ | 3.65 |
| | $ | 3.43 |
|
Stock options and certain restricted stock units excluded from weighted-average diluted common shares because their effect would be antidilutive | | 1,657 |
| | 3,255 |
| | 2,849 |
|
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The allocation of earnings and dividends to participating securities in the abovepreceding table represents dividends paid during the year to participating securities, consisting of certain RSUs, plus an allocation of undistributed earnings to such participating securities. Participating securities represent unvested restricted stock and certain restricted stock units and amounted to weighted-average shares of 317 thousand, 346 thousand and 464 thousand for the years ended September 30, 2017, 2016 and 2015, respectively. Dividendsrelated dividends paid toon these participating securities were insignificant for the years ended September 30, 2017, 2016,2021, 2020 and 2015.2019. Undistributed earnings are allocated to participating securities based upon their right to share in earnings if all earnings for the period had been distributed.
Dividends per common share declared and paid are as follows:detailed in the following table for each respective period.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
| | 2021 | | 2020 | | 2019 |
Dividends per common share - declared | | $ | 1.04 | | | $ | 0.99 | | | $ | 0.91 | |
Dividends per common share - paid | | $ | 1.03 | | | $ | 0.97 | | | $ | 0.88 | |
|
| | | | | | | | | | | | |
| | Year ended September 30, |
| | 2017 | | 2016 | | 2015 |
Dividends per common share - declared | | $ | 0.88 |
| | $ | 0.80 |
| | $ | 0.72 |
|
Dividends per common share - paid | | $ | 0.86 |
| | $ | 0.78 |
| | $ | 0.70 |
|
NOTE 2426 – SEGMENT INFORMATION
We currently operate through the following five business5 segments: “Private Client Group;” “CapitalPCG; Capital Markets;” “Asset Asset Management;” RJ Raymond James Bank; and “Other.”Other.
The business segments are determined based upon factors such as the services provided and the distribution channels served and are consistent with how we assess performance and determine how to allocate our resources throughout our subsidiaries.resources. The financial results of our segments are presented using the same policies as those described in Note 2, “Summary of Significant Accounting Policies.”2. Segment results include charges allocatingallocations of most corporate overhead and benefits expenses to each segment. Refer to the following discussion of the Other segment below for a description of the corporate expenses that are not allocated to segments. Intersegment revenues, expenses, receivables and payables are eliminated upon consolidation.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Private Client GroupPCG segment includes the retail branches of our broker-dealer subsidiaries located throughoutprovides financial planning, investment advisory and securities transaction services in the U.S., Canada and the United Kingdom. These branches provide securities brokerageU.K. for which we generally charge either asset-based fees or sales commissions. The PCG segment also earns revenues for distribution and related support services including the sale of equities,performed related to mutual funds, fixed income productsand variable annuities and insurance products to their individual clients.products. The segment includes servicing fee revenues from mutual fund and annuity companies whose products we distribute and from banks to which we sweep clients’ cash in the RJBDP, our multi-bank sweep program. The segment also includes net interest earnings primarily on client margin loans, and cash balances, and certain fee revenues generated byassets segregated for regulatory purposes, net of interest paid to clients on cash balances in the multi-bank aspect of the RJBDP. Additionally, this segment includes the activities associated with the borrowing and lending of securities to and from other broker-dealers, financial institutions and other counterparties, generally as an intermediary or to facilitate RJ&A’s clearance and settlement obligations, and the correspondent clearing services that we provide to other broker-dealer firms.CIP.
TheOur Capital Markets segment includesconducts investment banking, institutional sales, securities trading, equity research, and tradingthe syndication and management of investments in low-income housing funds. We primarily conduct these activities in the U.S., Canada and Europe. We provide securities brokerage, trading,
Our Asset Management segment earns asset management and researchrelated administrative fees for providing asset management, portfolio management and related administrative services to institutions with an emphasis on the saleretail and institutional clients. This segment oversees a portion of U.S.our fee-based assets under administration for our PCG clients through our Asset Management Services division and Canadian equities and fixed income products.through RJ Trust. This segment also includes our management of and participation in debt and equity underwritings, merger & acquisition services, public finance activities, and the operations of RJTCF.
The Asset Management segment includes the operations of Eagle, the Eagle Family of Funds, theprovides asset management services divisionthrough Carillon Tower Advisers for certain retail accounts managed on behalf of RJ&A, trust servicesthird-party institutions, institutional accounts and proprietary mutual funds that we manage.
Raymond James Bank provides various types of RJ Trust,loans, including corporate loans, tax-exempt loans, residential loans, SBL and other fee-based asset management programs.
RJ Bank provides corporate loans (C&I, CRE and CRE construction), SBL, tax-exempt and residential loans. RJRaymond James Bank is active in corporate loan syndications and participations. RJ Bankparticipations and also provides FDIC insuredFDIC-insured deposit accounts, including to clients of our broker-dealer subsidiaries and to the general public. RJsubsidiaries. Raymond James Bank generates net interest revenueincome principally through the interest income earned on loans and investments,an investment portfolio of available-for-sale securities, which is offset by the interest expense it pays on client deposits and on its borrowings.
The Other segment includes the results of our private equity activities as well asinvestments, interest income on certain corporate cash balances, acquisition-related expenses, and certain corporate overhead costs of RJF that are not allocated to operating segments, including the interest costs on our public debt and any losses on the extinguishment of debt andsuch debt. The Other segment also includes expenses related to our reduction in workforce, which occurred in fiscal 2020 in response to the acquisition and integration costs associated with certain acquisitions (see Note 3 for additional information).economic environment at that time.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents information concerning operations in these segments of business:segments.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2021 | | 2020 | | 2019 |
Net revenues: | | | | | | |
Private Client Group | | $ | 6,611 | | | $ | 5,552 | | | $ | 5,359 | |
Capital Markets | | 1,885 | | | 1,291 | | | 1,083 | |
Asset Management | | 867 | | | 715 | | | 691 | |
Raymond James Bank | | 672 | | | 765 | | | 846 | |
Other | | (8) | | | (82) | | | 5 | |
Intersegment eliminations | | (267) | | | (251) | | | (244) | |
Total net revenues | | $ | 9,760 | | | $ | 7,990 | | | $ | 7,740 | |
Pre-tax income/(loss): | | | | | | |
Private Client Group | | $ | 749 | | | $ | 539 | | | $ | 579 | |
Capital Markets | | 532 | | | 225 | | | 110 | |
Asset Management | | 389 | | | 284 | | | 253 | |
Raymond James Bank | | 367 | | | 196 | | | 515 | |
Other | | (246) | | | (192) | | | (82) | |
Total pre-tax income | | $ | 1,791 | | | $ | 1,052 | | | $ | 1,375 | |
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | 2016 | | 2015 |
Revenues: | | | | | | |
Private Client Group | | $ | 4,437,588 |
| | $ | 3,626,718 |
| | $ | 3,519,558 |
|
Capital Markets | | 1,034,235 |
| | 1,017,151 |
| | 976,580 |
|
Asset Management | | 487,735 |
| | 404,421 |
| | 392,378 |
|
RJ Bank | | 627,845 |
| | 517,243 |
| | 425,988 |
|
Other | | 65,498 |
| | 46,291 |
| | 66,967 |
|
Intersegment eliminations | | (128,026 | ) | | (90,704 | ) | | (71,791 | ) |
Total revenues | | $ | 6,524,875 |
| | $ | 5,521,120 |
| | $ | 5,309,680 |
|
Income/(loss) excluding noncontrolling interests and before provision for income taxes: | | | | | | |
Private Client Group | | $ | 372,950 |
| | $ | 340,564 |
| | $ | 342,243 |
|
Capital Markets | | 141,236 |
| | 139,173 |
| | 107,009 |
|
Asset Management | | 171,736 |
| | 132,158 |
| | 135,050 |
|
RJ Bank | | 409,303 |
| | 337,296 |
| | 278,721 |
|
Other | | (169,879 | ) | | (148,548 | ) | | (64,849 | ) |
Pre-tax income excluding noncontrolling interests | | 925,346 |
| | 800,643 |
| | 798,174 |
|
Net income attributable to noncontrolling interests | | 2,632 |
| | 11,301 |
| | 16,438 |
|
Income including noncontrolling interests and before provision for income taxes | | $ | 927,978 |
| | $ | 811,944 |
| | $ | 814,612 |
|
No individual client accounted for more than ten percent of total revenues in any of the years presented.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIESThe following table presents our net interest income on a segment basis.
Notes to Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2021 | | 2020 | | 2019 |
Net interest income/(expense): | | | | | | |
Private Client Group | | $ | 113 | | | $ | 132 | | | $ | 183 | |
Capital Markets | | 6 | | | 9 | | | 4 | |
Asset Management | | — | | | 1 | | | 3 | |
Raymond James Bank | | 642 | | | 738 | | | 820 | |
Other | | (88) | | | (58) | | | (12) | |
Net interest income | | $ | 673 | | | $ | 822 | | | $ | 998 | |
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | 2016 | | 2015 |
Net interest income/(expense): | | | | | | |
Private Client Group | | $ | 136,756 |
| | $ | 97,042 |
| | $ | 88,842 |
|
Capital Markets | | 6,543 |
| | 9,432 |
| | 9,589 |
|
Asset Management | | 623 |
| | 183 |
| | 127 |
|
RJ Bank | | 574,796 |
| | 478,690 |
| | 403,578 |
|
Other | | (70,370 | ) | | (61,006 | ) | | (64,928 | ) |
Net interest income | | $ | 648,348 |
| | $ | 524,341 |
| | $ | 437,208 |
|
The following table presents our total assets on a segment basis:basis.
| | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2021 | | 2020 |
Total assets: | | | | |
Private Client Group | | $ | 20,270 | | | $ | 12,574 | |
Capital Markets | | 2,457 | | | 2,336 | |
Asset Management | | 476 | | | 380 | |
Raymond James Bank | | 36,154 | | | 30,356 | |
Other | | 2,534 | | | 1,836 | |
Total | | $ | 61,891 | | | $ | 47,482 | |
|
| | | | | | | | |
| | September 30, |
$ in thousands | | 2017 | | 2016 |
Total assets: | | | | |
Private Client Group | | $ | 9,967,320 |
| | $ | 10,317,681 |
|
Capital Markets | | 2,396,033 |
| | 2,957,319 |
|
Asset Management | | 151,111 |
| | 133,190 |
|
RJ Bank | | 20,611,898 |
| | 16,613,391 |
|
Other | | 1,757,094 |
| | 1,465,395 |
|
Total | | $ | 34,883,456 |
| | $ | 31,486,976 |
|
TotalThe following table presents goodwill, which was included in our total assets, in the PCGon a segment included $277 million and $276basis.
| | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2021 | | 2020 |
Goodwill: | | | | |
Private Client Group (1) | | $ | 417 | | | $ | 277 | |
Capital Markets (2) | | 174 | | | 120 | |
Asset Management | | 69 | | | 69 | |
Total | | $ | 660 | | | $ | 466 | |
(1) The September 30, 2021 balance includes $139 million of goodwill atarising from our acquisition of NWPS in December 2020.
(2) The September 30, 2017 and 2016, respectively. Total assets in the Capital Markets segment included $134 million and $1332021 balance includes $30 million of goodwill atarising from our acquisition of Financo in March 2021 and a provisional estimate of $24 million of goodwill arising from our acquisition of Cebile in September 30, 2017 and 2016, respectively.2021.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
We have operations in the U.S., Canada and Europe. Substantially all long-lived assets are located in the U.S. RevenuesThe following table presents our net revenues and pre-tax income before provision for income taxes and excluding noncontrolling interests, classified by major geographic areasarea in which they are earned, are as follows:were earned.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2021 | | 2020 | | 2019 |
Net revenues: | | | | | | |
U.S. | | $ | 9,067 | | | $ | 7,446 | | | $ | 7,211 | |
Canada | | 485 | | | 386 | | | 391 | |
Europe | | 208 | | | 158 | | | 138 | |
Total | | $ | 9,760 | | | $ | 7,990 | | | $ | 7,740 | |
Pre-tax income/(loss): | | | | | | |
U.S. | | $ | 1,701 | | | $ | 1,028 | | | $ | 1,356 | |
Canada | | 53 | | | 29 | | | 29 | |
Europe (1) | | 37 | | | (5) | | | (10) | |
Total | | $ | 1,791 | | | $ | 1,052 | | | $ | 1,375 | |
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | 2016 | | 2015 |
Revenues: | | | | | | |
United States | | $ | 6,057,971 |
| | $ | 5,119,536 |
| | $ | 4,912,820 |
|
Canada | | 354,685 |
| | 278,652 |
| | 279,200 |
|
Europe | | 107,831 |
| | 85,718 |
| | 85,289 |
|
Other | | 4,388 |
| | 37,214 |
| | 32,371 |
|
Total | | $ | 6,524,875 |
| | $ | 5,521,120 |
| | $ | 5,309,680 |
|
| | | | | | |
Pre-tax income/(loss) excluding noncontrolling interests: | | |
| | |
| | |
United States | | $ | 919,324 |
| | $ | 778,351 |
| | $ | 784,517 |
|
Canada | | 14,138 |
| | 20,243 |
| | 17,770 |
|
Europe | | (3,577 | ) | | (3,791 | ) | | (6,852 | ) |
Other | | (4,539 | ) | | 5,840 |
| | 2,739 |
|
Total | | $ | 925,346 |
| | $ | 800,643 |
| | $ | 798,174 |
|
(1) The pre-tax loss in Europe for the year ended September 30, 2020 reflected a $7 million loss related to the disposition of our interests in certain entities that operated predominantly in France. The pre-tax loss in Europe for the year ended September 30, 2019 reflected a $15 million loss on the sale of our operations related to research, sales and trading of European equities. These losses were recorded in our Capital Markets segment.
Our
The following table presents our total assets by major geographic area in which they were held.
| | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2021 | | 2020 |
Total assets: | | | | |
U.S. | | $ | 57,952 | | | $ | 44,090 | |
Canada | | 3,724 | | | 3,260 | |
Europe | | 215 | | | 132 | |
Total | | $ | 61,891 | | | $ | 47,482 | |
The following table presents goodwill, which was included in our total assets, classified by major geographic area in which they are held, are presented below:it was held.
| | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2021 | | 2020 |
Goodwill: | | | | |
U.S. (1) | | $ | 619 | | | $ | 433 | |
Canada | | 25 | | | 24 | |
Europe (2) | | 16 | | | 9 | |
Total | | $ | 660 | | | $ | 466 | |
|
| | | | | | | | |
| | September 30, |
$ in thousands | | 2017 | | 2016 |
Total assets: | | | | |
United States | | $ | 32,200,852 |
| | $ | 29,112,182 |
|
Canada | | 2,592,480 |
| | 2,275,056 |
|
Europe | | 81,090 |
| | 61,067 |
|
Other | | 9,034 |
| | 38,671 |
|
Total | | $ | 34,883,456 |
| | $ | 31,486,976 |
|
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Total assets in the United States included $356(1) The September 30, 2021 balance includes $139 million of goodwill at September 30, 2017 and 2016, respectively. Total assetsarising from our acquisition of NWPS in Canada included $45 million and $43December 2020, $30 million of goodwill at September 30, 2017arising from our acquisition of Financo in March 2021 and 2016, respectively. Total assets in Europe included $10 million and $9a provisional estimate of $17 million of goodwill atarising from our acquisition of Cebile in September 2021.
(2) The September 30, 2017 and 2016, respectively.2021 balance includes a provisional estimate of $7 million of goodwill arising from our acquisition of Cebile in September 2021.
NOTE 25 -27 – CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
As more fully described in Note 1, RJF (or the “Parent”), is a financial holding company whose subsidiaries are engaged in various financial services businesses.activities. The Parent’s primary activities include investments in subsidiaries and corporate investments, including cash management, company-owned life insurance policies and private equity investments. The primary source of operating cash available to the Parent is provided by dividends from its subsidiaries.
Our principal domesticThe broker-dealer subsidiaries of the Parent, including RJ&A our principal domestic broker-dealer, and RJFS,certain other subsidiaries are required by regulations to maintain a minimum amount of net capital (other non-bank subsidiaries of the Parent are also required by regulationsdue to maintain a minimum amount of net capital, but the net capital requirements of those other subsidiaries are much less significant).regulatory requirements. RJ&A is further required by certain covenants in its borrowing agreements to maintain minimum net capital equal to 10% of aggregate debit balances. At September 30, 2017,2021, each of these brokerage subsidiaries far exceeded their minimum net capital requirements (see Note 2124 for further information).
SubsidiaryOf the Parent’s net assets of approximately $2.33 billion as of September 30, 2017 are2021, approximately $210 million of its investment in RJ&A and RJFS was available for distribution to the Parent without further regulatory approvals, and approximately $4.30 billion of its investment in
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Raymond James Bank, RJ&A, RJFS and RJ Ltd. was restricted underdue to regulatory or other restrictions from being transferred from certain subsidiariesdistribution to the Parent without prior approval of the respective entities’entity’s regulator.
Liquidity available to the Parent from its subsidiaries other than its broker-dealer subsidiaries and RJ Bank is not limited by regulatory or other restrictions; however, the available amounts are not as significant as those amounts described above. The Parent regularly receives a portion of the profits of subsidiaries, other than RJ Bank, as dividends.
Cash and cash equivalents of $1.29$1.16 billion and $810 million$2.16 billion as of September 30, 20172021 and 2016,2020, respectively, were available to the Parent without restriction and were held directly by RJF in depository accounts at third partythird-party financial institutions, held in depository accounts at RJRaymond James Bank, or were otherwise invested by one of our subsidiaries on behalf of RJF. The amount held in depository accounts at RJRaymond James Bank was $192$229 million as of September 30, 2017,2021, of which $152 million was available on demand and without restriction. As of September 30, 2016, $3502020, $185 million was held in depository accounts at RJRaymond James Bank, all of which $108 million was available on demand and without restriction. The Parent cash balance does not include $400 million of cash set aside by RJF in a restricted account during the fiscal fourth quarter of 2021 to be used to fund our closing obligations associated with the pending acquisition of Charles Stanley. This restricted cash is included in “Assets segregated for regulatory purposes and restricted cash.”
See Notes 14, 15,16, 17, 19 and 2124 for more information regarding borrowings, commitments, contingencies and guarantees, and regulatory capital and regulatory requirements of the Parent and its subsidiaries.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents the Parent’s statements of financial condition:condition.
| | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2021 | | 2020 |
Assets: | | | | |
Cash and cash equivalents | | $ | 527 | | | $ | 478 | |
Assets segregated for regulatory purposes and restricted cash ($1 and $1 at fair value) | | 478 | | | 78 | |
Intercompany receivables from subsidiaries (primarily non-bank subsidiaries) | | 877 | | | 1,903 | |
Investments in consolidated subsidiaries: | | | | |
Bank subsidiary | | 2,594 | | | 2,315 | |
Non-bank subsidiaries | | 5,703 | | | 4,306 | |
| | | | |
Goodwill and identifiable intangible assets, net | | 32 | | | 32 | |
Other assets | | 1,055 | | | 818 | |
Total assets | | $ | 11,266 | | | $ | 9,930 | |
Liabilities and equity: | | | | |
Accrued compensation, commissions and benefits | | $ | 798 | | | $ | 596 | |
Intercompany payables to subsidiaries: | | | | |
Bank subsidiary | | 2 | | | 21 | |
Non-bank subsidiaries | | 33 | | | 28 | |
Other payables | | 151 | | | 126 | |
Senior notes payable | | 2,037 | | | 2,045 | |
Total liabilities | | 3,021 | | | 2,816 | |
Equity | | 8,245 | | | 7,114 | |
Total liabilities and equity | | $ | 11,266 | | | $ | 9,930 | |
Of the total intercompany receivable from non-bank subsidiaries, $649 million and $1.70 billion at September 30, 2021 and 2020, respectively, was invested in cash and cash equivalents by the subsidiary on behalf of the Parent.
|
| | | | | | | | |
| | September 30, |
$ in thousands | | 2017 | | 2016 |
Assets: | | | | |
Cash and cash equivalents | | $ | 528,397 |
| | $ | 371,978 |
|
Assets segregated pursuant to regulations | | 40,145 |
| | — |
|
Intercompany receivables from subsidiaries: | | | | |
Bank subsidiary | | 319 |
| | — |
|
Non-bank subsidiaries (1) | | 1,166,765 |
| | 1,228,046 |
|
Investments in consolidated subsidiaries: | | | | |
Bank subsidiary | | 1,823,342 |
| | 1,658,663 |
|
Non-bank subsidiaries | | 3,448,191 |
| | 3,121,410 |
|
Property and equipment, net | | 14,457 |
| | 14,891 |
|
Goodwill and identifiable intangible assets, net | | 31,954 |
| | 31,954 |
|
Other assets | | 624,452 |
| | 611,667 |
|
Total assets | | $ | 7,678,022 |
| | $ | 7,038,609 |
|
| | | | |
Liabilities and equity: | | | | |
Other payables | | $ | 80,576 |
| | $ | 81,340 |
|
Intercompany payables to subsidiaries: | | | | |
Bank subsidiary | | — |
| | 230 |
|
Non-bank subsidiaries | | 52,699 |
| | 13,892 |
|
Accrued compensation and benefits | | 414,195 |
| | 346,015 |
|
Senior notes payable | | 1,548,839 |
| | 1,680,587 |
|
Total liabilities | | 2,096,309 |
| | 2,122,064 |
|
Equity | | 5,581,713 |
| | 4,916,545 |
|
Total liabilities and equity | | $ | 7,678,022 |
| | $ | 7,038,609 |
|
| |
(1) | Of the total receivable from non-bank subsidiaries, $783 million and $457 million at September 30, 2017 and 2016, respectively, was invested in cash and cash equivalents by the subsidiary on behalf of the Parent. |
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents the Parent’s statements of income:income.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2021 | | 2020 | | 2019 |
Revenues: | | | | | | |
Dividends from non-bank subsidiaries | | $ | 257 | | | $ | 634 | | | $ | 632 | |
Dividends from bank subsidiary | | — | | | 130 | | | 190 | |
Interest from subsidiaries | | 9 | | | 18 | | | 31 | |
Interest income | | 1 | | | 3 | | | 7 | |
Other | | 21 | | | 23 | | | 20 | |
Total revenues | | 288 | | | 808 | | | 880 | |
Interest expense | | (97) | | | (87) | | | (75) | |
Net revenues | | 191 | | | 721 | | | 805 | |
Non-interest expenses: | | | | | | |
Compensation, commissions and benefits (1) | | 81 | | | 63 | | | 73 | |
Non-compensations expenses: | | | | | | |
Communications and information processing | | 5 | | | 6 | | | 8 | |
Occupancy and equipment | | 1 | | | 1 | | | 1 | |
Business development | | 19 | | | 18 | | | 20 | |
Losses on extinguishment of debt | | 98 | | | — | | | — | |
Other | | 30 | | | 23 | | | 16 | |
Intercompany allocations and charges | | (14) | | | (16) | | | (24) | |
Total non-compensation expenses | | 139 | | | 32 | | | 21 | |
Total non-interest expenses | | 220 | | | 95 | | | 94 | |
Pre-tax income/(loss) before equity in undistributed net income of subsidiaries | | (29) | | | 626 | | | 711 | |
Income tax benefit | | (99) | | | (58) | | | (31) | |
Income before equity in undistributed net income of subsidiaries | | 70 | | | 684 | | | 742 | |
Equity in undistributed net income of subsidiaries | | 1,333 | | | 134 | | | 292 | |
Net income | | $ | 1,403 | | | $ | 818 | | | $ | 1,034 | |
(1) The year ended September 30, 2020 includes the portion of the reduction in workforce expenses incurred during the fiscal fourth quarter of 2020 that relates to the Parent.
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | 2016 | | 2015 |
Revenues: | | | | | | |
Dividends from non-bank subsidiaries | | $ | 183,347 |
| | $ | 248,020 |
| | $ | 230,853 |
|
Dividends from bank subsidiary | | 125,000 |
| | 75,000 |
| | — |
|
Interest from subsidiaries | | 16,404 |
| | 8,999 |
| | 6,886 |
|
Interest | | 1,838 |
| | 807 |
| | 843 |
|
Other | | 25,323 |
| | 4,654 |
| | 3,823 |
|
Total revenues | | 351,912 |
| | 337,480 |
| | 242,405 |
|
Interest expense | | (94,921 | ) | | (78,089 | ) | | (76,233 | ) |
Net revenues | | 256,991 |
| | 259,391 |
| | 166,172 |
|
| | | | | | |
Non-interest expenses: | | | | | | |
Compensation and benefits | | 61,765 |
| | 54,664 |
| | 46,758 |
|
Communications and information processing | | 8,741 |
| | 6,330 |
| | 5,999 |
|
Occupancy and equipment costs | | 677 |
| | 636 |
| | 800 |
|
Business development | | 18,773 |
| | 18,364 |
| | 17,581 |
|
Losses on extinguishment of debt | | 45,746 |
| | — |
|
| — |
|
Other | | 14,707 |
| | 9,792 |
| | 10,365 |
|
Intercompany allocations and charges | | (30,643 | ) | | (40,424 | ) | | (46,898 | ) |
Total non-interest expenses | | 119,766 |
| | 49,362 |
| | 34,605 |
|
| | | | | | |
Income before income tax benefit and equity in undistributed net income of subsidiaries | | 137,225 |
| | 210,029 |
| | 131,567 |
|
Income tax benefit | | (85,529 | ) | | (64,658 | ) | | (42,688 | ) |
Income before equity in undistributed net income of subsidiaries | | 222,754 |
| | 274,687 |
| | 174,255 |
|
Equity in undistributed net income of subsidiaries | | 413,481 |
| | 254,663 |
| | 327,885 |
|
Net income | | $ | 636,235 |
| | $ | 529,350 |
| | $ | 502,140 |
|
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents the Parent’s statements of cash flows:flows.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2021 | | 2020 | | 2019 |
Cash flows from operating activities: | | | | | | |
Net income | | $ | 1,403 | | | $ | 818 | | | $ | 1,034 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Loss on investments | | 5 | | | 4 | | | 4 | |
Unrealized gain on company-owned life insurance policies, net of expenses | | (157) | | | (50) | | | (5) | |
Equity in undistributed net income of subsidiaries | | (1,333) | | | (134) | | | (292) | |
Losses on extinguishment of debt | | 98 | | | — | | | — | |
Other | | 94 | | | 102 | | | 100 | |
Net change in: | | | | | | |
| | | | | | |
Intercompany receivables | | (14) | | | 126 | | | (51) | |
Other assets | | (35) | | | 24 | | | (16) | |
Intercompany payables | | (14) | | | (70) | | | (22) | |
Other payables | | 15 | | | 24 | | | (1) | |
Accrued compensation, commissions and benefits | | 202 | | | 73 | | | 34 | |
Net cash provided by operating activities | | 264 | | | 917 | | | 785 | |
| | | | | | |
Cash flows from investing activities: | | | | | | |
Investments in subsidiaries | | (420) | | | (106) | | | (24) | |
(Advances to)/repayments from subsidiaries, net | | 1,039 | | | (885) | | | 63 | |
Proceeds from sales of investments | | 2 | | | 9 | | | 3 | |
Purchase of investments in company-owned life insurance policies, net | | (36) | | | (55) | | | (44) | |
Net cash provided by/(used in) investing activities | | 585 | | | (1,037) | | | (2) | |
| | | | | | |
Cash flows from financing activities: | | | | | | |
Purchase of treasury stock | | (128) | | | (272) | | | (778) | |
Dividends on common stock | | (218) | | | (205) | | | (191) | |
Exercise of stock options and employee stock purchases | | 53 | | | 62 | | | 65 | |
Proceeds from senior note issuances, net of debt issuance costs paid | | 737 | | | 494 | | | — | |
Extinguishment of senior notes payable | | (844) | | | — | | | — | |
Proceeds from borrowing on the RJF Credit Facility | | — | | | — | | | 300 | |
Repayment of borrowings on the RJF Credit Facility | | — | | | — | | | (300) | |
| | | | | | |
Net cash provided by/(used in) financing activities | | (400) | | | 79 | | | (904) | |
Net increase/(decrease) in cash and cash equivalents | | 449 | | | (41) | | | (121) | |
Cash and cash equivalents, including those segregated for regulatory purposes and restricted cash at beginning of year | | 555 | | | 596 | | | 717 | |
Cash and cash equivalents, including those segregated for regulatory purposes and restricted cash at end of year | | $ | 1,004 | | | $ | 555 | | | $ | 596 | |
| | | | | | |
Cash and cash equivalents | | $ | 527 | | | $ | 478 | | | $ | 540 | |
Cash and cash equivalents segregated for regulatory purposes and restricted cash | | 477 | | | 77 | | | 56 | |
Total cash and cash equivalents, including those segregated for regulatory purposes and restricted cash at end of year | | $ | 1,004 | | | $ | 555 | | | $ | 596 | |
| | | | | | |
Supplemental disclosures of cash flow information: | | | | | | |
Cash paid for interest | | $ | 89 | | | $ | 72 | | | $ | 78 | |
Cash paid for income taxes, net | | $ | 35 | | | $ | 32 | | | $ | 42 | |
| | | | | | |
Supplemental disclosures of noncash activity: | | | | | | |
Investments in subsidiaries, net | | $ | — | | | $ | — | | | $ | (43) | |
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in thousands | | 2017 | | 2016 | | 2015 |
Cash flows from operating activities: | | | | | | |
Net income | | $ | 636,235 |
| | $ | 529,350 |
| | $ | 502,140 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Gain on investments | | (14,588 | ) | | (11,538 | ) | | (5,586 | ) |
(Gain)/loss on company-owned life insurance | | (47,920 | ) | | (25,642 | ) | | 8,960 |
|
Equity in undistributed net income of subsidiaries | | (413,481 | ) | | (254,663 | ) | | (327,885 | ) |
Loss on extinguishment of senior notes payable | | 45,746 |
| | — |
| | — |
|
Other | | 97,616 |
| | 73,798 |
| | 60,634 |
|
Net change in: | | | | | | |
Assets segregated pursuant to regulations | | (40,145 | ) | | — |
| | — |
|
Intercompany receivables | | 178,631 |
| | 19,641 |
| | (102,866 | ) |
Other | | 80,561 |
| | 97,067 |
| | 51,442 |
|
Intercompany payables | | 38,577 |
| | (115,657 | ) | | 20,338 |
|
Other payables | | (764 | ) | | 2,396 |
| | (49 | ) |
Accrued compensation and benefits | | 68,180 |
| | 58,520 |
| | 2,911 |
|
Net cash provided by operating activities | | 628,648 |
| | 373,272 |
| | 210,039 |
|
| | | | | | |
Cash flows from investing activities: | | | | | | |
(Investments in)/distributions from subsidiaries, net | | (36,520 | ) | | (637,689 | ) | | (9,493 | ) |
Advances to subsidiaries, net | | (117,670 | ) | | (394,383 | ) | | (40,120 | ) |
Proceeds from sales/(purchases) of investments, net | | 4,836 |
| | 24,609 |
| | (4,601 | ) |
Purchase of investments in company-owned life insurance, net | | (40,661 | ) | | (49,488 | ) | | (44,917 | ) |
Net cash used in investing activities | | (190,015 | ) | | (1,056,951 | ) | | (99,131 | ) |
| | | | | | |
Cash flows from financing activities: | | | | | | |
Proceeds from senior note issuances, net of debt issuance costs paid | | 508,473 |
| | 792,221 |
| | — |
|
Extinguishment of senior notes payable | | (650,000 | ) | | (250,000 | ) | | — |
|
Premium paid on extinguishment of senior notes payable | | (36,892 | ) | | — |
| | — |
|
Exercise of stock options and employee stock purchases | | 57,462 |
| | 43,331 |
| | 47,964 |
|
Purchase of treasury stock | | (34,055 | ) | | (162,502 | ) | | (88,542 | ) |
Dividends on common stock | | (127,202 | ) | | (113,435 | ) | | (103,143 | ) |
Net cash provided by/(used in) financing activities | | (282,214 | ) | | 309,615 |
| | (143,721 | ) |
Net increase/(decrease) in cash and cash equivalents | | 156,419 |
| | (374,064 | ) | | (32,813 | ) |
Cash and cash equivalents at beginning of year | | 371,978 |
| | 746,042 |
| | 778,855 |
|
Cash and cash equivalents at end of year | | $ | 528,397 |
| | $ | 371,978 |
| | $ | 746,042 |
|
| | | | | | |
Supplemental disclosures of cash flow information: | | | | | | |
Cash paid for interest | | $ | 98,554 |
| | $ | 74,568 |
| | $ | 76,297 |
|
Cash paid for income taxes, net | | $ | 92,568 |
| | $ | 27,397 |
| | $ | 32,383 |
|
| | | | | | |
Supplemental disclosures of noncash activity: | | | | | | |
Investments in subsidiaries, net | | $ | 24,352 |
| | $ | 781 |
| | $ | 507 |
|
Losses on extinguishment of debt | | $ | 8,854 |
| | $ | — |
| | $ | — |
|
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
SUPPLEMENTARY DATA:
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
|
| | | | | | | | | | | | | |
| | Fiscal Year 2017 |
$ in thousands, except per share amounts | | 1st Qtr. | 2nd Qtr. | 3rd Qtr. | 4th Qtr. |
Total revenues | | $ | 1,528,768 |
| $ | 1,600,314 |
| $ | 1,663,107 |
| $ | 1,732,686 |
|
Net revenues | | $ | 1,492,802 |
| $ | 1,563,637 |
| $ | 1,624,547 |
| $ | 1,690,111 |
|
Non-interest expenses | | $ | 1,285,287 |
| $ | 1,402,334 |
| $ | 1,347,606 |
| $ | 1,407,892 |
|
Income including noncontrolling interests and before provision for income taxes | | $ | 207,515 |
| $ | 161,303 |
| $ | 276,941 |
| $ | 282,219 |
|
Net income attributable to Raymond James Financial, Inc. | | $ | 146,567 |
| $ | 112,755 |
| $ | 183,424 |
| $ | 193,489 |
|
Earnings per common share - basic | | $ | 1.03 |
| $ | 0.78 |
| $ | 1.27 |
| $ | 1.34 |
|
Earnings per common share - diluted | | $ | 1.00 |
| $ | 0.77 |
| $ | 1.24 |
| $ | 1.31 |
|
Cash dividends per common share - declared | | $ | 0.22 |
| $ | 0.22 |
| $ | 0.22 |
| $ | 0.22 |
|
|
| | | | | | | | | | | | | |
| | Fiscal Year 2016 |
$ in thousands, except per share amounts | | 1st Qtr. | 2nd Qtr. | 3rd Qtr. | 4th Qtr. |
Total revenues | | $ | 1,300,857 |
| $ | 1,341,110 |
| $ | 1,386,997 |
| $ | 1,492,156 |
|
Net revenues | | $ | 1,274,158 |
| $ | 1,312,001 |
| $ | 1,358,964 |
| $ | 1,459,941 |
|
Non-interest expenses | | $ | 1,104,085 |
| $ | 1,117,893 |
| $ | 1,154,110 |
| $ | 1,217,032 |
|
Income including noncontrolling interests and before provision for income taxes | | $ | 170,073 |
| $ | 194,108 |
| $ | 204,854 |
| $ | 242,909 |
|
Net income attributable to Raymond James Financial, Inc. | | $ | 106,329 |
| $ | 125,847 |
| $ | 125,504 |
| $ | 171,670 |
|
Earnings per common share - basic | | $ | 0.74 |
| $ | 0.89 |
| $ | 0.89 |
| $ | 1.21 |
|
Earnings per common share - diluted | | $ | 0.73 |
| $ | 0.87 |
| $ | 0.87 |
| $ | 1.19 |
|
Cash dividends per common share - declared | | $ | 0.20 |
| $ | 0.20 |
| $ | 0.20 |
| $ | 0.20 |
|
As a result of our October 1, 2016 adoption of the new consolidation guidance, we deconsolidated a number of tax credit fund variable interest entities (“VIEs”) that had been previously consolidated. We applied the new consolidation guidance on the full retrospective basis, meaning that we have reflected the adjustments arising from this adoption for fiscal year 2016 presented above. See Note 2 in the Notes to the Consolidated Financial Statements for additional information.
| |
Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ItemITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls are procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this report, are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed to ensure that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Securities Exchange Act of 1934 Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the year ended September 30, 20172021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGReport of Management on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes maintaining records that, in reasonable detail, accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of our assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework (2013) issued by COSO. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of September 30, 2017.2021. KPMG LLP, who audited and reported on our consolidated financial statements included in this report, has issued an attestation report on our internal control over financial reporting as of September 30, 20172021 (included as follows).
Report of Independent Registered Public Accounting Firm
TheTo the Shareholders and Board of Directors and Shareholders
Raymond James Financial, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Raymond James Financial, Inc.’s and subsidiaries’ (the “Company” or “Raymond James”)Company) internal control over financial reporting as of September 30, 2017,2021, based on criteria established inInternal Control -– Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial condition of the Company as of September 30, 2021 and 2020, the related consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended September 30, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated November 23, 2021 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying reportReport of managementManagement on internal control over financial reporting.Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Raymond James maintained, in all material respects, effective internal control over financial reporting as of September 30, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial condition of Raymond James as of September 30, 2017 and 2016, and the related consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended September 30, 2017, and our report dated November 21, 2017 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Tampa, Florida
November 21, 201723, 2021
Certified Public Accountants
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
ItemITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
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Item 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
A list of our executive officers appears in Part I, Item 1 of this report. The balance of the information required by Item 10 is incorporated herein by reference to the registrant’s definitive proxy statement for the 20182022 Annual Meeting of Shareholders which will be filed with the SEC no later than 120 days after the close of the fiscal year ended September 30, 2017.2021.
ItemITEMS 11, 12, 13 and 14.
The information required by Items 11, 12, 13 and 14 is incorporated herein by reference to the registrant’s definitive proxy statement for the 20182022 Annual Meeting of Shareholders which will be filed with the SEC no later than 120 days after the close of the fiscal year ended September 30, 2017.2021.
PART IV
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Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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(a) | Financial Statements and Schedules |
(a) Financial Statements and Schedules
The financial statements are set forth under Item 8 of this Annual Report on Form 10-K. Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included.
(b) Exhibit listing
See below and continued on the following pages.
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Exhibit Number | | Description |
3.12.1 | | Agreement and Plan of Merger, dated October 20, 2021, among Raymond James Financial, Inc., Macaroon One LLC, Macaroon Two LLC and TriState Capital Holdings, Inc., incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 26, 2021. |
3.1 | | |
3.2 | | |
4.1 | | |
4.2.1 | | |
4.2.2 | | Fourth Supplemental Indenture, dated as of March 26, 2012, for the 5.625% Senior Notes Due 2024, between Raymond James Financial, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 26, 2012. |
4.2.3 | | Fifth Supplemental Indenture, dated as of July 12, 2016, for the 3.625% Senior Notes Due 2026, between Raymond James Financial, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 12, 2016. |
4.2.4 | | Sixth Supplemental Indenture, dated as of July 12, 2016, for the 4.950% Senior Notes Due 2046, between Raymond James Financial, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 12, 2016. |
4.2.54.2.3 | | Sixth (Reopening) Supplemental Indenture, dated as of May 10, 2017, for the 4.950% Senior Notes due 2046, between Raymond James Financial, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 10, 2017. |
4.2.4 | | Seventh Supplemental Indenture, dated as of March 31, 2020, for the 4.650% Senior Notes due 2030, between Raymond James Financial, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 31, 2020. |
4.2.5 | | Eighth Supplemental Indenture, dated as of April 1, 2021, for the 3.750% Senior Notes due 2051, between Raymond James Financial, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 2, 2021. |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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Exhibit Number | | Description |
10.1 | * | |
10.2 | | |
10.310.2 | * | |
10.4 | * | |
10.5 | * | |
10.6 | * | |
10.7.1 | * | |
10.7.2 | * | |
10.7.3 | * | |
10.8 | | |
10.910.3.1 | * | |
10.10 | * | |
10.11.1 | | |
10.11.2 | | First Amendment to Revolving Credit Agreement, dated as of June 8, 2016, among Raymond James Financial, Inc., the Lenders party thereto, and Bank of America, N.A.20, 2020), incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 9, 2016.February 24, 2020. |
10.11.310.3.2 | * | |
10.12.1 | * | |
10.12.2 | * | |
10.12.3 | * | |
10.12.410.3.3 | * | |
10.12.5 | * | |
10.12.610.3.4 | * | |
10.12.710.3.5 | * | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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Exhibit Number | | Description |
10.12.8 | * | |
10.12.9 | * | |
10.12.10 | * | |
10.12.11 | * | |
10.12.12 | * | |
10.12.1310.3.6 | * | |
10.12.1410.3.7 | | |
10.1310.3.8 | * | |
10.3.9 | * | |
10.3.10 | * | |
10.3.11 | * | |
10.3.12 | * | |
10.3.13 | * | |
10.3.14 | * | |
10.3.15 | * | |
10.3.16 | * | |
10.3.17 | * | |
10.3.18 | * | |
10.4 | * | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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Exhibit Number | | Description |
10.5 | * | |
10.6 | * | |
10.1410.7.1 | | SettlementCredit Agreement, and Release, dated April 13, 2017,as of February 19, 2019, among Michael I. Goldberg, as receiver, Thomas A. Tucker Ronzetti, Harley S. Tropin, and Kozyak Tropin & Throckmorton, LLP, as interim class counsel, andRaymond James Financial, Inc., Raymond James & Associates, Inc., the Lenders party thereto and Bank of America, N.A., incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 22, 2019. |
10.7.2 | | First Amendment to Credit Agreement, dated as of May 23, 2019, among Raymond James Financial, Inc., Raymond James & Associates, Inc., the Lenders party thereto and Bank of America, N.A., incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on August 8, 2019. |
10.7.3 | | Second Amendment to Credit Agreement, dated as of May 27, 2020, among Raymond James Financial, Inc., Raymond James & Associates, Inc., the Lenders party thereto and Bank of America, N.A., incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on August 7, 2020. |
10.7.4 | | Third Amendment to Credit Agreement, dated as of April 19, 2021, among Raymond James Financial, Inc., Raymond James & Associates, Inc., the Lenders party thereto and Bank of America, N.A., incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 22, 2021. |
10.8 | * | |
10.9 | | Support Agreement, dated October 20, 2021, by and among James F. Getz, Brian S. Fetterolf, Raymond James Financial, Inc., Macaroon One LLC and, solely for purposes of the last sentence of Section 9 thereof, TriState Capital Holdings, Inc., incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 13, 2017.October 26, 2021. |
1110.10 | | Statement re Computation of per Share Earnings (the calculation of per share earnings is included in Part II, Item 8, Note 23 in the Notes to Consolidated Financial Statements (Earnings Per Share) and is omitted here in accordance with Section (b)(11) of Item 601 of Regulation S-K). |
12 | | StatementSupport Agreement, dated October 20, 2021, by and among T-VIII PubOpps LP, Raymond James Financial, Inc., Macaroon One LLC and, solely for purposes of Computationthe last sentence of Ratio of EarningsSection 9 and Section 10(c) thereof, TriState Capital Holdings, Inc., incorporated by reference to Fixed ChargesExhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Preferred Stock Dividends.Exchange Commission on October 26, 2021. |
21 | | |
23 | | |
31.1 | | |
31.2 | | |
32 | | |
101.INS | | XBRL Instance Document.Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document. |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 | | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
* Indicates a management contract or compensatory plan or arrangement in which a director or executive officer participates.
ITEM 16. FORM 10-K SUMMARY
None.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Petersburg, State of Florida, on the 21st23rd day of November, 2017.
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RAYMOND JAMES FINANCIAL, INC. |
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RAYMOND JAMES FINANCIAL, INC. |
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By: /s/ PAUL C. REILLY |
Paul C. Reilly, Chairman and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
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Signature | Title | Date |
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/s/ PAUL C. REILLY | Chairman and Chief Executive Officer (Principal Executive Officer) and Director | November 21, 201723, 2021 |
Paul C. Reilly | | |
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/s/ JEFFREY P. JULIENPAUL M. SHOUKRY | Executive Vice President - Finance, Chief Financial Officer and Treasurer (Principal Financial Officer) and Treasurer | November 21, 201723, 2021 |
Jeffrey P. JulienPaul M. Shoukry | | |
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/s/ JENNIFER C. ACKART JONATHAN W. OORLOG, JR. | Senior Vice President and Controller (Principal Accounting Officer) | November 21, 201723, 2021 |
Jennifer C. AckartJonathan W. Oorlog, Jr. | | |
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/s/ THOMAS A. JAMES | Chairman Emeritus and Director | November 21, 201723, 2021 |
Thomas A. James | | |
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/s/ CHARLES G. VON ARENTSCHILDTMARLENE DEBEL | Director | November 21, 201723, 2021 |
Charles G. von ArentschildtMarlene Debel | | |
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/s/ SHELLEY G. BROADERROBERT M. DUTKOWSKY | Director | November 21, 201723, 2021 |
Shelley G. BroaderRobert M. Dutkowsky | | |
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/s/ JEFFREY N. EDWARDS | Director | November 21, 201723, 2021 |
Jeffrey N. Edwards | | |
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/s/ BENJAMIN C. ESTY | Director | November 21, 201723, 2021 |
Benjamin C. Esty | | |
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/s/ ANNE GATES | Director | November 23, 2021 |
Anne Gates | | |
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/s/ FRANCIS S. GODBOLD | Vice Chairman and Director | November 21, 201723, 2021 |
Francis S. Godbold | | |
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/s/ GORDON L. JOHNSON | Director | November 21, 201723, 2021 |
Gordon L. Johnson | | |
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/s/ RODERICK C. MCGEARY | Director | November 21, 201723, 2021 |
Roderick C. McGeary | | |
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/s/ ROBERT P. SALTZMANRAJ SESHADRI | Director | November 21, 201723, 2021 |
Robert P. SaltzmanRaj Seshadri | | |
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/s/ SUSAN N. STORY | Director | November 21, 201723, 2021 |
Susan N. Story | | |