RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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”).
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.
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 isoptions are designed to help our advisors build their businesses with as much or as little of our support as they determine they need. Independent contractor financial advisors may affiliate with us directly or through an affiliated bank or credit union in our Financial Institutions Division. 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.
Securities commissions and fee revenues by affiliation, as well as the portion of segment net revenues that was recurring versus transactional in nature, for the fiscal year ended September 30, 2017, are presented below:
4
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
PCG segment net revenues for the fiscal year ended September 30, 2022 are presented in the following graph.
Through
Net Revenues — $7.71 billion
* Included in “Brokerage revenues” on our Consolidated Statements of Income and Comprehensive Income.
We 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.
•Insurance and annuity products.
•Mutual funds.
•Support to third-party mutual fund and annuity companies, 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 fees from our Bank segment, which are based on the greater of a base servicing fee chargedor net yield equivalent to the client for investment advice.average yield that the firm would otherwise receive from third-party banks in the RJBDP. These fees are eliminated in consolidation.
We provide insurance and annuity products.
We offer a number of professionally managed load and no-load mutual funds.
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
•Custodial services, trade execution, research and products for portfolio investment allocation opportunities.other support and services to third-party RIAs and broker-dealers.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CAPITAL MARKETS
Capital 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 and funds of a similar nature, the majority of which qualify for tax credits (referred to as our “tax credit funds”)“affordable housing investments” business). Within our management structure, we distinguish between activities that support equity and fixed income products and services. We primarily conduct these activities in the U.S., Canada, and Europe.
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, 2017:2022 are presented in the following graph.
Net Revenues — $1.81 billion* Included in “Investment banking” on our Consolidated Statements of Income and Comprehensive Income.
We provide the following products and services through this segment.
Investment banking
•Merger & acquisition and advisory - We provide a comprehensive range of strategic and financial advisory assignments, including with respect to mergers and acquisitions, divestitures and restructurings, across a number of industries throughout the U.S., Canada, and Europe.
•Equity underwriting - We provide public and private equity financing services, including the underwriting and placement 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 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 and higher education institutions.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Brokerage
We provide the following services through this segment:
Equity Capital Markets
•Fixed income - 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 & acquisition and advisory services. Our investment banking activities include a comprehensive range of strategic and financial advisory services tailored to our clients’ business life cycles and backed by our strategic industry focus.
Our global research department supports our institutional and retail sales efforts and publishes research on a wide variety of companies. This research primarily focuses on U.S., European and Canadian companies in specific industries, including agricultural, consumer, energy, clean energy, energy services, financial services, 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.
Fixed 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 onloans, as well as from our market-making activities in fixed income products are based on trade size and the characteristics of the specific security involved.
debt securities. 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.such 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 localretail sales efforts and publishes research on a wide variety of 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.
Affordable housing finance agencies (“HFA”) clients and consist of the mortgages originated through their lending programs.investments business
Tax Credit 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 our Raymond James Investment Management division (“Raymond James Investment Management,” formerly referred to as Carillon Tower Advisers), for certain retail accounts managed on behalf of third-party institutions, institutional accounts, and proprietary mutual funds that we manage, generally using active portfolio management strategies.
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 Raymond James Investment Management, 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 distinct services provided and the level of assets within each client relationship. The fee rates applied in accordance with such programs’ objectives. In non-discretionary asset-based programs, we provideRaymond James Investment Management 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 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).
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 programsRaymond James Investment Management AUM by objective as of September 30, 2017:2022 are presented in the following graphs.
RJ BANKBank
RJOur Bank providessegment reflects the results of our banking operations, including the results of Raymond James Bank, a Florida-chartered state bank and Fed member bank, and TriState Capital Bank, a Pennsylvania-chartered state bank, which was acquired on June 1, 2022 in our acquisition of TriState Capital Holdings, Inc. (“TriState Capital”). We provide various types of loans, including securities-based loans (“SBL”), corporate loans (commercial and industrial (“C&I”), commercial real estate (“CRE”) and CRE construction)real estate investment trust (“REIT”) loans), securities-based (“SBL”),residential mortgage loans, and tax-exempt and residential loans. RJOur Bank segment is active in corporate loan syndications and participations. RJ Bankparticipations and lending directly to clients. We also providesprovide Federal Deposit Insurance Corporation (“FDIC”) insured-insured deposit accounts, including to clients of our broker-dealer subsidiaries, and to the general public. RJother deposit and liquidity management products and services. The Bank segment generates net interest revenueincome 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.
RJ Bank operates primarily from a branch location adjacent to RJF’sAs of September 30, 2022, 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%37% of RJ Bank’s loan portfolio,the Bank segment’s total assets, and 73% 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. RJ Bank’sThe Bank segment’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. RJ Bank’sThe Bank segment’s liabilities primarily consist of cash deposits, including those at Raymond James Bank that are cash balancesprimarily swept from the investment accounts of PCG clients.clients through the RJBDP, as well as those at TriState Capital Bank, which are primarily money market and interest-bearing checking accounts. The Bank segment’s liabilities also include borrowings from the Federal Home Loan Bank (“FHLB”).
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
RJThe following graph details the composition of our Bank hadsegment’s total assets as of $20.61 billion at September 30, 2017, which were comprised of the following:2022.
Bank Segment Total Assets — $56.74 billion
OTHER
Other
Our Other segment includes our private equity activities as well asinvestments, which predominantly consist of investments in third-party funds, interest income on certain corporate cash balances, certain acquisition-related expenses, primarily comprised of professional fees, and certain corporate overhead costs of RJF, such asincluding the interest costcosts on our senior notes payable,public debt and the acquisition and integration costs associated with certain acquisitions (See Note 3any losses on extinguishment of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K (“Form 10-K”) for additional information on our acquisitions).such debt.
HUMAN CAPITAL
Our private equity activities“associates” (which include various directour employee financial advisors and third party private equity investmentsall of our other employees) and various private equity funds whichour independent contractor financial advisors (which we sponsor.
EMPLOYEES AND INDEPENDENT CONTRACTORS
Our employees and independent contractors (collectively “associates”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 and workplace flexibility, 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, 2017,2022, we had over 12,700 employeesapproximately 17,000 associates (including 3,638 employee financial advisors) and over 4,300 affiliated5,043 independent advisors. The growth in the number of associates compared to the prior year was due in part to our acquisitions completed during fiscal 2022. 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, 44% self-identify as women, and among our U.S.-based associates, 19% self-identify as ethnically diverse.
Culture
We strive to attract individuals who are people-focused and share our values. Our values are memorialized in a document we refer to as our culture “blueprint” that is communicated to all associates. 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
One way in which we measure the health of our culture is through firmwide short and targeted surveys in which we routinely ask our associates about their experiences at the firm. Feedback provided through these surveys is also used to create and continually enhance programs that support our associates’ needs.
Diversity, equity, 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 contribute to an inclusive work environment, and offer mentorship opportunities to our associates. In order to continue to promote and advance inclusion, we have recently launched or expanded certain programs, such as:
•the Pride Financial Advisor Network, which provides support and resources for LGBTQ+ advisors through educational programs, interactive networking and business development opportunities;
•the Encore Inclusion Network, which provides support and opportunities for the growing mature workforce; and
•the Veteran Financial Advisors Network, which is dedicated to supporting armed services veterans in the development of their careers as financial advisors.
We also invest in community-supporting organizations that are dedicated to improving the lives of diverse individuals. Our firmwide diversity, equity, 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 internships to selected college students, professionals returning to the workforce, and veterans, 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, which includes touch points throughout the year. 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. 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 pool 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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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, 2022, was approximately 1%.
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 well-being 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 corporate offices in St. Petersburg, Florida and Memphis, Tennessee, which include health clinics and a fitness center. Additionally, following our return to office from the COVID-19 pandemic, we have offered more workplace flexibility to our associates as we continue to evaluate our long-term workplace strategy.
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.
After successfully implementing business continuity protocols at the onset of the COVID-19 pandemic, and the following period of working remotely, we implemented our return to office strategy during our fiscal second quarter of 2022. We have also developed a business continuity plan for each ofoffered more workplace flexibility to our PCG retail branches in the event any of these branches is impacted by severe weather.associates as we continue to evaluate our long-term workplace strategy.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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. Furthermore, the labor market continues to experience elevated levels of turnover in the aftermath of the pandemic and an extremely competitive labor market, including increased competition for talent across all areas of our business, as well as increased competition with non-traditional competitors, such as technology companies. Employers are increasingly offering guaranteed contracts, upfront payments, increased compensation and increased opportunities to work with greater flexibility, including remote work, on a permanent basis.
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 RJour bank subsidiaries, Raymond James Bank and TriState Capital Bank, our broker-dealer subsidiaries, and our trust 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. These changesChanges in business regulations, as well as in both corporate and individual taxation, 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
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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.
We have two depository institutions, Raymond James Bank and TriState Capital Bank (collectively, “our bank subsidiaries”). Raymond James Bank is an FDIC-insured depository institution and a Florida-chartered state member bank of the moreFed that is primarily supervised by both the Fed and the Florida Office of Financial Regulation (“OFR”). TriState Capital Bank is a FDIC-insured depository institution and a Pennsylvania-chartered state non-member bank that is primarily supervised by both the FDIC and the Pennsylvania Department of Banking and Securities (“PDBS”). Both Raymond James Bank and TriState Capital Bank are also subject to supervision by 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 Office of the Comptroller of the Currency (“OCC”), and Raymond James Trust Company of New Hampshire (“RJTCNH”) which is regulated, supervised, and examined by the New Hampshire Banking Department (“NHBD”). RJTCNH provides Individual Retirement Account custodial services and trust services for our PCG clients.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Collectively, the rules and regulations of the Fed, the FDIC, the OFR, the PDBS, the CFPB, the OCC and the NHBD result in extensive regulation and supervision covering 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 FDIC, the OFR, the PDBS, the CFPB, the OCC and the NHBD conduct extensive examinations of our operations and also have the power to bring enforcement actions for violations of law and, in the case of the Fed, the FDIC, the OFR, the PDBS, the OCC, and the NHBD for unsafe or unsound practices.
Basel III and U.S. capital rules
RJF and Raymond James Bank are subject to the Fed’s capital rules and TriState Capital Bank is subject to the FDIC’s capital rules. These rules 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, for insured depository institutions, set the prompt corrective action framework discussed below to reflect the regulatory capital requirements (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. These 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. See Note 24 of the Notes to Consolidated Financial Statements of this Form 10-K for further 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, Raymond James Bank, and TriState Capital 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, Raymond James Bank, and TriState Capital 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, Raymond James Bank, and TriState Capital 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.
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 and TriState Capital Bank in the future should either bank experience financial distress.
Transactions between affiliates
Transactions between (i) Raymond James Bank, TriState Capital 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 generally do not apply to transactions between Raymond James Bank, TriState Capital Bank, RJ Trust, and any subsidiaries they may have.
RAYMOND JAMES FINANCIAL, INC. AND 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 providesand TriState Capital Bank are subject to the Federal Deposit Insurance Act because they provide 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 Raymond James Bank and TriState Capital Bank, the FDIC’s new rule changed thecurrent assessment rate calculation which relies on a scorecard designed to measure a bank’s financial performance and ability to withstand stress, in addition to measuring the FDIC’s exposure should the bankRaymond James Bank or TriState Capital 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 and TriState Capital 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,liable for civil money damages for failure to fulfill its commitments on that guarantee. Furthermore, in the event of the bankruptcy of the BHC, this guarantee would take priority over the BHC’s general unsecured creditors. As of September 30, 2022, Raymond James Bank and severely adverse) prescribed by the Fed. A summary of certain 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 into this report).TriState Capital Bank were 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, but permits underwriting, market making, and limits investmentsrisk-mitigating hedging activities. The Volcker Rule also prohibits BHCs and their subsidiaries and affiliates from acquiring or retaining ownership interests in, andsponsoring, or having certain relationships with “covered funds” (as defined in the rule), including hedge funds and private equity funds, (“covered funds”). Banking entities must establish a Volcker Rule-specific compliance program. We have adopted a program, which is designedsubject to be effectivecertain exceptions.
Compensation practices
Our compensation practices are subject to oversight by the Fed. Compensation regulation in ensuring compliance with the Volcker Rule; however, in connection with their examinations, regulators will assess the sufficiencyfinancial industry continues to evolve, and adequacy of our program.
We maintainwe expect these regulations to change over a number of private equity investments, someyears. The U.S. federal bank regulatory agencies have provided guidance designed to ensure incentive compensation policies do not encourage imprudent risk-taking and are consistent with safety and soundness. As required by SEC rules, we disclose in our proxy statements for each annual meeting of which meetshareholders the definitionrelationship of covered funds underour compensation policies and practices to risk management initiatives, to the Volcker Rule. The conformance period for compliance withextent that the risks arising from such policies and practices are reasonably likely to have a material adverse effect on the firm.
On August 25, 2022, the SEC adopted the final “pay-for-performance” rule mandated by the Dodd-Frank Act. Among other disclosure requirements, the rule with respectrequires companies 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 meetdisclose 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.
Basel III and U.S. Capital Rules
Both RJF, as a bank holding company, and RJ Bank are subject to capital requirements that have increased due to regulatory actions in recent years. 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 Supervisionrelationships among named executive officer compensation “actually paid,” total shareholder return and certain Dodd-Frank Act and other capital provisions and updatedfinancial performance measures that the prompt corrective action frameworkcompany uses to reflectlink compensation to company performance for its five most recent fiscal years. The rule will first apply to disclosures in our proxy statement for 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 applicable2024 annual shareholders meeting.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Community Reinvestment Act regulations
phase-in periods. The rules governing the capital conservation buffer became effective for both RJF
Raymond James Bank and RJ Bank 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.
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 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 RJTriState Capital Bank are also subject to the qualitative judgmentsCRA, which is intended to encourage banks to help meet the credit needs of U.S. regulators based on components of capital, risk-weightings of assets, off-balance sheet transactions,their communities, including low and other factors. Quantitative measures established bymoderate income neighborhoods, consistent with safe and sound bank operations. Under the CRA, federal banking regulationsregulators are required to ensure capital adequacy require that RJF, asperiodically examine and assign to each bank a financial holding company, and RJ Bankpublic CRA rating. If any insured depository institution subsidiary of a FHC fails to 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 requiredat least a “satisfactory” rating under the Dodd-Frank Act,CRA, 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 shouldFHC would be subject to restrictions on certain new activities and acquisitions.
On May 5, 2022, federal banking regulators requested comment on a standardjoint notice of care similar toproposed rulemaking on the fiduciary standard applicable to registered investment advisors. The SEC has stated that itCRA. Until the proposed rulemaking is final and effective, Raymond James Bank and TriState Capital Bank will consider a heightened standard of care; however, to date, it has not yet proposed any rules. In April 2016, 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, including the Best Interest Contract exemption (the “BIC Exemption”) and Principal Transactions in Certain Assets exemption (the “Principal Transactions Exemption”), designed to enable investment professionals that become fiduciaries to continue to operate under existing business modelsthe CRA regulations currently in effect. At this time, it is uncertain what effect the impending CRA regulations will have on Raymond James Bank, TriState Capital Bank, and other depositories with respect to their CRA activities.
Other restrictions
FHCs, such as RJF, generally can engage in a broader range of financial and related activities than are otherwise permissible for BHCs as long as they continue to meet the eligibility requirements 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 banking and other financial activities both within and outside the U.S.
The Fed, however, has the authority to limit an FHC’s ability to conduct 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;
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 most significant U.S. broker-dealers, RJ&A, RJFS, and RJFSSumRidge Partners, LLC (“SumRidge Partners”), 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, the U.K., and Germany 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”) in the U.S., 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 single primary regulator with respect to our conduct of financial services in the U.K. is the Financial Conduct Authority (“FCA”), which operates on a statutory basis.
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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 regulationa standard of care similar to the fiduciary standard applicable to RIAs. In June 2019, the SEC adopted a package of rule-makings and interpretations related to the provision of advice by various foreign governments,broker-dealers and investment advisers, including Regulation 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 exchanges, central bankstransaction or investment strategy involving securities. Form CRS requires that broker-dealers and regulatory bodies, particularly in those countries where they have established offices. Outsideinvestment advisers provide retail investors with a brief summary document containing simple, easy-to-understand information about the nature of the United States, we have additional offices primarily in Canada and Europe and are subject torelationship between the parties. Our implementation of these regulations in those areas. Much of the regulation of broker-dealersresulted in the United Statesreview and Canada, however, has been delegated to self-regulatory organizations (“SROs”), the Financial Industry Regulatory Authority (“FINRA”), the Investment Industry Regulatory Organizationmodification 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 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 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
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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.
Our investment advisory operations, including the mutual funds that we sponsor, are also subject to extensive regulation in the United States. Our U.S. asset managers are registered as investment advisors with the SEC under the Investment Advisers Act 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 alsoan investment advice “fiduciary” when dealing with certain retirement plans and accounts. In 2022, the DOL promulgated a new exemption that enables investment advice fiduciaries to receive transaction-based compensation and engage in certain otherwise prohibited transactions, subject to the Community Reinvestment Act (the “CRA”). The CRA 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 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 performance under the CRA; such comments will form part of the bank’s performance evaluation. The results of the evaluation, togethercompliance with the bank’s CRA rating,exemption’s requirements. In addition, the DOL is expected to amend the five-part test by the end of 2023 so that the fiduciary standard would apply to a broader range of client relationships. Imposing such a new standard of 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 NotesU.K. which has a highly developed and comprehensive regulatory regime. These subsidiaries are authorized and regulated by the FCA and have limited permissions to Consolidatedcarry out business in certain European Union (“E.U.”) countries as part of treaty arrangements. The FCA operates on a statutory basis and creates rules which are largely principles-based. These regulated U.K. subsidiaries and their senior managers are registered with the FCA, and wealth managers and certain other staff are subject to certification requirements. Certain of these subsidiaries operate in the retail sector, providing investment and financial planning services to high-net-worth individuals, while others provide brokerage and investment banking services to institutional clients. Retail clients of our U.K. subsidiaries benefit from the Financial Statements in this Form 10-KOmbudsman Service, which settles complaints between consumers and business that provide financial services, as well as the Financial Services Compensation Scheme, which is the U.K.’s statutory deposit insurance and investors compensation scheme for further information on SEC, FINRA and IIROC regulations pertaining to broker-dealer regulatory minimum net capital requirements.customers of authorized financial services firms.
In Europe,Germany, our subsidiary Raymond James Corporate Finance GmbH is licensed by the MarketsGerman Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, or "BaFin") to conduct the regulated activities of investment advice and investment brokerage. Among other requirements, BaFin requires Raymond James Corporate Finance
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
GmbH, as a regulated entity, to comply with certain capital, liquidity, governance, and business conduct requirements, and has a range of supervisory and disciplinary powers which it is able to use in Financial Instruments Regulation and a revisionoverseeing the activities of this subsidiary.
Investment management regulation
Our investment advisory operations, including 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 reformsmutual funds that we sponsor, are also subject to extensive regulation in the European Union, including new trading venues, enhancementsU.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 are also required to pre-make notice filings in certain states. Virtually all aspects of our asset management business are subject to various federal and post-trading transparency,state laws and additional investor protection requirements, among others. Althoughregulations. These laws and regulations are primarily intended for the full impactbenefit of these changes remains unclear, we have made changes to our European operations, including systemsclients.
Anti-money laundering, economic sanctions, and controls, in order to be in compliance with MiFID II.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, contains 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 trade sanctions programs and enforces sanctions regulations with which all U.S. persons must comply. The E.U. as well as various countries have 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 crimes.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 the Bank Secrecy Act, the Patriot Act, or OFAC can lead tothese regulations could result in supervisory actionsaction, 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 Fair Credit Reporting Act of 1970, as amended, mandates the development and implementation of a written identity theft prevention program that is designed to detect, prevent, and mitigate identity theft.
The California Privacy Rights Act amends the California Consumer Privacy Act of 2020 and is expected to be enforced beginning in July 2023. New regulations under the statute have not yet been published. The new regulations will update the existing privacy protections for the personal information of California residents, including by requiring companies to provide certain additional disclosures to California consumers, and provides for a number of specific additional data subject rights for California residents.
Similarly, the General Data Protection Regulation (“GDPR”) imposes requirements for companies that collect or store personal data of E.U. residents, as well as residents of the U.K. 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 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. In September 2021, Quebec enacted Bill C-64, a comprehensive privacy law with extraterritorial application modeled after GDPR and which imposes fines for non-compliance. The law includes staggered implementation dates (running from September 2022
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
through September 2024) for various provisions. The firm intends to implement Bill C-64 through its privacy program framework. 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.
Alternative reference rate transition
Central banks and regulators in the U.S. and other jurisdictions are working to implement the transition from the London Interbank Offered Rate (“LIBOR”) to replacement interest rate benchmarks. On March 5, 2021, the FCA, which regulates LIBOR, announced it would cease publication of the less commonly used tenors after December 31, 2021, while it would cease publication of the most commonly used U.S. dollar LIBOR tenors after June 30, 2023. As a result, U.S. federal banking agencies issued guidance strongly encouraging institutions to cease entering into contracts that reference LIBOR as soon as practicable, and no later than December 31, 2021. There have been several pronouncements released during our fiscal year ended September 30, 2022 that have provided additional guidance related to the transition away from LIBOR and reduced uncertainty across the industry, including the International Swaps and Derivatives Association (ISDA) Fallback Protocol, the Adjustable Interest Rate (LIBOR) Act, and a proposal released by the Fed.
Consistent with the preceding guidance, as of December 31, 2021, we phased out the use of LIBOR as a reference rate in new financial instruments and converted our FHLB borrowings and SBL from LIBOR-based interest rates to Secured Overnight Financing Rate-based interest rates, resulting in an insignificant impact on interest income, interest expense, and cash flows. We continue to make progress on the transition away from LIBOR, as coordinated by our enterprise-wide team established to facilitate the transition. We continue to focus on monitoring the impacts of LIBOR across our business operations and products, ensuring that legacy instruments contain appropriate fallback language, modifying instruments that require amendments, engaging with financial advisors and clients on the impact of the transition, and working through infrastructure enhancements (e.g., systems and models) to ensure operational readiness. We continue to evaluate the anticipated effect of the alternative reference rate transition and, at this time, we expect minimal financial impact.
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. AckartChristopher S. Aisenbrey | 53 | Chief Human Resources Officer since October 2019; Senior Vice President, Organization and Talent Development - Raymond James & Associates, Inc., January 2019 - October 2019; Vice President, Organization and Talent Development - Raymond James & Associates, Inc., November 2014 - December 2018 |
James E. Bunn | 49 | President - Global Equities and Investment Banking - Raymond James & Associates, Inc. since August 2009December 2018 and ControllerHead of Investment Banking - Raymond James & Associates, Inc. since January 2014; Co-President - Global Equities and Investment Banking - Raymond James & Associates, Inc., October 2017 - December 2018 |
Horace L. Carter | 51 | President - Fixed Income - Raymond James & Associates, Inc. since January 2022; President - SumRidge Partners, LLC since July 2022; Executive Vice President, Head of Fixed Income Capital Markets - Raymond James & Associates, Inc., October 2019 - December 2021; Managing Director, Co-Head of Fixed Income Capital Markets - Raymond James & Associates, Inc., January 2019 - September 2019; Managing Director, Head of Fixed Income Trading - Raymond James & Associates, Inc., April 2012 - December 2018 |
George Catanese | 63 | Chief Risk Officer since February 19952006 |
James R. E. Coulter | 53 | Chief Executive Officer - Raymond James Ltd. since January 2022; Executive Vice President, Head of Wealth Management - Private Client Group - Raymond James Ltd., December 2019 - December 2021; Senior Vice President, Branch Manager - Private Client Group - Raymond James Ltd., October 2014 - December 2019 |
Scott A. Curtis | 60 | President - Private Client Group since June 2018; President - Raymond James Financial Services, Inc. since January 2012 |
Jeffrey A. Dowdle | 58 | Chief Operating Officer since October 2019 and President - Asset Management Group since May 2016; Chief Administrative Officer, August 2018 - October 2019 |
Tashtego S. Elwyn | 51 | Chief Executive Officer and President - Raymond James & Associates, Inc. since June 2018; President - Private Client Group - Raymond James & Associates, Inc., January 2012 - June 2018 |
Thomas A. James | 80 | Chair Emeritus since February 2017 |
Bella Loykhter Allaire | 6469 | 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 |
Jodi L. Perry | 51 | |
Paul D. Allison | 61 | 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 | 44 | Co-President - Global Equities and Investment Banking - Raymond James & Associates, Inc. since October 2017; Head of Investment Banking - Raymond James & Associates, Inc. since January 2014; Co-Head of Technology Services Investment Banking - Raymond James & Associates, Inc., May 2009 - December 2013
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John C. Carson, Jr. | 61 | 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 | 58 | Senior Vice President since October 2005 and Chief Risk Officer since February 2006 |
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Scott A. Curtis | 55 | PresidentIndependent Contractor Division - Raymond James Financial Services, Inc. since January 2012;June 2018; Senior Vice President, National Director - Private Client GroupICD - Raymond James & Associates,Financial Services, Inc., July 2005May 2018 - December 2011 |
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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;June 2018; 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;ICD Regional Director - Raymond James & Associates,Financial Services, Inc., October 2006June 2012 - December 2011May 2018 |
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Thomas A. James | 75 | Chairman Emeritus since February 2017; Executive Chairman, May 2010 - February 2017 |
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Jeffrey P. Julien | 61 | Executive Vice President - Finance since August 2009, Chief Financial Officer since April 1987 and Treasurer since February 2011; Director and/or officer of several RJF subsidiaries |
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Steven M. Raney | 5257 | Chair - Raymond James Bank, since November 2020; President and CEO - Raymond James Bank N.A. since January 2006 |
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Paul C. Reilly | 6368 | ChairmanChair 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 | 4651 | Executive Vice President, General Counsel and Secretary since May 2016;2016 |
Paul M. Shoukry | 39 | Chief Financial Officer since January 2020 and Treasurer since February 2018; Senior Vice President - Finance and Deputy General CounselInvestor Relations, January 2017 - 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 2011 |
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Jeffrey E. Trocin | 58 | Co-President - Global Equities and Investment Banking - Raymond James & Associates, Inc. since October 2017; President - Global Equities and Investment Banking - Raymond James & Associates, Inc., July 2013 - October 2017; Executive2019; Senior Vice President - Equity Capital MarketsTreasury, 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; President - Raymond James & Associates, Inc., December 2002 - December 20112018 |
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), industry or market conditions, demand for and pricing of our products, acquisitions, and divestitures, anticipated results of litigation, and regulatory developments, 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
ITEM 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 and preferred 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
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.
We are affected by domestic and international macroeconomic conditions that impact the globalreputation. Further, failures at other large financial markets.
We are engaged in various financial services businesses. As such, we are affected by domestic and international macroeconomic and political conditions, including economic output levels, interest and inflation rates, employment levels, pricesinstitutions or other market participants, regardless of commodities including oil and gas, consumer confidence levels, 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 also can decrease materially the value of certain of our financial assets, most notably debt securities. Changes in Fed policies are beyond our control and, consequently, the impact of these changes on our activities and results of our operations are difficult to predict. Macroeconomic conditions also may directly and indirectly impact a number of factors in the global financial markets that may be detrimentalwhether they relate to our operating results, including trading levels, investing, and origination activity 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, and other negative market factors could significantly impair our revenues and profitability. Additionally, certain of our market-making activities, depend on market volatility to provide trading opportunities for our clients and decreases in volatility may reduce these opportunities or adversely affect the results 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 losses. Periods of reduced revenue and other losses could be accompanied by periods of 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 about the European Union (“EU”), including Britain’s June 2016 referendum to exit the EU (“Brexit”), and the stability of the EU’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. It is possible that other EU member states may experience financial troubles in the future, or may choose to follow Britain’s lead and leave the EU. 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.
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 available 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, including limiting our efforts to recruit additional financial advisors, selling assets at unfavorable prices, and cutting or eliminating dividend payments. Our liquidity could be negatively affected by the inability of our subsidiaries to generate cash in the form of dividends from earnings, regulatory changes to the liquidity or capital requirements applicable to our subsidiaries that may prevent us from upstreaming cash to the parent company, limited or no accessibility to credit markets for secured and unsecured borrowings by our subsidiaries, diminished access to the capital markets for 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 and/or repurchase our stock. The OCC, the Fed, the FDIC, and the SEC (through FINRA) have the authority, and under certain circumstances, the duty, to prohibit or to limit dividend payments by regulated subsidiaries to their parent.
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 due to numerous causes, including bankruptcy, lack of liquidity, or operational failure, among others. We actively buy and sell securities from and to clients and counterparties in the normal course of our broker-dealers’ market making and underwriting businesses, 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 in our trading accounts. 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 contracts 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 and financing activities. A sharp change in the security market values 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 monitoring collateral and transaction levels daily. Significant deterioration in the credit quality of one of our counterparties could lead to widespread concerns abouta general loss of customer confidence in financial institutions that could negatively affect us, including harming the credit quality of other counterparties in the same industry, thereby exacerbating our credit risk exposure.
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. 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 through the offering of loans, including C&I loans, commercial and residential mortgage loans, tax-exempt loans, home equity lines of credit, and margin and other loans collateralized by securities. We also incur credit risk through 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.
Declines in the real estate market or sustained economic downturns may cause us to write down the value of some of the loans in RJ Bank’s portfolio, foreclose on certain real estate properties or write down the value of some of our securities. 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.
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 credit risk.
We are exposed to market 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 adversely 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.
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.
In addition, disruptions in the liquidity or transparency of the financial markets may resultsystem 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.general.
Our private equity investments are carried at fair value with unrealized gains and losses reflected in earnings. The value 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.
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.
Our business depends on fees generated from the distribution of financial products, fees earned from the management of client accounts, and advisory 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. 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 revenue from the investment management and distribution services we provide on behalf of the mutual funds and annuities. The investment management fees we are paid 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 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 could impact our financial results.
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. 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, we have shifted to a more hybrid work environment which includes a combination of in-office and other events,remote work for our associates. The increase in remote work over the past few years has introduced potential new vulnerabilities to cyber threats. We may also face increased cybersecurity risk for a period of time after acquisitions as we transition the acquired entity’s historical controls to our standards. 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
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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. In addition, although we maintain insurance coverage that may, subject to terms and conditions, cover certain aspects of cyber and information security risks, such insurance coverage may be insufficient to cover all losses, such as litigation costs or financial losses that exceed our policy limits or are not covered under any of our current insurance policies.
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. 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.clients. 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, use of remote work, the large number of our clients, partners and counterparties, and the increasing sophistication of malicious actors, a cyber-attack could occur andoccur. Moreover, any such cyber-attack may 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 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.
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, as well as economic output levels, interest and inflation rates, employment levels, prices of commodities, 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 decrease materially the value of certain of our financial assets, most notably debt securities, as well as our cash flows, such as those associated with client cash
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balances. Changes in tax law and regulation, or any market uncertainty caused by a change in the political environment, may negatively affect our business. Macroeconomic conditions may also be negatively impacted by domestic or international events, including natural disasters, political unrest, or public health epidemics and pandemics, as well as by a number of factors in the global financial markets that may be detrimental to our operating results.
See Item 7, “Management’s Discussion
If we were to experience a period of sustained downturn in the securities markets, credit market dislocations, reductions in the value of real estate, increases in mortgage and Analysisother loan delinquencies, or other negative market factors, 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 lower asset prices in times of Financial Conditionmarket uncertainty, which would result in lower brokerage revenues, including losses on firm inventory, as well as losses on certain of our investments. Conversely, periods of severe market volatility may result in a significantly higher level of transactions and Resultsother 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 Operations - Risk Management”reduced revenue and other losses could lead to reduced profitability because certain of our expenses, including our interest expense on debt, lease expenses, 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 public health epidemics or pandemics, such as the COVID-19 pandemic, as well as by political and civil unrest occurring in this reportother parts of the world. Our 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 credit ratings of sovereign countries, expropriation, nationalization, confiscation of assets and unfavorable legislative, economic and political developments.
Lack of liquidity or access to capital could impair our business and financial condition.
Our inability to maintain adequate liquidity or to easily access 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, such as limiting our recruiting of financial advisors, limiting lending, selling assets at unfavorable prices, and cutting or eliminating dividend payments. Our liquidity could be negatively affected by: the inability of our subsidiaries to generate cash to distribute to the parent company in the form of dividends from earnings; liquidity or capital requirements applicable to our subsidiaries that may prevent us from distributing cash to the parent company; limited or no accessibility to credit markets for secured and unsecured borrowings by our subsidiaries; diminished access to the capital markets for 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. 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 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.
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 obligations to us due to numerous causes, including bankruptcy, lack of liquidity, or operational failure, among others. Credit risk may also be affected by the deterioration of strength in the U.S. economy or adverse changes in the financial performance or condition of our clients and counterparties. We actively buy and sell securities from and to clients and counterparties in the normal course of our broker-dealers’ trading and underwriting 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 as part of our trading operations. Deterioration in the actual or perceived credit quality of the underlying issuers of securities or loans or the non-performance of counterparties to certain derivatives could result in 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 our financing activities. A sharp change in the market values of the securities utilized in these
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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 evaluating collateral and transaction levels 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. 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 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 offering SBL, C&I loans, CRE loans, REIT loans, residential mortgage loans, and tax-exempt 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. Declines in the real estate market or sustained economic downturns may cause us to experience credit losses or charge-offs related to our loans, sell loans at unattractive prices or foreclose on certain real estate properties. Furthermore, 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 credit loss provisions and/or charges-offs, and subsequently have a material impact on our net income and regulatory capital. In addition, TriState Capital Bank utilizes information provided by third-party organizations to monitor changes in the value of marketable securities that serve as collateral for a portion of its SBL. These third parties also provide control over cash and marketable securities for purposes of perfecting TriState Capital Bank’s security interests and retaining the collateral in the applicable accounts. In the event that TriState Capital Bank would need to take control of collateral, it is dependent upon such third parties to follow contractual control agreements in order to mitigate any potential losses on its SBL.
We are exposed to market risk, including interest rate risk.
Market risk generally represents the risk that values of assets and liabilities or revenues will be adversely affected by changes in market conditions, which directly and indirectly affect us. Market 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 investments. For example, interest rate changes could adversely affect the value of our fixed income trading inventories, 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. 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 fund 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 the funds 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.
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Significant volatility in our domestic clients’ cash sweep balances could negatively impact our net revenues and/or our ability to fund our Bank segment’s growth and may impact our regulatory ratios.
The majority of our Bank segment’s deposits are driven by the RJBDP. The RJBDP is a source of relatively low-cost, stable deposits and we rely heavily on the RJBDP to fund our Bank segment asset growth, particularly at Raymond James Bank. A significant reduction in PCG clients’ cash balances, a change in the allocation of that cash between our Bank segment and third-party banks within the RJBDP, or a movement of cash away from the firm could significantly impact our ability to continue growing interest-earning assets and/or require our Bank segment to use higher-cost deposit sources to grow interest-earning assets. Rapidly rising rates, for example, have made and may continue to make investments in securities, such as fixed-income securities and money market funds, more attractive for investors, thereby reducing the cash they hold.
We also earn fees from third-party banks related to the deposits they receive through their participation in the RJBDP. If PCG clients’ cash balances continue to decrease or third-party bank demand or capacity for RJBDP deposits decline from current levels our RJBDP fees from third-party banks could be adversely affected. In addition, our inability to deploy client cash to third-party banks through RJBDP would require us to retain more cash in our Bank segment or in our 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 regulatory ratios.
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 recruit, serve and retain our clients depends on the reputation, judgment, leadership, business generation capabilities and client service skills of our client-serving professionals, members of our executive team, as well as employees who support revenue-generating professionals and their clients. To compete effectively we must attract, develop, and retain qualified professionals, including successful financial advisors, investment bankers, trading professionals, portfolio managers and other revenue-producing or specialized support personnel. Competitive pressures we experience could have an adverse effect on our business, results of operations, financial condition and liquidity.
The labor market continues to experience elevated levels of turnover in the aftermath of the COVID-19 pandemic and we have been impacted by an extremely competitive labor market, including increased competition for talent across all aspects of our business, as well as increased competition with non-traditional competitors, such as technology companies. Employers are offering increased compensation and opportunities to work with greater flexibility, including remote work, on a permanent basis. These can be important factors in a current associate’s decision to leave us as well as in a prospective associate’s decision to join us. As competition for skilled professionals remains intense, we may have to devote significant resources to attract and retain qualified personnel, which could negatively impact earnings.
Specifically within the financial industry, employers are increasingly offering guaranteed contracts, upfront payments, and increased compensation. Our financial results may be adversely affected by the costs we incur in connection with any 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 financial advisors, 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. To the extent we have compensation targets, we may not be able to retain our associates, which could result in increased recruiting expense or result in our recruiting additional associates at compensation levels that are not within our target range. 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 associates who work for our competitors from joining us. We participate, with limited exceptions, in the Protocol for Broker Recruiting (“Protocol”), a voluntary agreement among many 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 are more likely to choose to open accounts at the advisor’s new firm. Participation is voluntary and it is possible that certain of our competitors will withdraw from the Protocol. If the broker-dealers from whom we recruit new
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financial advisors prevent, or significantly limit, the transfer of client data, our recruiting efforts may be adversely affected and we could continue to experience claims against us relating to our recruiting efforts.
Our business depends on fees generated from the distribution of financial products, fees earned from the management of client accounts, and other asset 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, 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 fees from the distribution and other services we provide on behalf of the mutual fund and annuity companies.
The asset 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 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. Additionally, most of our clients may withdraw funds from under our management at their discretion at any time for any reason, including as a result of competition or poor performance of our products. 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.
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 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. From time to time as part of our exposureunderwriting 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 approachesother illiquid 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.
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 processing 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 managing these typesour business. Introduction of operational risks.new technology presents challenges on a regular basis. There are significant technical and financial costs and risks in the 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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 contained in our data processing and communications systems; (iii) address the needs of our clients by using technology to provide products and services that satisfy their demands; and (iv) retain skilled information technology employees. Failure of 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 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 experienceface intense competition and pricing pressures and may not be able to keep pace with technological change.
We are engaged in areasintensely competitive businesses. We compete on the basis of a number of factors, including the quality of our businessassociates, 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 may impairhas significantly increased the capital base and geographic reach of our future revenue and profitability.competitors. See “Item 1 - Business - Competition” of this Form 10-K for additional information about our competitors.
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We continuecompete directly with other national full service broker-dealers, investment banking firms, commercial banks, and investment advisors, investment managers, and to a lesser extent, with discount brokers and dealers. 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. Competition from other financial services firms to attract clients or trading volume, through direct-to-investor online financial services, or higher deposit rates to attract client cash balances, could result in pricing pressure or otherwise adversely impact our business and cause our business to suffer.
Our 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 pressuresand range of our offerings. The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. If we are not able to develop new products and services, 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 required, and could require us in the future, to spend more to modify or adapt our products to attract and retain clients or to match products and services offered by our competitors, including technology companies.
We must monitor the pricing of our services and financial products in relation to competitors and periodically may need to adjust our fees, commissions, margins, or interest rates on trading margins and commissions indeposits to remain competitive. 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, we experience pricing pressure from institutional clients to reduce commissions, and this pressure hasOur trading margins have been augmentedfurther compressed by the use of electronic and direct market access trading,shift from high- to low-touch 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.
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We face intense competition.
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), 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 1 of this report for additional information about our competitors.
We compete directly with national full service broker-dealers, investment banking firms, and commercial banks, and to a lesser extent, with discount brokers and dealers and investment advisors. In addition, we face competition from more recent entrants into the market and increased use of alternative sales channels by other firms. 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, our future success also depends in part on our ability to develop and enhance our products and services. The inability to develop new products and services, or enhance existing offerings, could have a material adverse effect on our profitability. In addition, we may incur substantial expenditures to keep pace with the constant changes and enhancements being made in technology.
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 develop and retain our clients depends on the reputation, judgment, business generation capabilities and skills of our senior professionals, and the members of our executive committees, as well as employees and financial advisors. To compete effectively we must attract, retain and motivate qualified professionals, including successful financial advisors, investment bankers, trading professionals, portfolio managers and other revenue 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. Financial industry employers are increasingly offering guaranteed contracts, upfront payments, and increased compensation. These can be important factors in a current employee’s decision to leave us as well as in a prospective employee’s decision to join us. As competition for skilled professionals in the industry remains intense, we may have to devote significant resources to attracting and retaining qualified personnel. To the extent we have compensation targets, we may not be able to retain our employees, which could result in increased recruiting expense or result in our recruiting additional employees 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 employees who work for our competitors from joining us. Recently, a large broker-dealer competitor announced its withdrawal from the Protocol for Broker Recruiting (“Protocol”), a voluntary agreement among over 1,700 firms 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 financial advisor is better able to move client account balances to his or her new firm. It is possible that other 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 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
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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, including in the areas of technology and cybersecurity, in connection with expanding our existing businesses, recruiting financial advisors or making strategic acquisitions or
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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.
We may be unable to integrate an acquired business into our existing business successfully, or such integration may be 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.
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. WeFor example, regulators such as the Fed 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 be unable to integrate any acquired business into our existing business successfully. Difficulties we may encounter in integratingaffect future results of an acquired businesscompany 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 have an adverse effect on our business, financial condition, and resultsoccur that gives rise to the termination of operations. the transaction agreement.
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,and regulatory investigations and proceedings, which could materially and adversely impact our business operations and prospects.
The financial services industry faces significant litigation and regulatory risks. 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
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 GroupIn addition, our business segment has historicallyactivities include providing custody, clearing, and back office support for certain non-affiliated, independent RIAs and broker-dealers. Even though these independent firms are exclusively responsible for their operations, supervision, compliance, and the suitability of their client’s investment decisions, we have been, more susceptible toand may in the future be, named as defendants in litigation than our institutional businesses.involving their clients. We are also the subject of inquiries, investigations, and proceedings by regulatory and other governmental agencies.
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 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” and Note 19 of the Notes to Consolidated Financial Statements of this Form 10-K for further information about legal matters.
See Item 3, “Legal Proceedings” in this report for a discussion
We are subject to risks relating to environmental, social, and governance (“ESG”) matters that could adversely affect our reputation,business, financial condition, and results of operations, as well as the price of our common and preferred stock.
We are subject to a variety of risks, including reputational risk, associated with ESG issues. The public holds diverse and often conflicting views on ESG topics. As a large financial institution, we have multiple stakeholders, including our shareholders, clients, associates, federal and state regulatory authorities, and the communities in which we operate, and these stakeholders will often have differing priorities and expectations regarding ESG issues. If we take action in conflict with one or another of those stakeholders’ expectations, we could experience an increase in client complaints, a loss of business, or reputational harm. We could also face negative publicity or reputational harm based on the identity of those with whom we choose to do business. Any adverse publicity in connection with ESG issues could damage our reputation, ability to attract and retain clients and associates, compete effectively, and grow our business.
In addition, proxy advisory firms and certain institutional investors who manage investments in public companies are increasingly integrating ESG factors into their investment analysis. The consideration of ESG factors in making investment and voting decisions is relatively new. Accordingly, the frameworks and methods for assessing ESG policies are not fully developed, vary considerably among the investment community, and will likely continue to evolve over time. Moreover, the subjective nature of methods used by various stakeholders to assess a company with respect to ESG criteria could result in erroneous perceptions or a misrepresentation of our actual ESG policies and practices. Organizations that provide ratings information to investors on ESG matters may also assign unfavorable ratings to RJF. Certain of our clients might also require that we implement additional ESG procedures or standards in order to continue to do business with them. If we fail to comply with specific ESG-related investor or client expectations and standards, or to provide the disclosure relating to ESG issues that any third parties may believe is necessary or appropriate (regardless of whether there is a legal mattersrequirement to do so), our reputation, business, financial condition, and/or results of operations, as well as the price of our common and see Item 7, “Management’s Discussionpreferred stock could be negatively impacted.
Moreover, there has been increased regulatory focus on ESG-related practices of investment managers. A growing interest on the part of investors and Analysisregulators in ESG factors, and increased demand for, and scrutiny of, Financial ConditionESG-related disclosures by asset managers, has likewise increased the risk that we could be perceived as, or accused of, making inaccurate or misleading statements regarding the investment strategies of our funds and Results of Operations - Risk Management,exchange-traded funds (“ETFs”), or our and our funds’ and ETFs’ ESG efforts or initiatives, commonly referred to as “greenwashing.” Such perceptions or accusations could damage our reputation, result in this report for a discussion regardinglitigation or regulatory enforcement actions, and adversely affect our approach to managing legal risk.business.
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,
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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. IfThe recorded amount of liabilities related to legal and regulatory matters is also subject to significant management judgement. For either of these estimates, if management’s underlying assumptions and judgments prove to be inaccurate, the allowance for loan lossesour loss provisions could be insufficient to cover actual losses. Ourlosses, and our financial condition, including our liquidity and capital, and results of operations could be materially and adversely impacted. See Item
For further discussion of our significant accounting estimates, policies and standards, see “Item 7 “Management’s- Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates,” inaccounting estimates” of this report for additional information on the nature of these estimates.
Our financial instruments, including certain trading assets and liabilities, 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 direct 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 period financial statements. For further discussion of some of our significant accounting policies and standards, see the “Critical Accounting Estimates” discussion within Item 7 in 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.
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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, including extreme weather events caused by climate change, that could affect the processing of transactions, communications, and the ability of our associates to get to our offices, or work from home. As discussed above,remotely. In addition, 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. Additionally, such weather events couldmay also adverselyhave a negative impact certain loans within RJ Bank’s portfolio. Refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management” in this Form 10-K for a discussionon the financial condition of our operational risk management.
We are exposed to riskclients, 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, economic and political developments. Action or inaction in any of these operations, including failureother credit exposures 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 also may be subject to negative fluctuations as a result of the above mentioned factors.those clients.
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.
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RISKS RELATED TO OUR REGULATORY ENVIRONMENT
Financial services firms have beenare highly regulated and are currently subject to regulatory changes resulting from the Dodd-Frank Acta number of new and increased regulatory scrutiny over the last several years, increasing theproposed regulations, all of which may increase our risk of financial liability and reputational harm resulting from adverse regulatory actions.
Financial services firms, over the last several years have been operatingsuch as us, operate in an onerousevolving regulatory environment which could become more stringent in lightand are subject to extensive supervision and regulation. The laws and regulations governing financial services firms are intended primarily for the protection of recent well-publicized failures of regulators to detectour depositors, our customers, the financial system, and prevent fraud.the FDIC insurance fund, not our shareholders or creditors. The financial services industry has experienced increasedan extended period of significant change in laws and regulations, as well as a high degree of scrutiny from various regulators, including the SEC, the Fed, the FDIC, the OCC and the CFPB, in addition to stock exchanges, FINRA, and governmental authorities such as state attorneys general. Currently, the SEC has proposed or adopted a number of new rules after significantly abbreviated periods for public comments, and these new or proposed rules involve sweeping changes that could require significant shifts in industry operations and practices, thereby increasing uncertainty for markets and investors. Penalties and fines imposed by regulatory and other governmental authorities have increased substantiallyalso been substantial and growing in recent years. We may be adversely affected by the adoption of new rules and 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 negatively 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 impactsAdditionally, our international business operations are subject to laws, regulations, and standards in the mannercountries in which we marketoperate. In many cases, our productsactivities have been and services, managemay continue to be subject to overlapping and divergent regulation in
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different jurisdictions. As our international operations continue to grow, we may need to comply with additional laws, rules, and regulations which could require us to alter our business and operations, and interact with regulators, allpractices and/or result in additional compliance costs. Any violations of whichthese laws, regulations or standards could materially impactsubject us to a range of potential regulatory events or outcomes that could have a material adverse effect on our results of operations,business, financial condition and liquidity. Certain provisions ofprospects including potential adverse impacts on continued operations in 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, RJ Bank’s oversight by the CFPB. The CFPB has had an active enforcement agenda and any action taken by the CFPB could 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. relevant international jurisdiction.
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-making activities and our investments in covered funds,or private fund investment or sponsorship, we have experienced and expect to continue to experience increased operational andincur costs to ensure compliance costs and changes to our private equity investments.with the Volcker Rule. 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, reputation, and prospects: civil and criminal liability;liability for us or our employees or affiliated financial advisors; 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; conditions or limitations on our business activities, including higher capital requirements; or a temporary suspension or permanent bar from conducting business. The firm is currently cooperating with the SEC in connection with an investigation of the firm’s investment advisory business’ compliance with records preservation requirements relating to business communications sent over electronic messaging channels that have not been approved by the firm. The SEC is reportedly conducting similar investigations of record preservation practices at other financial institutions.
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.
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 policiesRaymond James Bank and procedures implemented by RJF and its subsidiaries. In addition, from time to time, RJF and its affiliates 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 and/or engage in share
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repurchases. See Item 1, “Regulation,” in this report for additional information regarding our regulatory environment and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management,” in this report regarding our approaches to managing regulatory risk.
Changes in regulations resulting from the DOL Rule, including the DOL fiduciary standard, may adversely affect our businesses.
The DOL Rule became effective earlier in the year, subject 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 technology 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, any amendments to the rule, and any rules addressing similar matters will negatively impact our results including the impact of increased costs related to compliance, legal and information technology. In addition, we expect that our legal risks will increase, in part, as a result of the new contractual rights required to be given to IRA and non-ERISA plan clients under the BIC Exemption and Principal Transactions Exemption.
Numerous regulatory changes, and enhanced regulatory and enforcement activity, relating to the asset management business 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 owned subsidiaries are registered as investment advisors with the SEC, increased regulatory scrutiny and rulemaking initiatives may result in augmented 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. It is not possible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any of the proposals will become law. Conformance with any new laws or regulations could make compliance more difficult and expensive and affect the manner in which we conduct business. For example, 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. 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 review our product and service offerings and implement certain changes, as well as require that we incur additional regulatory costs in order to ensure compliance.
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, new regulations regarding the management of hedge funds and the use of certain investment products may 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, RJ Bank or our broker-dealer subsidiaries would significantly harm our business.
RJF and RJTriState Capital Bank are subject to various regulatory and capital requirements administered by various federal regulators in the United States and, accordingly, must meet specific capital guidelines that involve quantitative measures of RJF and RJ 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). 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 RJ 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. While 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 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 subsidiary is subject to similar limitations under applicable regulation in that jurisdiction by IIROC. Regulatory capital requirements applicable to some of our significant subsidiaries may impede access to funds that RJF needs to make payments on any such obligations.
See Note 21 of the Notes to Consolidated Financial Statements in 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 decrease our profitability.
In July 2013, the Fed, the OCC and the FDIC released final U.S. Basel III Rules, which implemented the global regulatory capital reforms of Basel III and certain changes required by the Dodd-Frank Act. The U.S. Basel III Rules increase the quantity and quality of regulatory capital, establish a capital conservation buffer and make selected changes to 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. As a result, our business, results of operations, financial condition and prospects could be adversely affected.
As a financial holding company, RJF’s liquidity depends on payments from its subsidiaries, which may be subject to regulatory restrictions.
RJF is 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 broker 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 banking 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 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. AAn unfavorable CRA rating or 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.
As discussed in “Item 1 - Business - Regulation” of this Form 10-K, on May 5, 2022, federal banking regulators requested comment on a joint notice of proposed rulemaking on the CRA. 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. Item
The Federal Reserve requires a bank holding company to act as a source of financial and managerial strength for its subsidiary banks. The Federal Reserve could require RJF to commit resources to Raymond James Bank and TriState Capital Bank when doing so is not otherwise in the interests of RJF or its shareholders or creditors.
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, reputation, or results of operations. In particular, the banking agencies have broad enforcement power over bank holding companies and banks, including with respect to unsafe or unsound practices or violations of law. 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 subsidiaries 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 and preferred stock and/or engage in share repurchases. Changes to the regulatory landscape governing the fees the firm earns on client assets, including cash sweep balances, could negatively impact our earnings. See “Item 1 - Business - Regulation” of this Form 10-K for additional information regarding our regulatory environment.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Continued asset growth may result in changes to our status with respect to existing regulations as well as increased oversight, which will result in additional capital and other financial requirements and may increase our compliance costs.
We will incur increased regulatory scrutiny (and related compliance costs) as we continue to grow and surpass certain consolidated asset thresholds, which have the effect of imposing enhanced standards and requirements on larger financial institutions. These include the potential application of enhanced prudential standards to us if our average total consolidated assets for four consecutive calendar quarters exceed $100 billion and we are therefore classified as a category IV bank holding company. Under such enhanced prudential standards, category IV bank holding companies are subject to greater regulation and supervision, including, but not limited to: certain capital planning and stress capital buffer requirements; supervisory capital stress testing conducted by the Fed biennially; and certain liquidity risk management and liquidity stress testing and buffer requirements. The application of enhanced prudential standards to RJF could adversely affect our results of operations and financial performance through additional capital and liquidity requirements and increased compliance costs.
Changes in requirements relating to the standard of conduct for broker-dealers applicable under federal and state law have increased, and may continue to increase, our costs.
The SEC’s 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.
In addition to the SEC, various states have adopted, or are considering adopting, laws and regulations seeking to impose new standards of conduct on broker-dealers that, as written, differ from the SEC’s new regulations and may lead to additional implementation costs. Implementation of the new SEC regulations, as well as any new state rules that are adopted addressing similar matters, has 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 promulgated a new exemption that enables investment advice fiduciaries to receive transaction-based compensation and engage in certain otherwise prohibited transactions, subject to compliance with the exemption’s requirements. In addition, the DOL is expected to amend the five-part test by the end of 2023 so that the fiduciary standard would apply to a broader range of client relationships. Imposing such 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 our investment management activities may increase our compliance and legal costs and otherwise adversely affect our business.
As some of our wholly-owned subsidiaries are registered as investment advisors with the SEC, increased regulatory scrutiny and rulemaking initiatives may result in additional 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. While 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 implementing changes to our infrastructure and processes could negatively impact the ways we conduct business and increase our compliance and legal costs. Conformance with any new law or regulations could also make compliance more difficult and expensive and affect our product and service offerings. The SEC’s new Marketing Rule will affect the marketing of our advisory products, including referrals and solicitations, and may impact our asset management business and result in increased costs.
New 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.
Failure to comply with regulatory capital requirements primarily applicable to RJF, Raymond James Bank, TriState Capital Bank or our broker-dealer subsidiaries would significantly harm our business.
As discussed in “Item 1 - Business - Regulation” of this Form 10-K, RJF, Raymond James Bank and TriState Capital Bank are subject to capital requirements administered by various federal regulators in the U.S. and, accordingly, must meet specific capital guidelines that involve quantitative measures of RJF’s, Raymond James Bank’s, and TriState Capital Bank’s assets, liabilities and certain off-balance sheet items, as calculated under regulatory guidelines. Failure to meet minimum capital
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
requirements can trigger certain mandatory (and potentially discretionary) actions by regulators that, if undertaken, could harm either RJF’s, Raymond James Bank’s, or TriState Capital Bank’s operations and financial condition. Further, we are subject to the SEC’s Uniform 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. RJ Ltd. is subject to similar limitations under applicable regulations in Canada by IIROC. Regulatory capital requirements applicable to some of our significant subsidiaries may impede access to funds that RJF may need to make payments on any of its obligations. See Note 24 of the Notes to Consolidated Financial Statements of this Form 10-K for further information on regulatory capital requirements.
The Basel III regulatory capital standards impose capital and other requirements on us that could negatively impact our profitability.
The Fed and other federal banking regulators have implemented the global regulatory capital requirements of Basel III and certain requirements implemented by the Dodd-Frank Act. The U.S. Basel III Rules establish the quantity and quality of regulatory capital, set forth a capital conservation buffer and define the calculation of risk-weighted assets. The 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 or subject us to higher and more stringent capital and other regulatory requirements. As a result, our business, results of operations, financial condition and prospects could 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 as a financial holding company depends on dividends, distributions and other payments from its subsidiaries in order to meet its obligations, including its debt service obligations and to fund dividend payments and share repurchases. 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. If RJF’s subsidiaries are unable to make dividend payments to us and sufficient cash or liquidity is not otherwise available, RJF may not be able to make dividend payments to its shareholders, repurchase its shares, or make principal and interest payments on its outstanding debt. RJF’s broker-dealers and bank subsidiaries are limited in their ability to lend or transact with affiliates, are subject to minimum regulatory capital and other requirements, and, in the case of our broker-dealer subsidiaries, limitations on their ability to use funds deposited with them in brokerage accounts to fund their businesses. These requirements and limitations may hinder RJF’s ability to access funds from its subsidiaries. Federal regulators, including the Fed and 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. In addition, RJF’s right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of creditors of that subsidiary, except to the extent that any of RJF’s claims as a creditor of such subsidiary may be recognized. As a result, shares of RJF’s capital stock are effectively subordinated to all existing and future liabilities and obligations of its subsidiaries.
RISKS RELATED TO AN INVESTMENT IN OUR PREFERRED AND COMMON STOCK
The rights of holders of our common stock are generally subordinate to the rights of holders of our outstanding, and any future issuances of, debt securities and preferred stock.
Our Board of Directors has the authority to issue debt securities as well as an aggregate of up to 10 million shares of preferred stock on the terms it determines appropriate without shareholder approval. In connection with our acquisition of TriState Capital on June 1, 2022, we issued 40,250 shares of 6.75% Fixed-to-Floating Rate Series A Non-Cumulative Perpetual Preferred Stock, par value $0.10 per share (“Series A Preferred Stock”), in the form of 1.61 million depositary shares, each representing a 1/40th interest in a share of Series A Preferred Stock, and 80,500 shares of 6.375% Fixed-to-Floating Rate Series B Non-Cumulative Perpetual Preferred Stock, par value $0.10 per share (“Series B Preferred Stock”) in the form of 3.22 million depositary shares, each representing a 1/40th interest in a share of Series B Preferred Stock. Such preferred stock is senior to our common stock. Any debt or shares of preferred stock that we may issue in the future will also be senior to our common stock. Because our decision to issue debt or equity securities or incur other borrowings in the future will depend on market conditions and other factors beyond our control, the amount, timing, nature or success of our future capital raising efforts is uncertain. Thus, holders of our common stock bear the risk that our future issuances of debt or equity securities or our incurrence of other borrowings may negatively affect the market price of our common stock.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
The depositary shares representing our preferred stock are thinly traded and have limited voting rights.
The depositary shares representing interests in our preferred stock are listed on the NYSE, but an active, liquid trading market for such securities may not be sustained. A public trading market having depth, liquidity and orderliness depends upon the presence in the marketplace and independent decisions of willing buyers and sellers of our preferred stock, over which we have no control. Without an active, liquid trading market, holders of our depositary shares may not be able to sell their shares at the volume, prices, or times desired. In addition, holders of our preferred stock (and, accordingly, holders of the depositary shares representing such stock), will have no voting rights with respect to matters that generally require the approval of our voting common shareholders. Holders of preferred stock have voting rights that are generally limited to, with respect to the particular series of preferred stock held: (i) authorizing, creating or issuing any capital stock ranking senior to such preferred stock as to dividends or the distribution of assets upon liquidation, and (ii) amending, altering or repealing any provision of our Articles of Incorporation so as to adversely affect the powers, preferences or special rights of such series of preferred stock.
ITEM 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. Our owned locations and principal leases, identified below, support more than one 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 2036. Our principal leases are in the following locations:
•We occupy leased space of approximately 250,000 square feet in Memphis, along with approximately 185,000 square feet in New York City, 70,000 square feet in Pittsburgh, 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 75,000 square feet in London, along with other office locations 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. 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 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. 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
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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, 2017,17, 2022, we had 361346 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 2120 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, 2022, 2021 or 2020.
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, share purchases for2022.
| | | | | | | | | | | | | | | | | | | | | | | |
| 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, 2021 – October 31, 2021 | 1,305 | | | $ | 94.47 | | | — | | | $632 |
November 1, 2021 – November 30, 2021 | 94,824 | | | $ | 98.82 | | | — | | | $632 |
December 1, 2021 – December 31, 2021 | 145 | | | $ | 98.90 | | | — | | | $1,000 |
First quarter | 96,274 | | | $ | 98.76 | | | — | | | |
| | | | | | | |
January 1, 2022 – January 31, 2022 | 787 | | | $ | 109.57 | | | — | | | $1,000 |
February 1, 2022 – February 28, 2022 | 3,391 | | | $ | 109.67 | | | — | | | $1,000 |
March 1, 2022 – March 31, 2022 | — | | | $ | — | | | — | | | $1,000 |
Second quarter | 4,178 | | | $ | 109.65 | | | — | | | |
| | | | | | | |
April 1, 2022 – April 30, 2022 | — | | | $ | — | | | — | | | $1,000 |
May 1, 2022 – May 31, 2022 | — | | | $ | — | | | — | | | $1,000 |
June 1, 2022 – June 30, 2022 | 1,137,660 | | | $ | 88.01 | | | 1,136,347 | | | $900 |
Third quarter | 1,137,660 | | | $ | 88.01 | | | 1,136,347 | | | |
| | | | | | | |
July 1, 2022 – July 31, 2022 | 8,407 | | | $ | 90.18 | | | — | | | $900 |
August 1, 2022 – August 31, 2022 | 298 | | | $ | 106.45 | | | — | | | $900 |
September 1, 2022 – September 30, 2022 | 600,421 | | | $ | 104.06 | | | 600,000 | | | $838 |
Fourth quarter | 609,126 | | | $ | 103.87 | | | 600,000 | | | |
Fiscal year total | 1,847,238 | | | $ | 93.85 | | | 1,736,347 | | | |
In December 2021, the trust fundBoard of Directors authorized repurchase of our common stock in an aggregate amount of up to $1 billion, which replaced the previous authorization.
In the preceding table, the total number of shares purchased includes shares purchased pursuant to the Restricted Stock Trust Fund, which was established to acquire our common stock in the open market and used to settle 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 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
| | | | | |
Item 6.INDEX | SELECTED FINANCIAL DATA |
| PAGE |
Introduction | |
Executive overview | |
Reconciliation of non-GAAP financial measures to GAAP financial measures | |
Net interest analysis | |
Results of Operations | |
Private Client Group | |
Capital Markets | |
Asset Management | |
Bank | |
Other | |
Statement of financial condition analysis | |
Liquidity and capital resources | |
Regulatory | |
Critical accounting estimates | |
Recent accounting developments | |
Risk management | |
|
| | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
| |
INDEX | |
| PAGE |
Introduction | |
Executive overview | |
Segments | |
Reconciliation of GAAP measures to non-GAAP measures | |
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 obligations | |
Regulatory | |
Critical accounting estimates | |
Recent accounting developments | |
Off-Balance sheet arrangements | |
Effects of inflation | |
Risk Management | |
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, 20172022 compared with the year ended September 30, 20162021
We achievedFor the year ended September 30, 2022, we generated net revenues of $6.37$11.00 billion a $966 million, or 18% increase. Ourand pre-tax income amounted to $925 million, an increase of $125 million, or 16%.$2.02 billion, both 13% higher compared with the prior year. Our net income available to common shareholders of $636 million increased $107 million, or 20%,$1.51 billion was 7% higher than the prior year and our earnings per diluted share were $4.33,of $6.98 reflected a 19%5% increase. Our return on common equity (“ROCE”) was 17.0%, compared with 18.4% for the prior year.
In fiscal 2022, we completed the acquisitions of Charles Stanley Group PLC (“Charles Stanley”), TriState Capital, and SumRidge Partners, which resulted in incremental revenues and expenses during the year. During the year ended September 30, 2017, earnings were impacted negatively by the Jay Peak settlement,we also incurred acquisition-related expenses, such as compensation largely related to retention awards, initial provisions for credit losses on the early extinguishmentacquired loans and unfunded lending commitments, amortization of certain ofidentifiable intangible assets, and other costs incurred to effect our senior notesacquisitions, such as legal expenses and acquisition-related expenses. After excluding the impact of theseother professional fees. These expenses which totaled $194$147 million in the currentthis fiscal year, on a pre-tax basis, our adjusted pre-tax income was $1.12 billion,(1) an increase of 30%$65 million over the prior year. Excluding these acquisition-related expenses, our adjusted net income available to common shareholders was $1.62 billion(1), an increase of 5% compared with the prior year, and our adjusted pre-tax incomeearnings per diluted share were $7.49(1), an increase of 3%. Adjusted ROCE for the year was 18.2%(1), compared with 20.0%(1) in the prior year, and adjusted net incomereturn on tangible common equity (“ROTCE”) was $768 million,21.1%(1)an increase of 35%, compared with adjusted net income22.2%(1) in the prior year.
The increase in net revenues compared with the prior year was driven by the impact of higher PCG client assets in fee-based accounts for most of the current fiscal year, which positively impacted our asset management and related administrative fees, the benefit of higher short-term interest rates on both net interest income and RJBDP fees from third-party banks, and incremental revenues from our acquisitions of TriState Capital, Charles Stanley, and SumRidge Partners. Brokerage revenues and investment banking revenues each declined compared with a strong prior year, primarily as a result of market uncertainty during the current year.
Compensation, commissions and benefits expense increased 11%, primarily attributable to the growth in revenues and pre-tax income compared with the prior year, as well as the aforementioned acquisitions. Our compensation ratio was 66.6%, compared with 67.5% for the prior year. Excluding acquisition-related compensation expenses, our adjusted compensation ratio was 66.1%(1), compared with 67.0%(1) for the prior year. The decline in the compensation ratio primarily resulted from changes in our revenue mix due to higher net interest income and RJBDP fees from third-party banks, which have little associated direct compensation.
(1) Adjusted earnings per diluted share were $5.23,(1) a 33% increase compared withnet income available to common shareholders, adjusted earnings per diluted share, in the prior year.
Net revenues increased in each of our four operating segments, including significant growth in the Private Client Group (“PCG”)adjusted ROCE, adjusted ROTCE, and Asset Management segments, which benefited from growth in client assets in fee-based accounts, and significant growth in RJ Bank due to an increase in average interest-earning assets and an increase in net interest margin. Investment banking revenues in our Capital Markets segmentadjusted compensation ratio are non-GAAP financial measures. In fiscal 2022, certain non-GAAP financial measures were strong and were significantly higher than fiscal year 2016; however institutional sales commissions declined reflecting the low levels 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 associated 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% for the prior year. The decrease in our effective tax rate compared to the prior year was primarily due to the favorable impact of the adoption of new stock compensation accounting guidance which had a favorable impact on 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-Kadjusted 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. Senate and the U.S. House of Representatives 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 mostexpenses 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:
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 segment also benefited from the impact 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 expensesacquisitions that we believe are not indicative of our core operating results, such as those related to the Jay Peak settlementamortization of identifiable intangible assets arising from acquisitions and increased administrative & incentive compensation and benefits expense.
The Capital Markets segment generated net revenues of $1.01 billion, 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 decrease in the provision for loan losses, partially offset by higher affiliate deposit fees paidacquisition-related retention. Prior periods have been conformed 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 assets 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 amounted to $3.65, a 6% increase. The fiscal year 2016 diluted earnings per share benefited from our repurchase of common 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.
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) “Adjusted net income,” and “adjusted diluted earnings per share” are each non-GAAP financial measures.current presentation. 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 ourthese non-GAAP financial 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 revenuesNon-compensation expenses increased in each of our four operating segments as compared19%, due to fiscal year 2015. Our non-operating Other segment reflected a decline in net revenues as fiscal year 2015 experienced higher valuation gainsincremental expenses from our private equity investments than fiscal year 2016,the aforementioned acquisitions, as well as realized gains on sales of our auction rate securities (“ARS”). Non-interest expenses increased $204 million, or 5%. The increase primarily resulted from: increases in compensation, commissionsthe bank loan provision for credit losses, business development expenses 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 increaseexpenses. The bank loan provision for credit losses increased $132 million to a provision of $100 million in the bank loan losscurrent year, compared with a benefit of $32 million for the prior year; however, $26 million of this increase related solely to the initial provision resultingrecorded on loans acquired as part of the TriState Capital acquisition. Partially offsetting these increases, we incurred $98 million of losses on extinguishment of debt from loan growth and an increase associated with the credit deteriorationearly-redemption of certain loans in the energy sector; and increases in other expenses predominately due to increases in certain legal and regulatory expensesof our senior notes during fiscal year 2016.
A summary of the most significant items impacting our fiscal year 2016 financial results as compared to the prior year, are as follows:
Our Private Client Group segment generated fiscal year 2016 net revenues of $3.62 billion, a 3% increase, while pre-tax income decreased by $2 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, 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-interest 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, 2016 due to the volatility of markets during fiscal year 2016 and the timing of our fee computations. Expenses increased 6% in 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%, primarily due to an increase in the affiliate deposit account servicing fees paid to the Private Client Group resulting from an increase in client account balances, as well as an increase in FDIC insurance premiums.
Activities in our Other segment during fiscal year 2016 reflect a pre-tax loss that was $84 million, or 129%, more than the prior year. Total 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 thatwhich did not recur in fiscal year 2016, offset by increased interest revenue and foreign exchange gains. Acquisition-related expenses of $41 million for fiscal year 2016 did not occur in fiscal year 2015, and resulted from incremental expenses related to our acquisitions of Alex. Brown, 3Macs, and Mummert during fiscal year 2016.the current year.
Our effective income tax rate was 33.9% in25.4% for fiscal year 2016, down2022, an increase from the 37.1% in21.7% for the prior year. The fiscal year 2016 reductionincrease in ourthe effective tax rate compared tofrom the prior year was primarily due to the following factors: (1) as a resultnegative impact of the fiscal year 2016 increase in equity market values compared to fiscal year 2015, the change in the amount of our non-taxable gains/nondeductible valuation losses arising from the value ofassociated with our company-owned life insurance portfolio had the effect of decreasing our effective tax rate by 1.5% compared 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 current year compared with nontaxable valuation gains for the prior year.
As of September 30, 2022, our tier 1 leverage ratio of 10.3% and total capital ratio of 20.4% were both well above the regulatory requirement to be considered well-capitalized. We also continued to have substantial liquidity with $1.91 billion(1) of cash at the parent company as of September 30, 2022, which reducedincludes parent cash loaned to RJ&A. We believe our effective rate by 0.4%;funding and (4)capital position provide us the opportunity to continue to grow our balance sheet prudently and we were able
Management's Discussionexpect to continue to be opportunistic in deploying our capital. Subsequent to the closing of TriState Capital, for the period June 1, 2022 through September 30, 2022, we repurchased 1.74 million shares and Analysis
subsequent to generate and utilizethat date repurchased an additional low-income housing tax credits to apply against our tax liability which had354 thousand shares, for a favorable 0.5% impact on our effective tax rate.
We repurchasedcumulative repurchase through November 17, 2022 of approximately 3.22.1 million shares of our common stock in open market transactions during fiscal year 2016 for a total purchase price$200 million or approximately $96 per share. After the effect of approximately $144.5those repurchases, $800 million reflecting an average perremained under our Board of Directors’ share repurchase priceauthorization. We currently expect to continue to repurchase our common stock in fiscal 2023 to offset the impact of $45.69.shares issued with the acquisition of TriState Capital as well as to offset dilution from share-based compensation; however, we will continue to monitor market conditions and other capital needs as we consider these repurchases. On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, which, among other things, establishes a 1% excise tax on net repurchases of shares by domestic corporations whose stock is traded on an established securities market. The excise tax will be imposed on repurchases that occur after December 31, 2022 and will be recorded directly to equity as part of the repurchase transaction, rather than as a component of our provision for income taxes. The act also introduces a corporate alternative minimum tax which we do not expect to have an impact on our results of operations or cash flows in the future.
We believe we remain well-positioned entering fiscal year 2016 diluted earnings per share benefited2023. We expect fiscal 2023 results to be further positively impacted by $0.05a full year’s impact of the combined 300-basis point increase in the Fed’s short-term benchmark interest rate during our fiscal 2022, as well as the 75-basis point increase in November 2022. With clients’ domestic cash sweep balances of $67.1 billion as of September 30, 2022 and our high concentration of floating-rate assets, we also believe we are well-positioned for any further increases in short-term interest rates, which we expect to positively impact our net interest income and our RJBDP fees from third-party banks, although we expect further declines in client cash balances in fiscal 2023 as we expect clients to continue to shift their cash to higher-yielding investment products. We also expect to continue to face macroeconomic uncertainties which may continue to have a negative impact on equity and fixed income markets. As a result, we may experience volatility in asset management fees and brokerage revenues, as well as investment banking revenues, despite our strong investment banking pipelines. In addition, asset management and related administrative fees will be negatively impacted in our fiscal first quarter of 2023 by the 3% sequential decrease in PCG fee-based assets as of September 30, 2022 and lower financial assets under management; however, our recruiting pipelines remain strong and we continue to see solid retention of existing advisors. Net loan growth should result in additional provisions for credit losses and future economic deterioration could result in increased bank loan provisions for credit losses in future periods. In addition, although we remain focused on the management of expenses, we expect that expenses will continue to increase in part as a result of these repurchases.inflationary pressures on our costs, as business and event-related travel occur throughout the entire fiscal year 2023, and as we continue to make investments in our people and technology to support our growth.
Year ended September 30, 2021 compared with the year ended September 30, 2020
SegmentsRefer to “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2021 Form 10-K for a discussion of our fiscal 2021 results compared to fiscal 2020.
The following table presents our consolidated
(1) For additional information, please see the “Liquidity and segment net revenues and pre-tax income/(loss), the latter excluding noncontrolling interests, for the years indicated:capital resources - Sources of liquidity” section in this MD&A.
|
| | | | | | | | | | | | | | | | | | |
| | 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'sManagement’s Discussion and Analysis
Reconciliation of
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP measures to non-GAAP measuresFINANCIAL 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. We believe that thecertain of these non-GAAP financial measures provide useful information to management and investors by excluding certain material items that may not be indicative of our core operating results. We 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. In fiscal 2022, certain of our non-GAAP financial measures were adjusted for additional expenses directly related to our acquisitions that we believe are not indicative of our core operating results, including acquisition-related retention, amortization of identifiable intangible assets arising from acquisitions, and the initial provision for credit losses on loans acquired and lending commitments assumed as a result of the TriState Capital acquisition. Prior periods, where applicable, have been conformed to the current period presentation. 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 | | 2022 | | 2021 |
Net income available to common shareholders | | $ | 1,505 | | | $ | 1,403 | |
Non-GAAP adjustments: | | | | |
Expenses directly related to acquisitions included in the following financial statement line items: | | | | |
Compensation, commissions and benefits: | | | | |
Acquisition-related retention | | 58 | | | 48 | |
Other acquisition-related compensation | | 2 | | | 1 | |
Total “Compensation, commissions and benefits” expense | | 60 | | | 49 | |
Professional fees | | 12 | | | 10 | |
Bank loan provision/(benefit) for credit losses — Initial provision for credit losses on acquired loans | | 26 | | | — | |
Other: | | | | |
Amortization of identifiable intangible assets | | 33 | | | 21 | |
Initial provision for credit losses on acquired lending commitments | | 5 | | | — | |
All other acquisition-related expenses | | 11 | | | 2 | |
Total “Other” expense | | 49 | | | 23 | |
Total expenses related to acquisitions | | 147 | | | 82 | |
Losses on extinguishment of debt | | — | | | 98 | |
Pre-tax impact of non-GAAP adjustments | | 147 | | | 180 | |
Tax effect of non-GAAP adjustments | | (37) | | | (43) | |
Total non-GAAP adjustments, net of tax | | 110 | | | 137 | |
Adjusted net income available to common shareholders | | $ | 1,615 | | | $ | 1,540 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Compensation, commissions and benefits expense | | $ | 7,329 | | | $ | 6,584 | |
Less: Total compensation-related acquisition expenses (as detailed above) | | 60 | | | 49 | |
Adjusted “Compensation, commissions and benefits” expense | | $ | 7,269 | | | $ | 6,535 | |
| | | | | | | | | | | | | | |
| | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Total compensation ratio | | 66.6 | % | | 67.5 | % |
Less the impact of non-GAAP adjustments on compensation ratio: | | | | |
Acquisition-related retention | | 0.5 | % | | 0.5 | % |
Other acquisition-related compensation | | — | % | | — | % |
Total “Compensation, commissions and benefits” expenses related to acquisitions | | 0.5 | % | | 0.5 | % |
Adjusted total compensation ratio | | 66.1 | % | | 67.0 | % |
|
| | | | | | | | |
| | 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, |
| | 2022 | | 2021 |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
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| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Diluted earnings per common share | | $ | 6.98 | | | $ | 6.63 | |
Impact of non-GAAP adjustments on diluted earnings per common share: | | | | |
Compensation, commissions and benefits: | | | | |
Acquisition-related retention | | 0.27 | | | 0.23 | |
Other acquisition-related compensation | | 0.01 | | | — | |
Total “Compensation, commissions and benefits” expense | | 0.28 | | | 0.23 | |
Professional fees | | 0.06 | | | 0.05 | |
Bank loan provision/(benefit) for credit losses — Initial provision for credit losses on acquired loans | | 0.12 | | | — | |
Other: | | | | |
Amortization of identifiable intangible assets | | 0.15 | | | 0.10 | |
Initial provision for credit losses on acquired lending commitments | | 0.02 | | | — | |
All other acquisition-related expenses | | 0.05 | | | 0.01 | |
Total “Other” expense | | 0.22 | | | 0.11 | |
Total expenses related to acquisitions | | 0.68 | | | 0.39 | |
Losses on extinguishment of debt | | — | | | 0.46 | |
Tax effect of non-GAAP adjustments | | (0.17) | | | (0.20) | |
Total non-GAAP adjustments, net of tax | | 0.51 | | | 0.65 | |
Adjusted diluted earnings per common share | | $ | 7.49 | | | $ | 7.28 | |
| | | | |
| | As of |
$ in millions | | September 30, 2022 | | September 30, 2021 |
Total common equity attributable to Raymond James Financial, Inc. | | $ | 9,338 | | | $ | 8,245 | |
Less non-GAAP adjustments: | | | | |
Goodwill and identifiable intangible assets, net | | 1,931 | | | 882 | |
Deferred tax liabilities related to goodwill and identifiable intangible assets, net | | (126) | | | (64) | |
Tangible common equity attributable to Raymond James Financial, Inc. | | $ | 7,533 | | | $ | 7,427 | |
| | | | |
| | | | |
| | | | |
Net interest analysis
| | | | | | | | | | | | | | |
| | |
| | | | |
| | Year ended September 30, |
$ in millions | | 2022 | | 2021 |
Average common equity | | $ | 8,836 | | | $ | 7,635 | |
Impact of non-GAAP adjustments on average common equity: | | | | |
Compensation, commissions and benefits: | | | | |
Acquisition-related retention | | 27 | | | 23 | |
Other acquisition-related compensation | | 1 | | | — | |
Total “Compensation, commissions and benefits” expense | | 28 | | | 23 | |
Professional fees | | 6 | | | 4 | |
Bank loan provision/(benefit) for credit losses — Initial provision for credit losses on acquired loans | | 10 | | | — | |
Other: | | | | |
Amortization of identifiable intangible assets | | 16 | | | 9 | |
Initial provision for credit losses on acquired lending commitments | | 2 | | | — | |
All other acquisition-related expenses | | 6 | | | 1 | |
Total “Other” expense | | 24 | | | 10 | |
Total expenses related to acquisitions | | 68 | | | 37 | |
Losses on extinguishment of debt | | — | | | 39 | |
Tax effect of non-GAAP adjustments | | (17) | | | (18) | |
Total non-GAAP adjustments, net of tax | | 51 | | | 58 | |
Adjusted average common equity | | $ | 8,887 | | | $ | 7,693 | |
The Federal Reserve Bank announced increases
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
| | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2022 | | 2021 |
Average common equity | | $ | 8,836 | | | $ | 7,635 | |
Less: | | | | |
Average goodwill and identifiable intangible assets, net | | 1,322 | | | 809 | |
Deferred tax liabilities related to goodwill and identifiable intangible assets, net | | (94) | | | (53) | |
Average tangible common equity | | $ | 7,608 | | | $ | 6,879 | |
Impact of non-GAAP adjustments on average tangible common equity: | | | | |
Compensation, commissions and benefits: | | | | |
Acquisition-related retention | | 27 | | | 23 | |
Other acquisition-related compensation | | 1 | | | — | |
Total “Compensation, commissions and benefits” expense | | 28 | | | 23 | |
Professional fees | | 6 | | | 4 | |
Bank loan provision/(benefit) for credit losses — Initial provision for credit losses on acquired loans | | 10 | | | — | |
Other: | | | | |
Amortization of identifiable intangible assets | | 16 | | | 9 | |
Initial provision for credit losses on acquired lending commitments | | 2 | | | — | |
All other acquisition-related expenses | | 6 | | | 1 | |
Total “Other” expense | | 24 | | | 10 | |
Total expenses related to acquisitions | | 68 | | | 37 | |
Losses on extinguishment of debt | | — | | | 39 | |
Tax effect of non-GAAP adjustments | | (17) | | | (18) | |
Total non-GAAP adjustments, net of tax | | 51 | | | 58 | |
Adjusted average tangible common equity | | $ | 7,659 | | | $ | 6,937 | |
| | | | |
Return on common equity | | 17.0 | % | | 18.4 | % |
Adjusted return on common equity | | 18.2 | % | | 20.0 | % |
Return on tangible common equity | | 19.8 | % | | 20.4 | % |
Adjusted return on tangible common equity | | 21.1 | % | | 22.2 | % |
Total compensation ratio is computed by dividing compensation, commissions and benefits expense by net revenues for each respective period. Adjusted total compensation ratio is computed by dividing adjusted compensation, commissions and benefits expense by net revenues for each respective period.
Tangible common equity is computed by subtracting goodwill and identifiable intangible assets, net, along with the associated deferred tax liabilities, from total common equity attributable to RJF. Average common equity is computed by adding the total common equity attributable to RJF as of 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 the year total, and dividing by five. Adjusted average common equity is computed by adjusting for the impact on average common equity of the non-GAAP adjustments, as applicable for each respective period. Adjusted average tangible common equity is computed by adjusting for the impact on average tangible common equity of the non-GAAP adjustments, as applicable for each respective period.
ROCE is computed by dividing net income available to common shareholders by average common equity for each respective period or, in the case of ROTCE, computed by dividing net income available to common shareholders by average tangible common equity for each respective period. Adjusted ROCE is computed by dividing adjusted net income available to common shareholders by adjusted average common equity for each respective period, or in the case of adjusted ROTCE, computed by dividing adjusted net income available to common shareholders by adjusted average tangible common equity for each respective period.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
NET INTEREST ANALYSIS
Largely in response to inflationary pressures, the Fed has rapidly increased its benchmark short-term interest rates, from the near-zero interest rates that existed starting in fiscal 2020 and continuing throughout fiscal 2021 through February 2022, to gradual increases commencing in March 2022, ending at a range of 3.00% to 3.25% as of September 30, 2022. The Fed indicated that it intends to closely monitor short-term interest rates into our fiscal 2023, and in fact, enacted an additional 75-basis point increase in November 2022. The following table details the Fed’s short-term interest rate of 25 basis points in each of June 2017, March 2017 and December 2016, as well as in December 2015. activity since fiscal 2020.
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|
| | | | | | |
RJF fiscal quarter ended | | Date of interest rate action | | Increase/(decrease) in interest rates (in basis points) | | Fed funds target rate |
March 31, 2020 | | March 16, 2020 | | (100) | | 0.00% - 0.25% |
March 31, 2022 | | March 17, 2022 | | 25 | | 0.25% - 0.50% |
June 30, 2022 | | May 5, 2022 | | 50 | | 0.75% - 1.00% |
June 30, 2022 | | June 16, 2022 | | 75 | | 1.50% - 1.75% |
September 30, 2022 | | July 28, 2022 | | 75 | | 2.25% - 2.50% |
September 30, 2022 | | September 22, 2022 | | 75 | | 3.00% - 3.25% |
Rate changes subsequent to September 30, 2022 | | | | |
December 31, 2022 | | November 3, 2022 | | 75 | | 3.75% - 4.00% |
Increases in short-term interest rates positively impacted our net interest income during our fiscal 2022, as well as the fee income 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 assetspart of the RJBDP (included in account and liabilities, primarily held in our PCG and RJ Bank segments,service fees), which are also sensitive to changes in interest rates.
Given the relationship ofbetween our interest sensitiveinterest-sensitive assets toand liabilities (primarily held in eachour PCG, Bank, and Other segments) and the nature of these segments,fees we earn from third-party banks in the RJBDP, increases in short-term interest rates generally result in an overall increase in our net earnings, although the magnitude of the impact to our net interest margin depends on the yields on interest-earning assets relative to the cost of interest-bearing liabilities.
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 their cash balances. Changes to the regulatory landscape governing the fees the firm earns on client assets, including cash balances. Ofsweep balances, could negatively impact our earnings. In addition, our pace of loan growth may fluctuate over time in response to changes in interest rates. As a result of our diverse funding sources, strong loan growth and high concentration of floating-rate assets, we benefited from the 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, any future increases in short-term interest rates may have less of an impact or could actually reducein fiscal 2022 and believe we are well-positioned for our net interest earnings and RJBDP fees earnedto continue to be favorably impacted by the fiscal year 2022, as well as any fiscal 2023, increases in this program, depending onshort-term rates. However, we also expect the level of deposit rates paid on client cash balances.
If the Federal Reserve Bank wasbenefit 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 inour RJBDP fees to be partially offset by a decline in spreads earned on our RJBDP program,domestic client sweep balances as a portion of this cash gets invested in higher-yielding investments.
Refer to the impact ondiscussion of our net interest income within the “Management’s Discussion and accountAnalysis - Results of Operations” of our PCG, Bank, and service fees would be an unfavorable reversalOther segments, where applicable. Also refer to “Management’s Discussion and Analysis - Results of Operations - Private Client Group - Clients’ domestic cash sweep balances” for further information on the positive impact described above.RJBDP.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis
The following table presents our consolidated average balance,interest-earning asset and interest-bearing liability balances, interest income and expense balances and the related yieldrates.
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| | Year ended September 30, |
| | 2022 | | | 2021 | | | 2020 |
$ in millions | | Average balance | | Interest | | Average rate | | | Average balance | | Interest | | Average rate | | | Average balance | | Interest | | Average rate |
Interest-earning assets: | | | | | | | | | | | | | | | | | | | | |
Bank segment: | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 1,884 | | $ | 18 | | | 0.98 | % | | | $ | 1,612 | | | $ | 2 | | | 0.14 | % | | | $ | 1,981 | | | $ | 11 | | | 0.55 | % |
Available-for-sale securities | | 9,651 | | 136 | | | 1.40 | % | | | 7,950 | | | 85 | | | 1.07 | % | | | 4,250 | | | 83 | | | 1.94 | % |
Loans held for sale and investment: (1) (2) | | | | | | | | | | | | | | | | | | |
Loans held for investment: | | | | | | | | | | | | | | | | | | | | |
SBL | | 9,561 | | | 324 | | | 3.34 | % | | | 4,989 | | | 112 | | | 2.22 | % | | | 3,559 | | | 112 | | | 3.10 | % |
C&I loans | | 9,493 | | | 313 | | | 3.25 | % | | | 7,828 | | | 201 | | | 2.54 | % | | | 7,860 | | | 274 | | | 3.43 | % |
CRE loans | | 4,205 | | | 158 | | | 3.70 | % | | | 2,703 | | | 70 | | | 2.56 | % | | | 2,589 | | | 88 | | | 3.34 | % |
REIT loans | | 1,339 | | | 44 | | | 3.28 | % | | | 1,273 | | | 32 | | | 2.48 | % | | | 1,333 | | | 42 | | | 3.09 | % |
Residential mortgage loans | | 6,170 | | | 170 | | | 2.76 | % | | | 5,110 | | | 140 | | | 2.72 | % | | | 4,874 | | | 148 | | | 3.04 | % |
Tax-exempt loans (3) | | 1,355 | | | 35 | | | 3.15 | % | | | 1,270 | | | 34 | | | 3.31 | % | | | 1,246 | | | 33 | | | 3.35 | % |
| | | | | | | | | | | | | | | | | | | | |
Loans held for sale | | 229 | | | 7 | | | 3.24 | % | | | 163 | | | 4 | | | 2.55 | % | | | 130 | | | 5 | | | 3.70 | % |
Total loans held for sale and investment | | 32,352 | | | 1,051 | | | 3.24 | % | | | 23,336 | | | 593 | | | 2.55 | % | | | 21,591 | | | 702 | | | 3.25 | % |
All other interest-earning assets | | 124 | | | 4 | | | 3.29 | % | | | 182 | | | 4 | | | 1.50 | % | | | 223 | | | 4 | | | 2.04 | % |
Interest-earning assets — Bank segment | | $ | 44,011 | | | $ | 1,209 | | | 2.74 | % | | | $ | 33,080 | | | $ | 684 | | | 2.07 | % | | | $ | 28,045 | | | $ | 800 | | | 2.85 | % |
All other segments: | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 4,114 | | | $ | 30 | | | 0.73 | % | | | $ | 3,949 | | | $ | 10 | | | 0.25 | % | | | $ | 3,192 | | | $ | 30 | | | 0.94 | % |
Assets segregated for regulatory purposes and restricted cash | | 14,826 | | | 96 | | | 0.65 | % | | | 8,735 | | | 15 | | | 0.17 | % | | | 3,042 | | | 28 | | | 0.94 | % |
Trading assets — debt securities | | 621 | | | 27 | | | 4.38 | % | | | 475 | | | 13 | | | 2.67 | % | | | 493 | | | 18 | | | 3.56 | % |
Brokerage client receivables | | 2,529 | | | 100 | | | 3.94 | % | | | 2,280 | | | 77 | | | 3.37 | % | | | 2,232 | | | 84 | | | 3.77 | % |
All other interest-earning assets | | 1,944 | | | 46 | | | 2.33 | % | | | 1,594 | | | 24 | | | 1.54 | % | | | 1,573 | | | 40 | | | 2.54 | % |
Interest-earning assets — all other segments | | $ | 24,034 | | | $ | 299 | | | 1.24 | % | | | $ | 17,033 | | | $ | 139 | | | 0.82 | % | | | $ | 10,532 | | | $ | 200 | | | 1.90 | % |
Total interest-earning assets | | $ | 68,045 | | | $ | 1,508 | | | 2.22 | % | | | $ | 50,113 | | | $ | 823 | | | 1.64 | % | | | $ | 38,577 | | | $ | 1,000 | | | 2.59 | % |
| | | | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | |
Bank segment: | | | | | | | | | | | | | | | | | | | | |
Bank deposits: | | | | | | | | | | | | | | | | | | | | |
Money market and savings accounts | | $ | 36,693 | | | $ | 81 | | | 0.22 | % | | | $ | 28,389 | | | $ | 3 | | | 0.01 | % | | | $ | 23,714 | | | $ | 20 | | | 0.09 | % |
Interest-bearing checking accounts | | 2,061 | | | 39 | | | 1.88 | % | | | 162 | | | 3 | | | 1.86 | % | | | 92 | | | 2 | | | 1.86 | % |
Certificates of deposit | | 870 | | | 15 | | | 1.68 | % | | | 904 | | | 17 | | | 1.90 | % | | | 1,006 | | | 20 | | | 2.03 | % |
Total bank deposits (4) | | 39,624 | | | 135 | | | 0.34 | % | | | 29,455 | | | 23 | | | 0.08 | % | | | 24,812 | | | 42 | | | 0.17 | % |
FHLB advances and all other interest-bearing liabilities | | 1,001 | | | 21 | | | 2.15 | % | | | 864 | | | 19 | | | 2.12 | % | | | 889 | | | 20 | | | 2.21 | % |
Interest-bearing liabilities — Bank segment | | $ | 40,625 | | | $ | 156 | | | 0.38 | % | | | $ | 30,319 | | | $ | 42 | | | 0.14 | % | | | $ | 25,701 | | | $ | 62 | | | 0.24 | % |
All other segments: | | | | | | | | | | | | | | | | | | | | |
Trading liabilities — debt securities | | $ | 325 | | | $ | 12 | | | 3.64 | % | | | $ | 150 | | | $ | 2 | | | 1.39 | % | | | $ | 165 | | | $ | 3 | | | 1.83 | % |
Brokerage client payables | | 15,530 | | | 24 | | | 0.15 | % | | | 10,180 | | | 3 | | | 0.03 | % | | | 4,179 | | | 11 | | | 0.28 | % |
Senior notes payable | | 2,037 | | | 93 | | | 4.44 | % | | | 2,078 | | | 96 | | | 4.58 | % | | | 1,800 | | | 85 | | | 4.72 | % |
All other interest-bearing liabilities | | 257 | | | 20 | | | 2.76 | % | | | 241 | | | 7 | | | 1.14 | % | | | 456 | | | 17 | | | 2.24 | % |
Interest-bearing liabilities — all other segments | | $ | 18,149 | | | $ | 149 | | | 0.82 | % | | | $ | 12,649 | | | $ | 108 | | | 0.85 | % | | | $ | 6,600 | | | $ | 116 | | | 1.76 | % |
Total interest-bearing liabilities | | $ | 58,774 | | | $ | 305 | | | 0.52 | % | | | $ | 42,968 | | | $ | 150 | | | 0.34 | % | | | $ | 32,301 | | | $ | 178 | | | 0.54 | % |
Firmwide net interest income | | | | $ | 1,203 | | | | | | | | $ | 673 | | | | | | | | $ | 822 | | | |
Net interest margin (net yield on interest-earning assets) | | | | | | | | | | | | | | | | | | | | |
Bank segment | | | | | | 2.39 | % | | | | | | | 1.95 | % | | | | | | | 2.63 | % |
Firmwide | | | | | | 1.77 | % | | | | | | | 1.35 | % | | | | | | | 2.14 | % |
(1) Loans are presented net of unamortized discounts, unearned income, and rates. Average balancesdeferred loan fees and costs.
(2) Nonaccrual loans are calculatedincluded in the average loan balances. Any payments received for corporate nonaccrual loans are applied entirely to principal. Interest income on residential mortgage nonaccrual loans is recognized on a dailycash basis.
(3) The yield on tax-exempt loans in the preceding table is presented on a taxable-equivalent basis unless otherwise noted.utilizing the applicable federal statutory rates for each of the years presented.
(4) The average balance, interest expense, and average rate for “Total bank deposits” included amounts associated with affiliate deposits. Such amounts are eliminated in consolidation and are offset in “All other interest-bearing liabilities” under “All other segments”.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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'sManagement’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 increaseIncreases and decreases 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 increasefrom changes in average segregatedbalances (volume) of interest-earning assets compared with prior year levels, largely driven by our September 2016 acquisition of Alex. Brown,and interest-bearing liabilities, 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 decreasechanges in average client margin ratesinterest rates. The following table shows the effect that these factors had on the portfolio. Interest expense forinterest earned on our interest-earning assets and 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’s net interest income in the RJ Bank section of this MD&A.
Interest expense incurred on our senior notes increasedinterest-bearing liabilities. The effect of changes in volume is determined by $16 million, or 21%, asmultiplying the average outstanding balance of senior notes increased compared to the prior year. The net increasechange in the balance outstanding was due to our May 2017 and July 2016 issuances of a combined $1.30 billion in senior notes, offsetvolume by the April 2016 maturityprevious period’s average rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the previous period’s volume. Changes attributable to both volume and repayment of $250 million of senior notesrate have been allocated proportionately.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
| | 2022 compared to 2021 | | | 2021 compared to 2020 |
| | Increase/(decrease) due to | | | Increase/(decrease) due to |
$ in millions | | Volume | | Rate | | Total | | | Volume | | Rate | | Total |
Interest-earning assets: | | Interest income |
Bank segment: | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | — | | | $ | 16 | | | $ | 16 | | | | $ | (2) | | | $ | (7) | | | $ | (9) | |
Available-for-sale securities | | 21 | | | 30 | | | 51 | | | | 71 | | | (69) | | | 2 | |
Loans held for sale and investment: | | | | | | | | | | | | | |
Loans held for investment: | | | | | | | | | | | | | |
SBL | | 137 | | | 75 | | | 212 | | | | 45 | | | (45) | | | — | |
C&I loans | | 48 | | | 64 | | | 112 | | | | (1) | | | (72) | | | (73) | |
CRE loans | | 49 | | | 39 | | | 88 | | | | 4 | | | (22) | | | (18) | |
REIT loans | | 2 | | | 10 | | | 12 | | | | (2) | | | (8) | | | (10) | |
Residential mortgage loans | | 28 | | | 2 | | | 30 | | | | 8 | | | (16) | | | (8) | |
Tax-exempt loans | | 3 | | | (2) | | | 1 | | | | 2 | | | (1) | | | 1 | |
| | | | | | | | | | | | | |
Loans held for sale | | 2 | | | 1 | | | 3 | | | | 1 | | | (2) | | | (1) | |
Total loans held for sale and investment | | 269 | | | 189 | | | 458 | | | | 57 | | | (166) | | | (109) | |
All other interest-earning assets | | (2) | | | 2 | | | — | | | | — | | | — | | | — | |
Interest-earning assets — Bank segment | | $ | 288 | | | $ | 237 | | | $ | 525 | | | | $ | 126 | | | $ | (242) | | | $ | (116) | |
All other segments: | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | — | | | $ | 20 | | | $ | 20 | | | | $ | 5 | | | $ | (25) | | | $ | (20) | |
Assets segregated for regulatory purposes and restricted cash | | 16 | | | 65 | | | 81 | | | | 54 | | | (67) | | | (13) | |
Trading assets — debt securities | | 5 | | | 9 | | | 14 | | | | (1) | | | (4) | | | (5) | |
Brokerage client receivables | | 9 | | | 14 | | | 23 | | | | 2 | | | (9) | | | (7) | |
All other interest-earning assets | | 6 | | | 16 | | | 22 | | | | — | | | (16) | | | (16) | |
Interest-earning assets — all other segments | | $ | 36 | | | $ | 124 | | | $ | 160 | | | | $ | 60 | | | $ | (121) | | | $ | (61) | |
Total interest-earning assets | | $ | 324 | | | $ | 361 | | | $ | 685 | | | | $ | 186 | | | $ | (363) | | | $ | (177) | |
| | | | | | | | | | | | | |
Interest-bearing liabilities: | | Interest expense |
Bank segment: | | | | | | | | | | | | | |
Bank deposits: | | | | | | | | | | | | | |
Money market and savings accounts | | $ | 1 | | | $ | 77 | | | $ | 78 | | | | $ | 3 | | | $ | (20) | | | $ | (17) | |
Interest-bearing checking accounts | | 36 | | | — | | | 36 | | | | 1 | | | — | | | 1 | |
Certificates of deposit | | (1) | | | (1) | | | (2) | | | | (2) | | | (1) | | | (3) | |
Total bank deposits | | 36 | | | 76 | | | 112 | | | | 2 | | | (21) | | | (19) | |
FHLB advances and all other interest-bearing liabilities | | 2 | | | — | | | 2 | | | | — | | | (1) | | | (1) | |
Interest-bearing liabilities �� Bank segment | | $ | 38 | | | $ | 76 | | | $ | 114 | | | | $ | 2 | | | $ | (22) | | | $ | (20) | |
All other segments: | | | | | | | | | | | | | |
Trading liabilities — debt securities | | 5 | | | 5 | | | 10 | | | | — | | | (1) | | | (1) | |
Brokerage client payables | | 3 | | | 18 | | | 21 | | | | 17 | | | (25) | | | (8) | |
Senior notes payable | | (1) | | | (2) | | | (3) | | | | 13 | | | (2) | | | 11 | |
All other interest-bearing liabilities | | 1 | | | 12 | | | 13 | | | | (10) | | | — | | | (10) | |
Interest-bearing liabilities — all other segments | | $ | 8 | | | $ | 33 | | | $ | 41 | | | | $ | 20 | | | $ | (28) | | | $ | (8) | |
Total interest-bearing liabilities | | $ | 46 | | | $ | 109 | | | $ | 155 | | | | $ | 22 | | | $ | (50) | | | $ | (28) | |
Change in firmwide net interest income | | $ | 278 | | | $ | 252 | | | $ | 530 | | | | $ | 164 | | | $ | (313) | | | $ | (149) | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion 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 reduceAnalysis
RESULTS OF OPERATIONS – PRIVATE CLIENT GROUP
Through our interest expense in fiscal year 2017.
Year ended September 30, 2016 compared with the year ended September 30, 2015
Net 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,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 9%sales commissions (presented in “Brokerage revenues”). Average customer cash balancesWe also earn revenues for distribution 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 rates and the average balances associated with margin 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,support services performed primarily related to RJ Bank’s borrowings from the FHLBmutual funds, fixed and thevariable annuities and insurance products. Asset management and related interest hedges. Refer to the discussion of the specific components of RJ Bank’s net interest incomeadministrative fees and brokerage revenues 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 typically correlated with the level of PCG client assets under administration,AUA, including those in fee-based accounts, as well as the overall U.S. equity markets. In periods where equity markets improve, assets under administrationAUA 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,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 our Bank segment. Such fees, which generally fluctuate based on average balances in the program and short-term interest rates, are included in “Account and service fees.” See “Clients’ domestic cash sweep balances” in the “Selected key metrics” section for further information about fees earned from the RJBDP.
Net interest revenueincome in the PCG segment is primarily generated by interest earnings on assets segregated for regulatory purposes and on margin loans provided to clients, and on cash segregated pursuant to regulations, less interest paid on client cash balances in ourthe CIP. Amounts are impacted by client cash balances in the CIP and short-term interest program. We also earn fees in lieu of interest revenue from our RJBDP program, which are included in “Account and service fees.”rates. Higher client cash balances generally lead to
Management's Discussion and Analysis
increased net interest income, and account and service fee revenues, depending uponon interest rate spreads realized in our clientthe CIP (i.e., between interest programreceived on assets segregated for regulatory purposes and RJBDP.interest paid on CIP balances). For more information on client cash balances, see our previous discussion of interest-earning and interest-bearing assets and liabilities“Clients’ domestic cash sweep balances” in the Net Interest section of this MD&A.“Selected key metrics” section.
For an overview of our PCG segment operations, refer to the information presented in Item I, Business in“Item 1 - Business” of 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'sManagement’s Discussion and Analysis
Operating results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, | | % change |
$ in millions | | 2022 | | 2021 | | 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 |
Revenues: | | | | | | | | | | |
Asset management and related administrative fees | | $ | 4,710 | | | $ | 4,056 | | | $ | 3,162 | | | 16 | % | | 28 | % |
Brokerage revenues: | | | | | | | | | | |
Mutual and other fund products | | 620 | | | 670 | | | 567 | | | (7) | % | | 18 | % |
Insurance and annuity products | | 438 | | | 438 | | | 397 | | | — | % | | 10 | % |
Equities, ETFs and fixed income products | | 458 | | | 438 | | | 419 | | | 5 | % | | 5 | % |
Total brokerage revenues | | 1,516 | | | 1,546 | | | 1,383 | | | (2) | % | | 12 | % |
Account and service fees: | | | | | | | | | | |
Mutual fund and annuity service fees | | 428 | | | 408 | | | 348 | | | 5 | % | | 17 | % |
RJBDP fees: | | | | | | | | | | |
Bank segment | | 357 | | | 183 | | | 180 | | | 95 | % | | 2 | % |
Third-party banks | | 202 | | | 76 | | | 150 | | | 166 | % | | (49) | % |
Client account and other fees | | 220 | | | 157 | | | 129 | | | 40 | % | | 22 | % |
Total account and service fees | | 1,207 | | | 824 | | | 807 | | | 46 | % | | 2 | % |
Investment banking | | 38 | | | 47 | | | 41 | | | (19) | % | | 15 | % |
Interest income | | 249 | | | 123 | | | 155 | | | 102 | % | | (21) | % |
All other | | 32 | | | 25 | | | 27 | | | 28 | % | | (7) | % |
Total revenues | | 7,752 | | | 6,621 | | | 5,575 | | | 17 | % | | 19 | % |
Interest expense | | (42) | | | (10) | | | (23) | | | 320 | % | | (57) | % |
Net revenues | | 7,710 | | | 6,611 | | | 5,552 | | | 17 | % | | 19 | % |
Non-interest expenses: | | | | | | | | | | |
Financial advisor compensation and benefits | | 4,696 | | | 4,204 | | | 3,428 | | | 12 | % | | 23 | % |
Administrative compensation and benefits | | 1,199 | | | 1,015 | | | 971 | | | 18 | % | | 5 | % |
Total compensation, commissions and benefits | | 5,895 | | | 5,219 | | | 4,399 | | | 13 | % | | 19 | % |
Non-compensation expenses: | | | | | | | | | | |
Communications and information processing | | 332 | | | 275 | | | 251 | | | 21 | % | | 10 | % |
Occupancy and equipment | | 198 | | | 179 | | | 175 | | | 11 | % | | 2 | % |
Business development | | 126 | | | 71 | | | 79 | | | 77 | % | | (10) | % |
Professional fees | | 56 | | | 46 | | | 33 | | | 22 | % | | 39 | % |
All other | | 73 | | | 72 | | | 76 | | | 1 | % | | (5) | % |
Total non-compensation expenses | | 785 | | | 643 | | | 614 | | | 22 | % | | 5 | % |
Total non-interest expenses | | 6,680 | | | 5,862 | | | 5,013 | | | 14 | % | | 17 | % |
Pre-tax income | | $ | 1,030 | | | $ | 749 | | | $ | 539 | | | 38 | % | | 39 | % |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 client asset balances
| | | | | | | | | | | | | | | | | | | | |
| | As of September 30, |
$ in billions | | 2022 | | 2021 | | 2020 |
AUA (1) | | $ | 1,039.0 | | | $ | 1,115.4 | | | $ | 883.3 | |
Assets in fee-based accounts (1) (2) | | $ | 586.0 | | | $ | 627.1 | | | $ | 475.3 | |
Percent of AUA in fee-based accounts | | 56.4 | % | | 56.2 | % | | 53.8 | % |
(1)These metrics include the impact from the acquisition of Charles Stanley, which was completed on January 21, 2022.
(2)A portion of our “Assets in fee-based accounts” is invested in “managed programs” overseen by our Asset Management segment, specifically our Asset Management Services division of RJ&A (“AMS”). These assets are included in our financial assets under administration increased 15% over September 30, 2016, resulting from net client inflowsmanagement as disclosed in the “Selected key metrics” section of our “Management’s Discussion and equity market appreciation. Our net client inflows were primarily attributable to strong financial advisor recruiting results.Analysis - Results of Operations - Asset Management.”
PCG AUA and PCG assets in fee-based accounts each decreased 7% compared with the prior year, as the positive impacts of strong net inflows of client assets and the Charles Stanley acquisition were more than offset by a decline in market values. PCG assets in fee-based accounts continued to be a significant percentage of overall PCG assets under administration increased comparedAUA due to September 30, 2016 due, in part, to clients moving tomany clients’ preference for fee-based alternatives versus traditional transaction-based accounts and, as a result, a significant portion of our PCG revenues is more directly impacted by market movements.
Fee-based accounts within our PCG segment are comprised of a wide array of products and programs that we offer our clients. The majority of assets in responsefee-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 recently implemented DOL regulatory changes. PCGportion received for non-managed programs, as it is performing portfolio management services in addition to administrative services.
The vast majority of the revenues we earn from fee-based accounts is recorded in “Asset management and related administrative fees” on our Consolidated Statements of Income and Comprehensive Income. Fees received from such accounts are based on the value of client assets under administration increasedin fee-based accounts and vary based on the specific account types in which the client invests and the level of assets in the client relationship. As fees for the majority of such accounts are billed based on balances as of the beginning of the quarter, revenues from fee-based accounts may not be immediately affected by changes in asset values, but rather the impacts are seen in the following quarter. Assets in fee-based accounts in this segment decreased 3% as of September 30, 20162022 compared with June 30, 2022, which we expect will have an unfavorable impact on our related revenues in our fiscal first quarter of 2023.
PCG AUA included assets associated with firms affiliated with us through our RCS division of $108.5 billion as of September 30, 2015 due2022, $92.7 billion as of September 30, 2021, and $59.7 billion as of September 30, 2020, of which $89.9 billion, $77.2 billion, and $47.4 billion as of September 30, 2022, 2021, and 2020, respectively, were fee-based assets. Based on the nature of the services provided to strong financial advisor recruiting results as well as our fiscal year 2016 acquisitions of Alex. Brownsuch firms, revenues related to these assets are included in “Account and 3Macs.services fees.”
Financial advisors | | | | | | | | | | | | | | | | | | | | |
| | As of September 30, |
| | 2022 | | 2021 | | 2020 |
Employees | | 3,638 | | | 3,461 | | | 3,404 | |
Independent contractors | | 5,043 | |
| 5,021 | | | 4,835 | |
Total advisors | | 8,681 | | | 8,482 | | | 8,239 | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The net increase innumber of financial advisors as of September 30, 20172022 increased compared to September 30, 2016 resulted from strong financial advisor recruiting and high levels of retention throughout fiscalthe prior 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 and retention of existing advisors and the addition of nearly 200 financial advisors with the Charles Stanley acquisition in January 2022, partially offset by the transfer of 222 advisors previously affiliated primarily as independent contractors to our RCS division (including one firm with 166 financial advisors). We expect to continue to experience transfers of financial advisors to our RCS division in fiscal 2023; however, consistent with our experience in fiscal 2022, we do not expect these financial advisor transfers to significantly impact our results of operations. Advisors in our RCS division are not included in our financial advisor count metric although their client assets are included in PCG AUA. The recruiting pipeline remains robust across our affiliation options; however, the acquisitionstiming of Alex. Brown and 3Macs in late fiscal 2016 and a strongerfinancial advisors joining the firm may be impacted by market environment compared to the prior year.uncertainty.
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 feesClients’ domestic cash sweep balances
| | | | | | | | | | | | | | | | | | | | |
| | As of September 30, |
$ in millions | | 2022 | | 2021 | | 2020 |
RJBDP: | | | | | | |
Bank segment | | $ | 38,705 | | | $ | 31,410 | | | $ | 25,599 | |
Third-party banks | | 21,964 | | | 24,496 | | | 25,998 | |
Subtotal RJBDP | | 60,669 | | | 55,906 | | | 51,597 | |
CIP | | 6,445 | | | 10,762 | | | 3,999 | |
Total clients’ domestic cash sweep balances | | $ | 67,114 | | | $ | 66,668 | | | $ | 55,596 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
| | 2022 | | 2021 | | | | 2020 |
Average yield on RJBDP - third-party banks | | 0.82 | % | | 0.30 | % | | | | 0.77 | % |
A significant portion of our domestic clients’ cash is primarily due to increased assetsincluded in the program. The increaseRJBDP, a multi-bank sweep program in omnibus fees is a result of an increasewhich clients’ cash deposits 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 fundstheir accounts are swept into interest-bearing deposit accounts at either Raymond James Bank or TriState Capital Bank, which are included in our RJBDP program, and interest, all of which contributed to the increase.
As previously discussed, net interest income in theBank segment, or various third-party banks. Our 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 withearns servicing fees for the increase in securities commissions and fees. Expensesadministrative services we provide related to the Jay Peak matter increased by $110 millionour clients’ deposits that are swept to reflect the amountsuch banks as part of the settlementRJBDP. These servicing fees are variable in fiscal 2017. Administrativenature 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 marginfluctuate based 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 averageclient cash balances in the program, as well as the December 2015level of short-term interest rates and the interest paid to clients on balances in the RJBDP. Under our current intersegment policies, the PCG segment receives the greater of a base servicing fee or a net yield equivalent to the average yield that the firm would otherwise receive from third-party banks in the RJBDP. This is a different intersegment policy than that which was in place in prior years, during the last interest rate cycle. The result of this change is that the PCG segment revenues will reflect increased fee revenues as the yield from third-party banks in the program continues to rise and the Bank segment RJBDP servicing costs reflect the market rate. The fees that the PCG segment earns from the Bank segment, as well as the servicing costs incurred on the deposits in the Bank segment, are eliminated in the computation of our consolidated results.
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 increased from the prior year as a result of the combined 300-basis point increase in the Fed’s short-term benchmark interest rate during our fiscal 2022, as compared to the prior year, which reflected a full year of near-zero short-term interest rates. Mutual fundWe expect our fiscal 2023 results will benefit from a full-year’s impact of the Fed’s short-term rate increases enacted toward the end of fiscal 2022, as well as the rate increase in November 2022, with our average yield on RJBDP - third-party banks expected to approximate 2.5% for our fiscal first quarter of 2023.
Although client cash balances remained elevated for the majority of fiscal 2022, cash balances declined at the end of the year, resulting in only a 1% increase as of September 30, 2022 compared with September 30, 2021. We expect this recent trend to continue into fiscal 2023, as clients continue to move cash from lower-yielding bank deposits to higher-yielding investment products. PCG segment results can be impacted not only by changes in the level of client cash balances, but also by the allocation of client cash balances between RJBDP and annuity serviceour CIP, as the PCG segment may earn different amounts from each of these client cash destinations, depending on multiple factors.
Year ended September 30, 2022 compared with the year ended September 30, 2021
Net revenues of $7.71 billion increased 17% and pre-tax income of $1.03 billion increased 38%.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Asset management and related administrative fees increased $6$654 million, or 16%, primarily due to higher assets in fee-based accounts at the beginning of most of the current-year quarterly billing periods compared with the prior-year quarterly billing periods and, to a lesser extent, incremental revenues arising from our acquisition of Charles Stanley.
Brokerage revenues decreased $30 million, or 2%, primarily as a resultdue to lower trailing placement fees from mutual and other fund products and annuity products, resulting from lower asset values for products for which we receive trails, partially offset by incremental revenues from our acquisition of Charles Stanley.
Account and service fees increased $383 million, or 46%, primarily due to an increase in money market processingRJBDP fees from both third-party banks and omnibusour Bank segment due to the increase in short-term rates during the current year, as well as higher client cash balances in the RJBDP. Client account and other fees arisingalso increased, resulting from increased client assetsincremental revenues from our acquisitions of NWPS Holdings Inc. at the end of our fiscal first quarter of 2021 and positions which are paid to us by companies whose products we distribute.
The portionCharles Stanley in our fiscal second quarter of total segment revenues that we consider to be recurring was approximately 77% for fiscal 2016,2022, as well as higher account maintenance fees resulting from an increase in the fee per account effective during the current fiscal year. Mutual fund service fees increased due to higher average mutual fund assets.
Net interest income increased $94 million, or 83%, due to both the increase in short-term interest rates and higher average balances of interest-earning assets such as assets segregated for regulatory purposes, which benefited from 75% fromhigher average CIP balances during the current year. Although client cash balances remained elevated for the majority of fiscal 2015. Recurring commission and2022, cash balances declined at the end of the year. We expect this recent trend to continue into fiscal 2023, as clients continue to move cash to higher-yielding investments.
Compensation-related expenses increased $676 million, or 13%, primarily due to higher asset management fee revenues, include asset-based fees, trailing commissionsas well as incremental expenses resulting from mutual fundsour acquisition of Charles Stanley and variable annuities/insurance products, mutual fund and annuity service fees, fees earned on fundsan increase 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 2016growth.
Non-compensation expenses increased $23$142 million, or 1%22%, which is consistentdriven by incremental expenses resulting from our acquisition of Charles Stanley, increases in travel and event-related expenses compared with the 1% increaselow levels incurred 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. Communicationsprior year, higher communications and information processing expense increased $9 million, or 6%,expenses primarily due to increases in software consultingongoing enhancements of our technology platforms, and other information technology expenses associatedincreasing real estate rent costs.
Year ended September 30, 2021 compared with our continued investment in our platformthe year ended September 30, 2020
Refer to “Item 7 - Management’s Discussion and improving our complianceAnalysis of Financial Condition and regulatory systems.
Results of OperationsOperations” of our 2021 Form 10-K for a discussion of our fiscal 2021 results compared to fiscal 2020.
RESULTS OF OPERATIONS – Capital MarketsCAPITAL MARKETS
Our Capital Markets segment conducts fixed incomeinvestment banking, institutional sales, and equity securities trading, equity research, investment banking and the syndication and related management of investments thatin low-income housing funds and funds of a similar nature, the majority of which qualify for tax credits.
We primarily conduct theseprovide various investment banking services, including merger & acquisition advisory, and other advisory services, underwriting or advisory services on public and private equity and debt financing for corporate clients, and public financing activities. Revenues from investment banking activities are driven principally by our role in the U.S., Canadatransaction and Europe.the number and sizes of the transactions with which we are involved.
We earn institutional sales commissionsbrokerage revenues for the sale of both equity and fixed income products which are driven primarily through trade volume, resultingto institutional clients, as well as from our market-making activities in fixed income debt securities. Client activity is influenced by a combination of participation in public offerings, general market activity and by theour Capital Markets group’s ability to find attractive investment opportunities and promote those opportunities tofor clients.
This segment also includes tradingIn 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 as agent foron behalf of 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. 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.
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“Item 1 - Business” of this Form 10-K.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis
Operating results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, | | % change |
$ in millions | | 2022 | | 2021 | | 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 |
Revenues: | | | | | | | | | | |
Brokerage revenues: | | | | | | | | | | |
Fixed income | | $ | 448 | | | $ | 515 | | | $ | 421 | | | (13) | % | | 22 | % |
Equity | | 142 | | | 145 | | | 150 | | | (2) | % | | (3) | % |
Total brokerage revenues | | 590 | | | 660 | | | 571 | | | (11) | % | | 16 | % |
Investment banking: | | | | | | | | | | |
Merger & acquisition and advisory | | 709 | | | 639 | | | 290 | | | 11 | % | | 120 | % |
Equity underwriting | | 210 | | | 285 | | | 185 | | | (26) | % | | 54 | % |
Debt underwriting | | 143 | | | 172 | | | 133 | | | (17) | % | | 29 | % |
Total investment banking | | 1,062 | | | 1,096 | | | 608 | | | (3) | % | | 80 | % |
Interest income | | 36 | | | 16 | | | 25 | | | 125 | % | | (36) | % |
Affordable housing investments business revenues | | 127 | | | 105 | | | 83 | | | 21 | % | | 27 | % |
All other | | 21 | | | 18 | | | 20 | | | 17 | % | | (10) | % |
Total revenues | | 1,836 | | | 1,895 | | | 1,307 | | | (3) | % | | 45 | % |
Interest expense | | (27) | | | (10) | | | (16) | | | 170 | % | | (38) | % |
Net revenues | | 1,809 | | | 1,885 | | | 1,291 | | | (4) | % | | 46 | % |
Non-interest expenses: | | | | | | | | | | |
Compensation, commissions and benefits | | 1,065 | | | 1,055 | | | 774 | | | 1 | % | | 36 | % |
Non-compensation expenses: | | | | | | | | | | |
Communications and information processing | | 89 | | | 83 | | | 77 | | | 7 | % | | 8 | % |
Occupancy and equipment | | 38 | | | 37 | | | 36 | | | 3 | % | | 3 | % |
Business development | | 45 | | | 34 | | | 47 | | | 32 | % | | (28) | % |
Professional fees | | 47 | | | 54 | | | 48 | | | (13) | % | | 13 | % |
| | | | | | | | | | |
| | | | | | | | | | |
All other | | 110 | | | 90 | | | 84 | | | 22 | % | | 7 | % |
Total non-compensation expenses | | 329 | | | 298 | | | 292 | | | 10 | % | | 2 | % |
Total non-interest expenses | | 1,394 | | | 1,353 | | | 1,066 | | | 3 | % | | 27 | % |
Pre-tax income | | $ | 415 | | | $ | 532 | | | $ | 225 | | | (22) | % | | 136 | % |
|
| | | | | | | | | | | | | | | | | | |
| | 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, 20172022 compared with the year ended September 30, 20162021
Net revenues increased $12of $1.81 billion decreased 4% and pre-tax income of $415 million decreased 22%.
Investment banking revenues decreased $34 million, or 1%3%, due to $1.01 billion, led by higher merger & acquisitiona significant decline in both equity and advisory fees and equitydebt 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 reflectingactivity, resulting from the impact of low levels of volatility.
market uncertainty during the current year. Merger & acquisition and advisory feesrevenues increased, $80 million, or 54%, primarily due to a stronger volumereflecting high levels of both domestic and foreign merger & acquisitionclient 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 acquisitionfiscal 2021 acquisitions of Mummert & Company Corporate Finance GmbH (“Mummert”).Financo and Cebile. Our investment banking pipeline remains strong, reflecting the investments we have made over the past several years, however, continued market uncertainty could delay, or ultimately prevent, the closing of transactions, which could negatively impact our results in fiscal 2023.
Equity underwriting fees increased $18Brokerage revenues decreased $70 million, or 34%11%, due to a significant decrease in fixed income brokerage revenues, which remained solid but were lower than the prior year as a result of a challenging and uncertain interest rate environment compared with the prior year, partially offset by incremental revenues from SumRidge Partners, which was acquired on July 1, 2022. We expect fixed income brokerage revenues to continue to be negatively impacted by market uncertainty and a decline in cash balances at our depository institution clients during fiscal 2023; however, we expect some amount of offsetting benefit to our results from a full year of revenues from SumRidge Partners.
Affordable housing investment business revenues increased $22 million, or 21%, primarily reflecting continued strong business activity levels as well as gains on the sales of certain properties during the current year.
Compensation-related expenses increased $10 million, or 1%, due to higher share-based compensation amortization and salaries, primarily due to the improved equity market conditions compared withour acquisition of SumRidge Partners and a difficult fiscal 2016. The total numberfull year of both lead-managed and co-managed underwritings increased significantly over theour prior year levels.
Net revenues relatedacquisitions of Financo and Cebile, inflationary and market compensation pressures, and to support our public finance underwriting and advisory activities remained solid during our 2017 fiscal year and increased slightly compared with fiscal 2016.growth, partially offset by a decrease resulting from lower compensable revenues.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’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 $5Non-compensation expenses increased $31 million, or 9%10%, 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-interestincreased travel and event-related expenses, increased $16 million, or 2%. Administrative & incentive compensation and benefit expenses increased $36 million, or 8%, primarily resulting from theas well as an increase in incentive compensation as a resultexpenses associated with our acquisition of the increase inSumRidge Partners and to support our growth, partially offset by lower investment banking net revenues. Offsettingdeal expenses due to lower underwriting revenues compared with the increase, sales commission expenses decreased $29 million, or 14%, primarily as a result of lower institutional fixed income commission revenues during theprior year.
Year ended September 30, 20162021 compared with the year ended September 30, 20152020
Net revenues inRefer to “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2021 Form 10-K for a discussion of our 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 20162021 results compared to fiscal year 2015.2020.
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.
RESULTS OF OPERATIONS – ASSET MANAGEMENT
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 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 investment advisory and asset management services to individualthrough Raymond James Investment Management for certain retail accounts managed on behalf of third-party institutions, institutional accounts, and institutional investors, and also sponsors a family ofproprietary 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,funds that we provide administrative support, which may include trade execution, record-keeping and periodic investor reporting. Wemanage, generally earn higher fees for managed programs than for non-discretionary asset-based programs, as we provide additional services, such asutilizing active portfolio management to managed programs. Thesestrategies. Asset management fees are computed based on balances either at the beginning of the quarter, the end of the quarter, or average daily assets. Asset balancesfee-billable assets under management, which are impacted by both the performancemarket fluctuations and net inflows or outflows of the market and the new sales (inflows) and redemptions (outflows) of client accounts/funds.assets. Rising equity markets have historically had a positive impact on investment advisory fee revenues as existing accounts increase in value,value. Conversely, declining markets typically have a negative impact on revenue levels.
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 individuals and institutions may commit incremental funds in rising markets.net inflows or outflows of assets. For an overview of our Asset Management 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 | | 2022 | | 2021 | | 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 |
Revenues: | | | | | | | | | | |
Asset management and related administrative fees: | | | | | | | | | | |
Managed programs | | $ | 585 | | | $ | 570 | | | $ | 481 | | | 3 | % | | 19 | % |
Administration and other | | 297 | | | 267 | | | 207 | | | 11 | % | | 29 | % |
Total asset management and related administrative fees | | 882 | | | 837 | | | 688 | | | 5 | % | | 22 | % |
Account and service fees | | 22 | | | 18 | | | 16 | | | 22 | % | | 13 | % |
All other | | 10 | | | 12 | | | 11 | | | (17) | % | | 9 | % |
| | | | | | | | | | |
| | | | | | | | | | |
Net revenues | | 914 | | | 867 | | | 715 | | | 5 | % | | 21 | % |
Non-interest expenses: | | | | | | | | | | |
Compensation, commissions and benefits | | 194 | | | 182 | | | 177 | | | 7 | % | | 3 | % |
Non-compensation expenses: | | | | | | | | | | |
Communications and information processing | | 53 | | | 47 | | | 45 | | | 13 | % | | 4 | % |
Investment sub-advisory fees | | 149 | | | 127 | | | 99 | | | 17 | % | | 28 | % |
All other | | 132 | | | 122 | | | 110 | | | 8 | % | | 11 | % |
Total non-compensation expenses | | 334 | | | 296 | | | 254 | | | 13 | % | | 17 | % |
Total non-interest expenses | | 528 | | | 478 | | | 431 | | | 10 | % | | 11 | % |
Pre-tax income | | $ | 386 | | | $ | 389 | | | $ | 284 | | | (1) | % | | 37 | % |
|
| | | | | | | | | | | | | | | | | | |
| | 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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis
Selected key metrics
Managed Programs - For the fiscal years ended September 30, 2017 and 2016, approximately 80% of investment advisoryprograms
Management fees recorded in thisour Asset Management segment were earned fromare 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 “Raymond James Investment Management” line of the following table).
Revenues related to fee-based AUA in our PCG segment are shared by the PCG and Asset Management segments, the amount of which depends on whether or not clients are invested in assets heldthat are in managed programs. Ofprograms 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 Raymond James Investment Management 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 Raymond James Investment Management are impacted by market and investment performance and net inflows or outflows of assets, including the impact of acquisitions.
Fees for our managed programs are generally collected quarterly. Approximately 65% of these revenues, approximately 70% of such fees recorded in each quarter were determinedare based on balances atas of the beginning of the quarter (primarily in AMS), approximately 15% wereare based on balances atas of the end of the quarter, and the remaining 15% were computedapproximately 20% are based on average assetsdaily balances throughout the quarter.
Financial assets under management:management
| | | | | | | | | | | | | | | | | | | | |
| | As of September 30, |
$ in billions | | 2022 | | 2021 | | 2020 |
AMS (1) | | $ | 119.8 | | | $ | 134.4 | | | $ | 102.2 | |
Raymond James Investment Management | | 64.2 | | | 67.8 | | | 59.5 | |
Subtotal financial assets under management | | 184.0 | | | 202.2 | | | 161.7 | |
Less: Assets managed for affiliated entities | | (10.2) | | | (10.3) | | | (8.6) | |
Total financial assets under management | | $ | 173.8 | | | $ | 191.9 | | | $ | 153.1 | |
|
| | | | | | | | | | | | |
| | 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)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.
| |
(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 billions | | 2022 | | 2021 | | 2020 | |
Financial assets under management at beginning of year | | $ | 202.2 | | | $ | 161.7 | | | $ | 150.3 | | |
Raymond James Investment Management: | | | | | | | |
Acquisition of Chartwell Investment Partners (1) | | 9.8 | | | — | | | — | | |
Other - net outflows | | (1.5) | | | (0.5) | | | (5.4) | | |
AMS - net inflows | | 9.7 | | | 13.5 | | | 6.1 | | |
Net market appreciation/(depreciation) in asset values | | (36.2) | | | 27.5 | | | 10.7 | | |
Financial assets under management at end of year | | $ | 184.0 | | | $ | 202.2 | | | $ | 161.7 | | |
|
| | | | | | | | | | | | |
| | 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(1)Represents June 1, 2022 assets under management and non-discretionary assets were positively impacted by net financialof Chartwell Investment Partners, a registered investment advisor growth, the move to fee based accountsacquired as a resultpart 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.TriState Capital acquisition. See Note 3 of the Notes to Consolidated Financial Statements inof this Form 10-K for further information about this acquisition.
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
Raymond James Investment Management
Assets managed by Raymond James Investment Management include assets managed by our subsidiaries: Eagle Asset Management, Scout Investments, Reams Asset Management (a division of Scout Investments), ClariVest Asset Management, Cougar Global Investments, and Chartwell Investment Partners (“Chartwell”), which was acquired on June 1, 2022 in connection with our acquisition of TriState Capital. The following table presents Raymond James Investment Management’s AUM by objective, excluding assets for which it does not exercise discretion, as well as the approximate average client fee rate earned on such assets.
| | | | | | | | | | | | | | |
| | As of September 30, 2022 |
$ in billions | | AUM | | Average fee rate |
Equity | | $ | 23.1 | | | 0.56 | % |
Fixed income | | 33.5 | | | 0.20 | % |
Balanced | | 7.6 | | | 0.33 | % |
Total financial assets under management | | $ | 64.2 | | | 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 | | 2022 | | 2021 | | 2020 |
Total assets | | $ | 329.2 | | | $ | 365.3 | | | $ | 280.6 | |
The decrease in assets compared to the prior year was largely due to a decline in market values during the year. Administrative fees associated with these programs are predominantly based on balances at the beginning of each quarterly billing period.
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 | | 2022 | | 2021 | | 2020 |
Total assets | | $ | 7.3 | | | $ | 8.1 | | | $ | 7.1 | |
Year ended September 30, 20162022 compared with the year ended September 30, 2021
Net revenues of $914 million increased 5% and pre-tax income of $386 million decreased 1%.
Asset management and related administrative fees increased $45 million, or 5%, driven by higher financial assets under management and higher assets in non-discretionary asset-based programs at the beginning of most of our current-year quarterly billing periods compared with the prior-year quarterly billing periods. We expect the declines in financial assets under management and assets in non-discretionary asset-based programs during our fiscal fourth quarter of 2022, which occurred due to the decline in market values, to negatively affect our fiscal first quarter of 2023 revenues, as the majority of our asset management and related administrative fees are billed based on balances as of the beginning of the quarter.
Compensation expenses increased $12 million, or 7%, due to an increase in salaries due to labor market pressures and to support our growth, as well as incremental compensation expenses related to Chartwell. Non-compensation expenses increased $38 million, or 13%, largely due to higher investment sub-advisory fees, resulting from higher assets under management in sub-advised programs for most of the current fiscal year, as well as incremental expenses due to the acquisition of Chartwell.
Year ended September 30, 2021 compared to the year ended September 30, 20152020
Net revenues increased $12 million, or 3%,Refer to $404 million. Pre-tax income decreased $3 million, or 2%, to $132 million.
Total investment advisory“Item 7 - Management’s Discussion 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 fromAnalysis of Financial Condition and Results of Operations” of our Alex. Brown and 3Macs acquisitions had little impact on revenues as the acquisitions occurred late in the2021 Form 10-K for a discussion of our 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)2021 results 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.2020.
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'sManagement’s Discussion and Analysis
RESULTS OF OPERATIONS – BANK
Results
The Bank segment provides various types of Operations – RJ Bank
RJ Bank providesloans, including SBL, corporate loans, (C&I, CREresidential mortgage loans, and CRE construction), SBL, tax-exempt and residential loans. RJOur Bank segment is active in corporate loan syndications and participations. RJ Bankparticipations and lending directly to clients. We also provides Federal Deposit Insurance Corporation (“FDIC”)-insuredprovide FDIC-insured deposit accounts, including to clients of our broker-dealer subsidiaries, as well as other deposit and to the general public. RJliquidity management products and services. Our Bank segment 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. Our Bank segment’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 earnings,income, depending upon spreads realized on our net interest-bearing liabilities. For more information on average interest earninginterest-earning asset and interest-bearing liability balances and the related interest income and expense, see ourthe following 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“Item 1 - Business” of this Form 10-K. Our Bank segment results include the results of TriState Capital Bank since the acquisition date of June 1, 2022. See Note 3 of the Notes to Consolidated Financial Statements of this Form 10-K for information regarding this acquisition.
Operating results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, | | % change |
$ in millions | | 2022 | | 2021 | | 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 |
Revenues: | | | | | | | | | | |
Interest income | | $ | 1,209 | | | $ | 684 | | | $ | 800 | | | 77 | % | | (15) | % |
Interest expense | | (156) | | | (42) | | | (62) | | | 271 | % | | (32) | % |
Net interest income | | 1,053 | | | 642 | | | 738 | | | 64 | % | | (13) | % |
All other | | 31 | | | 30 | | | 27 | | | 3 | % | | 11 | % |
Net revenues | | 1,084 | | | 672 | | | 765 | | | 61 | % | | (12) | % |
Non-interest expenses: | | | | | | | | | | |
Compensation and benefits | | 84 | | | 51 | | | 51 | | | 65 | % | | — | % |
Non-compensation expenses: | | | | | | | | | | |
Bank loan provision/(benefit) for credit losses | | 100 | | | (32) | | | 233 | | | NM | | NM |
RJBDP fees to PCG | | 357 | | | 183 | | | 180 | | | 95 | % | | 2 | % |
All other | | 161 | | | 103 | | | 105 | | | 56 | % | | (2) | % |
Total non-compensation expenses | | 618 | | | 254 | | | 518 | | | 143 | % | | (51) | % |
Total non-interest expenses | | 702 | | | 305 | | | 569 | | | 130 | % | | (46) | % |
Pre-tax income | | $ | 382 | | | $ | 367 | | | $ | 196 | | | 4 | % | | 87 | % |
|
| | | | | | | | | | | | | | | | | | |
| | 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 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 its 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’s volume. Changes applicable to both volume and rate have been allocated proportionately.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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'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 loans in the above table are net of unearned income and deferred expenses. Total loans held for investment include $1.61 billion, $1.25 billion and $1.15 billion 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.
The following table presents RJ Bank’s allowance for loan losses by loan category:
|
| | | | | | | | | | | | | | | | | | | | | |
| | 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's Discussion and Analysis
(continued from the previous page)
|
| | | | | | | | | | | | | | |
| | 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 | % |
Year ended September 30, 20172022 compared with the year ended September 30, 20162021
Net revenues of $1.08 billion increased $9961% and pre-tax income of $382 million or 20%, to $593 million, primarily reflecting an increase in net interest income. Pre-tax income increased $72 million, or 21%, to $409 million. 4%.
Net interest income in the RJ Bank segment increased $96$411 million, or 20%64%, primarily due to a $2.92 billionthe increase in short-term interest rates, higher average interest-earning banking assets, to $18.76 billion and an increase inas well as incremental net interest margin.income from the acquisition of TriState Capital Bank on June 1, 2022. The increase in average interest-earning banking assets was primarily driven by a $1.94 billion increasesignificant growth in SBL and residential mortgage loans, as well as higher average corporate loans and a $1.03 billion increase in our average available-for-sale securities portfolio.securities. The Bank segment net interest margin increased to 3.10%2.39% from 3.04% due1.95% for the prior year. As part of our acquisition of TriState Capital, we recorded fair value adjustments of $145 million related to loans and $118 million related to available-for-sale securities, which will generally accrete into net interest income over 4 years and 7 years, respectively, exclusive of the impact of prepayments. We anticipate the Bank segment’s net interest income in our fiscal 2023 will benefit from a full year’s impact of TriState Capital Bank’s results and the Fed’s short-term interest rate increases enacted toward the end of fiscal 2022 and in November 2022, and expect the Bank segment net interest margin to approximate 3.15% for the fiscal first quarter of 2023. In addition, given that a significant portion of our interest-earning assets are sensitive to changes in short-term interest rates, we expect our net interest income to also be favorably impacted by any additional increases in short-term interest rates that may occur.
The bank loan provision for credit losses was $100 million for the current year, compared with a benefit for credit losses of $32 million for the prior year. The current-year provision included the impacts of loan growth at Raymond James Bank and a weaker macroeconomic outlook, as well as an increaseinitial provision for credit losses of $26 million recorded on loans acquired as part of the TriState Capital acquisition. The prior year benefit largely reflected improved economic forecasts used in the total banking assets yield,our
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
current expected credit losses (“CECL”) model at that time, as well as improved credit ratings within our corporate loan portfolio, partially offset by an increasethe impact of loan growth. We expect to continue to grow our bank loan portfolio. Net loan growth should result in RJ Bank’s total costadditional provisions for credit losses and future economic deterioration could result in elevated bank loan provisions for credit losses in future periods.
Compensation expenses increased $33 million, or 65%, primarily reflecting incremental compensation expenses of funds. The increase inTriState Capital Bank.
Non-compensation expenses, excluding the total banking assets yield wasbank loan provision/(benefit) for credit losses, increased $232 million, or 81%, primarily due to an increase in RJBDP and other fees paid to PCG, incremental expenses associated with TriState Capital Bank (including a $5 million initial provision for credit losses on TriState Capital Bank’s unfunded lending commitments and amortization of intangible assets), and a provision for credit losses on unfunded lending commitments unrelated to the loan portfolio yield resulting fromacquisition compared with a benefit for the prior year. RJBDP fees to PCG increased $174 million, or 95%, due to an overall rise in market interest rates. The increase in the total cost of funds primarily resulted from the rise in marketshort-term interest rates as well as an increase in average FHLB advances. Correspondingclient cash swept to Raymond James Bank as part of the increaseRJBDP. As described in average interest-earning banking assets, average interest-bearing banking liabilities increased $2.83 billion“Management’s Discussion and Analysis - Results of Operations - Private Client Group”, our Bank segment pays servicing fees to $17.09 billion.
The loan loss provision decreased $15 million, or 54%, dueour PCG segment for the administrative services provided related to our clients’ deposits that are swept to our Bank segment as part of the changeRJBDP. These servicing fees are variable in mix of loan growth during fiscal 2017. Growth was significantly lowernature and fluctuate based on client cash balances in the C&I loan portfolio duringprogram, as well as the current year, which has higher allowance percentages,level of short-term interest rates and was higherthe interest paid to clients on balances in the residential mortgage, securities-based and tax-exempt loan portfolios, which have lower allowance percentages. This positive impact was partially offsetRJBDP. As the yield from third-party banks in the program continues to rise, the RJBDP servicing costs paid 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 impactour Bank segment to our loan portfolio associated with these weather related events and determined that onlyPCG segment will also increase to reflect the market rate. These fees to PCG are eliminated in the computation of 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.consolidated results.
Non-interest expenses (excluding provision for loan losses) increased $42 million, or 33%, primarily reflecting a $25 million increase in affiliate deposit account servicing fees due to an increase in client account balances and a $4 million increase in compensation and benefits expense resulting from compensation increases and staff additions to support the growth of the business.
Year ended September 30, 20162021 compared to the year ended September 30, 20152020
Net revenues in fiscal year 2016 increased $80 million, or 19%,Refer to $494 million, primarily reflecting an increase in interest income. Pre-tax income increased $59 million, or 21%, to $337 million.
The $75 million, or 19%, increase in fiscal year 2016 net interest income was the result of a $2.65 billion increase in average interest-earning banking assets partially offset by a small decline in net interest margin. The increase in average interest-earning banking assets was driven by a $2.21 billion increase in average loans and a $443 million increase in average cash and available-for-sale securities portfolio. The net interest margin at September 30, 2016 decreased to 3.04% from 3.07% 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 in short-term interest rates. The increase in total cost of funds primarily resulted from an increase in deposit and borrowing costs, which includes additional expense from our interest rate hedging activities.
Management's“Item 7 - Management’s Discussion and Analysis
Borrowing costs increased in of Financial Condition and Results of Operations” of our 2021 Form 10-K for a discussion of our fiscal year 2016. Corresponding to the increase in average interest-earning banking assets, average interest-bearing banking liabilities increased during fiscal year 2016.
The $5 million, or 20%, increase in the provision for loan losses as2021 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.2020.
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, which predominantly consist of investments in third-party funds, interest income on certain corporate cash balances, certain acquisition-related expenses, primarily comprised of professional fees, and certain corporate overhead costs of RJF that are not allocated to other segments, 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 with certain acquisitions.reduction in workforce expenses that occurred in fiscal 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 | | 2022 | | 2021 | | 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 |
Revenues: | | | | | | | | | | |
Interest income | | $ | 25 | | | $ | 8 | | | $ | 30 | | | 213 | % | | (73) | % |
Gains/(losses) on private equity investments | | 9 | | | 74 | | | (28) | | | (88) | % | | NM |
All other | | 9 | | | 6 | | | 4 | | | 50 | % | | 50 | % |
Total revenues | | 43 | | | 88 | | | 6 | | | (51) | % | | 1,367 | % |
Interest expense | | (93) | | | (96) | | | (88) | | | (3) | % | | 9 | % |
Net revenues | | (50) | | | (8) | | | (82) | | | (525) | % | | 90 | % |
Non-interest expenses: | | | | | | | | | | |
Compensation and all other | | 141 | | | 140 | | | 64 | | | 1 | % | | 119 | % |
Losses on extinguishment of debt | | — | | | 98 | | | — | | | (100) | % | | NM |
Reduction in workforce expenses | | — | | | — | | | 46 | | | — | % | | (100) | % |
Total non-interest expenses | | 141 | | | 238 | | | 110 | | | (41) | % | | 116 | % |
Pre-tax loss | | $ | (191) | | | $ | (246) | | | $ | (192) | | | 22 | % | | (28) | % |
|
| | | | | | | | | | | | | | | | | |
| 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 | ) |
Year ended September 30, 2022 compared to the year ended September 30, 2021
Noncontrolling interests is primarily comprised
The pre-tax loss of $191 million was $55 million lower than the net pre-tax impact (which are net gains) fromloss in the consolidation of certain private equity investments with noncontrolling interests reflecting the portion of such gains that we do not own.prior year.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis
Net revenues decreased $42 million, primarily due to lower private equity gains compared with the prior year. Private equity gains in fiscal 2022 totaled $9 million, of which an insignificant amount was attributable to noncontrolling interests. The prior year included $74 million of private equity valuation gains, of which $25 million were attributable to noncontrolling interests and were offset within other expenses. Offsetting the negative impact of the lower private equity gains, interest income increased compared with the prior year, largely due to the increase in short-term interest rates, and interest expense decreased due to lower interest expense on senior notes payable compared with the prior year, as a result of refinancing such notes at a lower interest rate.
Non-interest expenses decreased $97 million, or 41%, primarily due to losses on extinguishment of debt in the prior year related to the early-redemption our $250 million of 5.625% senior notes due 2024 and our $500 million of 3.625% senior notes due 2026, as well as the aforementioned decrease in amounts attributable to noncontrolling interests. These decreases were partially offset by an increase in professional fees associated with acquisition activities, primarily associated with our current-year acquisitions of Charles Stanley, TriState Capital, and SumRidge Partners, as well as higher executive compensation expenses due to the increase in earnings.
Year ended September 30, 20172021 compared to the year ended September 30, 20162020
Refer to “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2021 Form 10-K for a discussion of our fiscal 2021 results compared to fiscal 2020.
STATEMENT OF FINANCIAL CONDITION ANALYSIS
The pre-tax loss generated by this segment increased by $21 million,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 14%.as investments, goodwill and identifiable intangible assets, and other assets. A significant portion of our assets were liquid in nature, providing us with flexibility in financing our business.
Total revenuesassets of $80.95 billion as of September 30, 2022 were $19.06 billion, or 31%, greater than our total assets as of September 30, 2021. Our acquisition of TriState Capital during fiscal year 2022 brought significant amounts of assets and liabilities onto our balance sheet, including, as of September 30, 2022, $12.13 billion of bank loans, net, $1.55 billion of available-for-sale securities, and $721 million 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 highergoodwill and identifiable intangible assets, net. Bank loans, 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 notesalso increased due to the May 2017 and July 2016 issuances of an aggregate $1.30$6.12 billion in senior notes, partially offset byloan growth unrelated to the April 2016 maturityacquisition of TriState Capital, consisting of increases in corporate, residential, and repaymentsecurities-based loans. The acquisition 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 inCharles Stanley during fiscal year 2017. See Note 152022 contributed, as of the Notes to Consolidated Financial StatementsSeptember 30, 2022, $2.14 billion in this Form 10-Kassets segregated 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 Groupregulatory purposes, as well as $201 million in goodwill and identifiable intangible assets, net. Our acquisition of SumRidge Partners contributed, as of September 30, 2022, $715 million in trading assets, $277 million in other receivables, net, and $152 million in goodwill and identifiable intangible assets, net. Deferred tax assets, net increased $325 million as a result of the decline in fair value of our fiscal year 2016 acquisitions of Alex. Brownavailable-for-sale securities portfolio primarily due to market conditions. Offsetting these increases were decreases in assets segregated for regulatory purposes and 3Macs.restricted cash, primarily due to a shift in client cash balances from our CIP, which is held at RJ&A and impacts our segregated assets, to our Bank segment through the RJBDP. Cash and cash equivalents decreased $1.02 billion primarily due to acquisition, dividend, and share repurchase activities. 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, 2016 compared to the year ended September 30, 2015
The fiscal year 2016 pre-tax loss generated by this segment increased by approximately $84 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 million due to the nonrecurring prior year gain on the sale of all of our Jefferson County, Alabama Limited Obligation School Warrants ARS. Offsetting these decreases, prior year foreign exchange losses of $5 million arising from certain Canadian denominated liabilities did not recur, and interest income increased $5 million resulting from the increase in interest rates and higher corporate cash balances throughout most of fiscal year 2016.
Interest 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% 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 the result of an increase in corporate charitable donations, and $4 million was the result of additional executive compensation expense resulting from the favorable results of operations and new personnel.
The acquisition-related expenses pertain to incremental expenses incurred in fiscal year 2016 in connection with our acquisitions of Alex. Brown, 3Macs and Mummert. See Note 3 of the Notes to Consolidated Financial Statements in this Form 10-K for information regarding the components of these expenses.
Management's Discussion and Analysis
Certain statistical disclosures by bank holding companies
As a financial holding company, we are required to provide certain statistical disclosures by bank holding companies pursuant to 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).on our acquisitions.
|
| | | | | | |
| | Year ended September 30, |
| | 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% |
Average equity to average assets | | 15.9% | | 16.6% | | 17.7% |
Dividend payout ratio | | 20.3% | | 21.9% | | 21.0% |
RJF return on average assets is computed as net income attributable to RJF for the year indicated, divided by average assets for each respective fiscal year. Average assets is computed by adding theAs of September 30, 2022, our total assetsliabilities of $71.52 billion were $17.93 billion, or 33%, greater than our total liabilities as of each quarter-end date during the indicated fiscal year, plus the beginningSeptember 30, 2021. The increase in total liabilities was primarily due to an increase in bank deposits of the year total, divided by five.
RJF return on average equity is computed by utilizing the net income attributable to RJF for the year indicated, divided by the average equity attributable to RJF for each respective 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, plus the beginning of the year total, divided by five.
Average equity to average assets is computed as average equity divided by average assets as calculated in the above explanations.
Dividend payout ratio is computed as dividends declared per common share during the fiscal year$18.86 billion, which includes $13.17 billion as a percentageresult of diluted earnings per common share.
Referour acquisition of TriState Capital, as well as an increase in bank deposits unrelated to the RJacquisition of $5.69 billion, largely due to growth in RJBDP cash balances swept to Raymond James Bank. Trading liabilities increased $660 million, primarily due to our acquisition of SumRidge Partners. Other borrowings increased $433 million, primarily reflecting the additional FHLB borrowings and subordinated note of TriState Capital. Offsetting these increases was a decrease in brokerage client payables related to the aforementioned shift in client cash balances from our CIP (included in brokerage client payables) to our Bank segment through the RJBDP (included in bank deposits), partially offset by an increase in brokerage client payables of $2.30 billion as a result of our acquisition of Charles Stanley.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Risk Management sections of this MD&A and the Notes to Consolidated Financial Statements in this Form 10-K for the other required disclosures.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.
LiquidityOur capital planning and capital risk management processes are governed by the Capital Planning Committee (“CPC”), a senior management committee that provides oversight on our capital planning and ensures that our strategic planning and risk management processes are integrated into the capital planning process. The CPC meets at least quarterly to review key metrics related to the firm’s capital, such as debt structure and capital ratios; to analyze potential and emerging risks to capital; to oversee our annual firmwide capital stress test; and to propose capital actions to the Board of Directors, such as declaring dividends, repurchasing securities, and raising capital. To ensure that we have sufficient capital to absorb unanticipated losses, the firm adheres to capital risk appetite statements and tolerances set in excess of regulatory minimums, which are established by the CPC and approved by the Board of Directors. We conduct enterprise-wide capital stress testing to ensure that we maintain adequate capital to adhere to our established tolerances under multiple scenarios, including a stressed scenario.
Capital structure
Common equity (i.e., common stock, additional paid-in capital, and retained earnings) is provided primarily throughthe primary component of our business operationscapital structure. Common equity allows for the absorption of losses on an ongoing basis and financing activities. Financing activities could includefor the conservation of resources during stress periods, as it provides RJF with discretion on the amount and timing of dividends and other capital actions. Information about our common equity is included in the Consolidated Statements of Financial Condition, the Consolidated Statements of Changes in Shareholders’ Equity, and Note 20 of this Form 10-K.
Under regulatory capital rules applicable to us as a bank borrowings, repurchase agreement transactions or additionalholding company, we are required to maintain minimum leverage ratios (defined as tier 1 capital raising activitiesdivided by adjusted average assets), as well as minimum ratios of tier 1 capital, common equity tier 1 (“CET1”), and total capital to risk-weighted assets. These capital ratios incorporate quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under the regulatory capital rules and are subject to qualitative judgments by the regulators about components, risk-weightings, and other factors. We calculate these ratios in order to assess compliance with both regulatory requirements and internal capital policies. In order to maintain our universal shelf registration statement.ability to take certain capital actions, including dividends and common equity repurchases, and to make bonus payments, we must hold a capital conservation buffer above our minimum risk-based capital requirements. See Note 24 for further information about our regulatory capital and related capital ratios.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The following table presents the components of RJF’s regulatory capital used to calculate the aforementioned regulatory capital ratios.
| | | | | | | | |
$ in millions | | September 30, 2022 |
Common equity tier 1 capital/Tier 1 capital | | |
Common stock and related additional paid-in capital | | $ | 2,989 | |
Retained earnings | | 8,843 | |
Treasury stock | | (1,512) | |
Accumulated other comprehensive loss | | (982) | |
Less: Goodwill and other intangibles, net of related deferred tax liabilities | | (1,805) | |
Other adjustments | | 847 | |
Common equity tier 1 capital | | 8,380 | |
Additional tier 1 capital (preferred equity of $120, net $20 of other items) | | 100 | |
Tier 1 capital | | 8,480 | |
Tier 2 capital | | |
Tier 2 capital instruments plus related surplus | | 100 | |
Qualifying allowances for credit losses | | 451 | |
Tier 2 capital | | 551 | |
Total capital | | $ | 9,031 | |
The following table presents RJF’s risk-weighted assets by exposure type used to calculate the aforementioned regulatory capital ratios.
| | | | | | | | |
$ in millions | | September 30, 2022 |
On-balance sheet assets: | | |
Corporate exposures | | $ | 20,147 | |
Exposures to sovereign and government-sponsored entities (1) | | 2,002 | |
Exposures to depository institutions, foreign banks, and credit unions | | 3,003 | |
Exposures to public-sector entities | | 696 | |
Residential mortgage exposures | | 3,732 | |
Statutory multifamily mortgage exposures | | 71 | |
High volatility commercial real estate exposures | | 128 | |
Past due loans | | 110 | |
Equity exposures | | 445 | |
Securitization exposures | | 129 | |
Other assets | | 7,325 | |
Off-balance sheet: | | |
Standby letters of credit | | 62 | |
Commitments with original maturity of 1 year or less | | 98 | |
Commitments with original maturity greater than 1 year | | 2,437 | |
Over-the-counter derivatives | | 305 | |
| | |
Other off-balance sheet items | | 423 | |
Market risk-weighted assets | | 3,063 | |
Total standardized risk-weighted assets | | $ | 44,176 | |
(1)RJF’s exposure is predominantly to the U.S. government and its agencies.
Cash provided by operating activitiesflows
Cash and cash equivalents (excluding amounts segregated for regulatory purposes and restricted cash) decreased $1.02 billion to $6.18 billion during the year ended September 30, 2017 was $1.31 billion.2022, primarily due to investments in bank loans and available-for-sale securities. In addition, we completed our acquisitions of Charles Stanley, TriState Capital, and SumRidge Partners for total cash consideration of $1.17 billion (including a $125 million note issued to operating cash flows relatedTriState Capital prior 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 cashacquisition) during the year ended September 30, 2017.
The primary investing activities were:
A net2022. Offsetting these cash outflows were the impacts of an increase in RJ Bank loans used $1.92 billion.bank deposits, cash received from the sale of U.S. Treasury securities (“U.S. Treasuries”) previously segregated for regulatory purposes, as well as positive net income during the period.
Purchases
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Sources of available-for-sale securitiesliquidity
Approximately $1.91 billion of our total September 30, 2022 cash and cash equivalents included cash held at RJF, the parent company, which included cash loaned to RJ Bank, net&A. These amounts include the impact of proceedssignificant dividends from maturations, repayments and sales within the portfolio, used $1.34 billion.
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 cashRJ&A during the year ended September 30, 2017.
Increases in cash2022, as well as dividends 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 Liquidity
Approximately $1.29 billion of our total September 30, 2017 cash and cash equivalents (a portion of which resides in depository accounts at RJ Bank) was available 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 Bank with a balance of $192 million assubsidiaries. As of September 30, 2017. The portion of this total that is available on demand without restrictions, which amounted to $152 million at September 30, 2017, is reflected in the RJF total and is excluded from the RJ Bank total.
2022, RJF had loaned $783 million$1.30 billion 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 otherwise deployed in its normal business activities.
The following table presents our holdings of cash and cash equivalents.
| | | | | | | | | |
$ in millions | | September 30, 2022 | |
RJF | | $ | 629 | | |
RJ&A | | 2,151 | | |
Raymond James Bank | | 1,205 | | |
RJ Ltd. | | 714 | | |
TriState Capital Bank | | 532 | | |
Raymond James Capital Services, LLC | | 243 | | |
RJFS | | 151 | | |
Charles Stanley Group Limited | | 104 | | |
Raymond James Investment Management | | 87 | | |
Other subsidiaries | | 362 | | |
Total cash and cash equivalents | | $ | 6,178 | | |
RJF maintained depository accounts at Raymond James Bank with a balance of $260 million as of September 30, 2022. The portion of this total that was available on demand without restrictions, which amounted to $230 million as of September 30, 2022, is reflected in the RJF cash balance and excluded from Raymond James Bank’s cash balance in the preceding table.
A large portion of the cash and cash equivalents balances at our non-U.S subsidiaries, including RJ Ltd., as of September 30, 2022 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 company from subsidiaries, which areas described in the following section.
Management's Discussion and Analysis
Liquidity Availableavailable from Subsidiariessubsidiaries
Liquidity is principally available to the parent companyRJF 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. Covenantsbalances. In 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, 2017,2022, RJ&A significantly exceeded both the minimum regulatory requirements, and the covenants in its financing arrangements pertaining to net capital. At that date,capital, as well as its internally-targeted net capital tolerances, despite significant dividends to RJF during the year ended September 30, 2022. FINRA may impose certain restrictions, such as restricting withdrawals of equity capital, if a member firm were to fall below a certain threshold or fail to meet minimum net capital requirements which may result in RJ&A had excess net capital of approximately $534 million, of which $176 million was available for dividend while still maintaining the internally targeted net capital ratio of 15% of aggregate debit items. There are also limitations onlimiting 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 RJ Bank’sits current calendar year and the previous two calendar years’ retained net income, and RJ Bankit maintains its targeted regulatory capital ratios. At September 30, 2017, RJ Bank had $184 million ofDividends may be limited to the extent that capital in excess of the amount it would need at September 30, 2017is needed to maintain 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.support balance sheet growth.
Although we have liquidity available to us from our other subsidiaries, the available amounts aremay not be as significant as the amountsthose previously described above and, in certain instances, may be subject to regulatory requirements.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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 formprimarily consist 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.
The following table presents our most significant committed financing arrangements with third partythird-party lenders, which we generally utilize to finance a portion of our fixed income securities trading instruments held by RJ&A, and the outstanding balances related thereto:thereto.
| | | | | | | | | | | | | | | September 30, 2022 |
| | 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. The variable rate facility fee on our Credit Facility, which is applied to the committed amount, decreased to 0.150% per annum as of September 30, 2022 from 0.175% per annum as of September 30, 2021, as a result of Moody’s Investor Services (“Moody’s”) upgrade of our credit ratings in February 2022. For additional details on our issuer and senior long-term debt ratings see our credit ratings table within this section below. 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.
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 held by RJ&A or for cash management purposes. Our uncommitted secured financing arrangements generally require us to post collateral in excess of the amount borrowed.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, 2017,2022, we had outstanding borrowings under fivefour uncommitted secured borrowing arrangements with lenders out of a total of 1512 uncommitted financing arrangements (nine(eight 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, 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, 2022 |
Outstanding borrowing amount: | | |
Uncommitted secured | | $ | 294 | |
Uncommitted unsecured | | — | |
Total outstanding borrowing amount | | $ | 294 | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
|
| | | | | | | | | | | | | | | | |
| | 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 |
|
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, 2022 | | $ | 196 | | | $ | 294 | | | $ | 294 | | | $ | 249 | | | $ | 367 | | | $ | 367 | |
June 30, 2022 | | $ | 203 | | | $ | 276 | | | $ | 100 | | | $ | 238 | | | $ | 300 | | | $ | 168 | |
March 31, 2022 | | $ | 271 | | | $ | 334 | | | $ | 140 | | | $ | 211 | | | $ | 304 | | | $ | 221 | |
December 31, 2021 | | $ | 247 | | | $ | 258 | | | $ | 203 | | | $ | 306 | | | $ | 305 | | | $ | 204 | |
September 30, 2021 | | $ | 220 | | | $ | 234 | | | $ | 205 | | | $ | 269 | | | $ | 286 | | | $ | 279 | |
Other borrowings and collateralized financings
RJ BankWe had $875 million$1.19 billion in FHLB borrowings outstanding at September 30, 2017,2022, comprised of floating-rate advances totaling $850 million and a $25 million fixed-rate advance, alladvances. We use interest rate swaps to manage the risk of which are secured by a blanket lien on RJ Bank’s residential loan portfolio (seeincreases in interest rates associated with the majority of these advances. See Note 1416 of the Notes to Consolidated Financial Statements inof this Form 10-K for additional information regarding these borrowings). RJ Bankborrowings. At September 30, 2022, we had pledged $6.58 billion of residential mortgage loans and $1.43 billion of CRE loans with the FHLB as security for the repayment of these borrowings and had an additional $916 million$5.22 billion in immediate credit available based on collateral pledged. As of September 30, 2022, with a pledge of additional collateral, we would have additional credit available from certain FHLB member banks.
A portion of our fixed income transactions are cleared and executed through a third-party clearing organization, which provides financing for the FHLBpurchase of trading instruments to support such transactions. The amount of financing is based on the amount of trading inventory financed, as well as any deposits held at the clearing organization. Amounts outstanding under this financing arrangement, which are collateralized by a portion of our trading inventory and accrue interest based on market rates, are included in “Other payables” in our Consolidated Statements of Financial Condition. While we had borrowings outstanding as of September 30, 2017 and, with2022, the pledge of additional collateralclearing organization is under no contractual obligation to the FHLB, total available credit of 30% of total assets.lend to us under this arrangement.
RJ Bank isWe are 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 certain pledged C&I loans.
FromAs part of the acquisition of TriState Capital, we assumed, as of the closing date, TriState Capital’s subordinated notes due 2030, with an aggregate principal amount of $98 million. The subordinated notes incur interest at a fixed rate of 5.75% until May 2025 and thereafter at a variable interest rate based on LIBOR, or an appropriate alternative reference rate at the time that LIBOR ceases to timebe published. We may redeem these subordinated notes beginning in August 2025 at a redemption price equal to 100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest thereon to the redemption date. See Note 16 of the Notes to Consolidated Financial Statements of this Form 10-K for additional information regarding these borrowings.
We may act as an intermediary between broker-dealers and other financial institutions whereby we purchaseborrow securities under agreementsfrom one broker-dealer and then lend them to resell (“reverse repurchase agreements”)another. Where permitted, we have also loaned, to broker-dealers and sellother financial institutions, 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 $172 million as of September 30, 2022 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 in the amount $221 million as of September 30, 2017 (which are reflected in the table of financing arrangements above). Such financings are generallyfor more information on our collateralized by non-customer, RJ&A owned securities or by securities that we have received as collateral under reverse repurchase agreements.
The average daily balance outstanding during the five most recent successive quarters, the maximum month-end balance outstanding during the quarter and the period-end balances for repurchase agreements and reverse repurchase agreements were as follows: financings.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Repurchase transactions | | Reverse repurchase transactions |
For the quarter ended ($ 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 |
|
Senior notes payable
At September 30, 2017, in addition to the financing arrangements described above,2022, 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, 2022, estimated future contractual interest payments on our senior notes were approximately $2 billion, of which $91 million is payable in the Notes to the Consolidated Financial Statements in this Form 10-K for additional information.
fiscal 2023,
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis
with the remainder extending through 2051.
Credit ratings
Our issuer, senior long-term debt, and preferred stock credit ratings as of the most current report are:
are detailed in the following table. | | | | | | | | | | | | | | | | | | | | |
| | Credit Rating |
Rating Agency | Rating | OutlookFitch Ratings, Inc. |
| Moody’s | | Standard & Poor’s Ratings Services (“S&P”) | BBB+ | Stable |
Moody’s Investors Services (“Moody’s”)Issuer and senior long term debt | Baa1 | A- | | A3 | | BBB+ |
Preferred Stock | | BB+ | | Baa3 (hyb) | | Not rated |
Outlook | | Stable | | Stable | | Positive |
Our current long-term debtcredit 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 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$733 million as of September 30, 20172022, comprised of $467 million related to employee-directed plans and $266 million related to company-directed plans, and we arewere able to borrow up to 90%, or $365$660 million, of the September 30, 20172022 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, 2017.2022.
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, 2017As part of our ongoing operations, we acquired 100%also enter into contractual arrangements that may require future cash payments, including certificates of the outstanding shares of the Scout Group (see Note 3 of the Notes to Consolidated Financial Statements in this Form 10-K for more information) for a purchase price consideration of $173 million. We utilized our cash on-hand to fund the purchase.
See the “Contractual obligations” section below for information regarding our contractual obligations.
Statement 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
RegulatoryManagement’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, 2017,2022, all of our active regulated domestic and international subsidiaries had net capital in excess of minimum requirements. In addition, RJF, Raymond James Bank, and RJTriState Capital Bank were categorized as “well capitalized”“well-capitalized” as of September 30, 2017.
2022. 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.
Valuation We believe that of financial instruments
The use of fair value to measure financial instruments, with related gains or losses recognized in our Consolidated Statements of Incomeaccounting estimates and Comprehensive Income, is fundamental to our financial statements and our risk management processes.
“Financial instruments” and “Financial instruments sold but not yet purchased” are reflectedassumptions, those described in 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), 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, establishesfollowing sections involve 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 for 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 measure 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 determining fair value, GAAP provides for the following three levels to be used to classify our fair value measurements:
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2-Inputs that are other than quoted prices in active markets, but which are either directly or indirectly observable as of the reporting date (i.e., prices for similar instruments).
Level 3-Inputs that cannot be observed in market activity.
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.
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 value for certain of our financial instruments is derived using pricing models and other valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinant of thehigh degree of judgment involved in determining the fair value of our financial instruments. Financial instruments for which actively quoted prices or pricing parameters are available will 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. 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 tocomplexity.
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 in 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, 2017.2022.
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 loancredit losses which reflectsbased on expected credit losses over a financial asset’s lifetime. The remaining life of our continuing evaluationfinancial 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 probable losses inherent inrisk characteristics within each financial asset type. Our estimates are based on ongoing evaluations of our financial assets, the loan portfolio. Refer to Note 2 ofrelated credit risk characteristics, and the Notes to Consolidated Financial Statements in this Form 10-Koverall economic and environmental conditions affecting the financial assets. Our process for discussion of RJ Bank’s policies regardingdetermining the allowance for loan losses, and refer to Note 8 of the Notes to Consolidated Financial Statements 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 and an allowance for loan losses of $190 million was recorded against that balance. The total 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 capitalcapital.
We generally estimate the allowance for credit losses on bank loans using credit risk models which incorporate relevant available information from internal and external sources relating to past events, current conditions, and reasonable and supportable economic forecasts. After testing the reasonableness of a variety of economic forecast scenarios, each model is run using a single forecast scenario selected for each model. Our forecasts incorporate assumptions related to macroeconomic indicators including, but not limited to, U.S. gross domestic product, equity market indices, unemployment rates, and commercial real estate and residential home price indices.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
To demonstrate the sensitivity of credit loss estimates on our bank loan portfolio to macroeconomic forecasts, we compared our modeled estimates under the base case economic scenario used to estimate the allowance for credit losses as of September 30, 2022, to what our estimate would have been under a downside case scenario and an upside scenario, without considering any offsetting effects in the qualitative component of our allowance for credit losses as of September 30, 2022. As of September 30, 2022, use of the downside case scenario would have resulted in an increase of approximately $135 million in the quantitative portion of our allowance for credit losses on bank loans, while the use of the upside case would have resulted in a reduction of approximately $25 million in the quantitative portion of our allowance for credit losses on bank loans at RJ Bank.September 30, 2022. These hypothetical outcomes reflect the relative sensitivity of the modeled portion of our allowance estimate to macroeconomic forecasted scenarios but do not consider any potential impact qualitative adjustments could have on the allowance for credit losses in such environments. Qualitative adjustments could either increase or decrease modeled loss estimates calculated using an alternative economic scenario assumption. Further, such sensitivity calculations do not necessarily reflect the nature and extent of future changes in the related allowance for a number of reasons including: (1) management's predictions of future economic trends and relationships among the scenarios may differ from actual events; and (2) management's application of subjective measures to modeled results through the qualitative portion of the allowance for credit losses when appropriate. The downside case scenario utilized in this hypothetical sensitivity analysis assumes a moderate recession. To the extent macroeconomic conditions worsen beyond those assumed in this downside case scenario, we could incur provisions for credit losses significantly in excess of those estimated in this analysis.
Recent accounting developments
For information regarding our recent accounting developments, seeSee Note 2 of the Notes to Consolidated Financial Statements inof this Form 10-K.
Off-Balance sheet arrangements
For10-K for information regarding our off-balance sheet arrangements, seeallowance for credit losses related to bank loans as of September 30, 2022.
Business combinations
We generally account for our acquisitions as business combinations under GAAP, using the acquisition method of accounting, whereby the assets acquired, including separately identifiable intangible assets, and liabilities assumed are recorded at their acquisition-date estimated fair values. Any excess purchase consideration over the acquisition-date fair values of the net assets acquired is recorded as goodwill. The acquisition method requires us to make significant estimates and assumptions in determining the fair value of assets acquired and liabilities assumed. Significant judgment is also required in estimating the fair value of identifiable intangible assets and in assigning the useful lives of the definite-lived identifiable intangible assets, which impact the periods over which amortization of those assets is recognized. Accordingly, we typically obtain the assistance of third-party valuation specialists. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management, but are inherently uncertain as they pertain to forward-looking views of our businesses, client behavior, and market conditions. We consider the income, market and cost approaches and place reliance on the approach or approaches deemed most appropriate to estimate the fair value of intangible assets. 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) and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances may occur that could affect the accuracy or validity of the estimates and assumptions.
During the year ended September 30, 2022, our acquisitions of Charles Stanley, TriState Capital, and SumRidge Partners required us to make estimates and assumptions in determining the fair values of assets acquired and liabilities assumed, the most significant being related to the valuation of bank loans and the core deposit intangible asset in the TriState Capital acquisition and the customer relationship asset in the Charles Stanley acquisition. In determining the estimated fair value of bank loans acquired as part of the TriState Capital acquisition, management used a discounted cash flow methodology that considered loan type and related collateral, credit loss expectations, classification status, market interest rates and other market factors from the perspective of a market participant. Loans were segregated into specific pools according to similar characteristics, including risk, interest rate type (i.e., fixed or floating), underlying benchmark rate, and payment type and were treated in the aggregate when determining the fair value of each pool. The discount rates were derived using a build-up method inclusive of the weighted average cost of funding, estimated servicing costs and an adjustment for liquidity and then compared to current origination rates and other relevant market data. The fair value of the core deposit intangible asset was estimated using a discounted cash flow approach, specifically the favorable source of funds method, that considered the servicing and interest costs of the acquired deposit base, an estimate of the cost associated with alternative funding sources, expected client attrition rates, deposit growth rates, and a discount rate. The fair values of customer relationships were estimated using a multi-period excess earnings approach that considered future period post-tax earnings, as well as a discount rate.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Refer to Note 223 of the Notes to Consolidated Financial Statements inof this Form 10-K.10-K for more information on our valuation methods and the results of applying the acquisition method of accounting, including the estimated fair values of the assets acquired and liabilities assumed and, where relevant, the estimated remaining useful lives.
EffectsRECENT ACCOUNTING DEVELOPMENTS
In March 2022, the Financial Accounting Standards Board issued new guidance related to troubled debt restructurings and disclosures regarding write-offs of inflationfinancing receivables (ASU 2022-02), amending guidance related to the measurement of credit losses on financial instruments (ASU 2016-13). The amendment eliminates the accounting guidance for troubled debt restructurings for creditors, but requires enhanced disclosures for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty, and requires disclosure of current-period gross write-offs by year of origination for financing receivables. This new guidance is effective for our fiscal year beginning on October 1, 2023 and will be applied on a prospective basis. Although permitted, we do not plan to early adopt. We do not expect the adoption of this new guidance to have a material impact on our financial position and results of operations.
Our assets are primarily liquid in nature and are not significantly affected by inflation. However, the rate of inflation affects our expenses, including employee compensation, communications and occupancy, which may not be readily recoverable through charges for services we provide to our clients.
Management's Discussion and Analysis
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 identifying, mitigating, and escalating risks arising from its day-to-day activities. The second line of risk management, which includes Compliance and Risk Management, advises our client-facing businesses and other first-line functions in identifying, assessing, and mitigating risk. The second line of risk management tests and monitors the effectiveness of controls, as deemed necessary, and escalates risks when appropriate to senior management and the Board of Directors. The third line of risk management, Internal Audit, independently reviews activities conducted by the previous lines of risk management to assess their management and mitigation of risk, providing additional assurance to the Board of Directors and senior management, with a view toward enhancing our oversight, management, and mitigation of risk. Our legal department provides legal advice and guidance to each of these three lines of risk management.
Market risk
Market risk is our risk of loss resulting from the impact of changes in market prices on our trading inventory, 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. OurThrough our broker-dealer subsidiaries primarily RJ&A,we trade taxable and tax-exempt debt obligations and act as an active market maker in over-the-counter equity securities. In connection with these activities, wesecurities and maintain trading 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 MBS, residential mortgage-backed securities, CMOs and equity securities within RJ Bank’sour 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 volatility of interest rates, mortgage prepayment speeds and credit spreads. Equity risk results from changes in prices of equity securities. Foreign exchange risk results from changes in spot prices, forward prices and volatility of foreign exchange rates. See 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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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 typethrough the use of hedging strategies utilizing U.S. Treasuries, 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 derivative exposuresTrading positions and derivatives are monitored both on a total portfolio basis and separately for each agreement for selected maturity periods.
In the normal course of business,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 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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The following table sets forth the high, low, period-end and average daily one-day VaR for all of our trading portfolios, including fixed income and equity instruments, and for our derivatives for the periods and dates indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, 2022 | | Period-end VaR | | | | For the year ended September 30, |
$ in millions | | High | | Low | | September 30, 2022 | | September 30, 2021 | | $ in millions | | 2022 | | 2021 |
Daily VaR | | $ | 3 | | | $ | 1 | | | $ | 3 | | | $ | 1 | | | Average daily VaR | | $ | 1 | | | $ | 4 | |
Average daily VaR was lower during the year ended September 30, 2022 compared with the year ended September 30, 2021 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 prior year. Period-end VaR increased as of September 30, 2022 as a result of increased market volatility in September 2022, as well as the addition of the SumRidge Partners trading inventory.
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, 2017,2022, our regulatory-defined daily losslosses in our trading portfolios exceeded our predicted VaR once.on ten occasions primarily due to the volatility and market uncertainty related to the Fed’s short-term interest rate increases.
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
RJOur Bank segment maintains an earninginterest-earning asset portfolio that is comprised of cash, SBL, C&I loans, tax-exempt loans, SBL, and commercial and residential real estate loans, REIT loans, and tax-exempt loans, as well as MBS and CMOs (both of which aresecurities held in the available-for-sale securities portfolio), SBA loan securitizations and a trading portfolio of corporate loans. Those earningportfolio. These interest-earning assets are primarily funded by client deposits. Based on itsthe current earning asset portfolio, RJ Bank isour banking operations are 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. RJ Bank analyzesWe analyze interest rate risk based on forecasted net interest income, which is the net amount of interest received and interest paid, and the net portfolio valuation, both inacross a range of interest rate scenarios.
One of the objectives of RJ Bank’sthe 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 RJ Bank’s interest rate risk in our banking operations, including scenario analysis and economic value of equity.
RJ Bank uses simulation models We utilize a hedging strategy using interest rate swaps in our banking operations as a result of our asset and estimation techniques to assess the sensitivityliability management process. For further information regarding this hedging strategy, see Notes 2 and 16 of the net interest income streamNotes to movements in interest rates. Consolidated Financial Statements of this Form 10-K.
To ensure that RJ Bank remainswe remain within itsthe tolerances established for net interest income, a sensitivity analysis of net interest income to interest rate conditions is estimated under a variety of scenarios. We use simulation models and estimation techniques to assess the sensitivity of net interest income to movements in interest rates. The model estimates the sensitivity by calculating
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
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The following table is an analysis of our banking operations’ estimated net interest income over a 12-month period based on instantaneous shifts in interest rate shocks of up 100rates (expressed in basis points) using our previously described asset/liability model, which assumes a dynamic balance sheet and 200 basis points and down 100 basis points.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 RJ Bank’sthe Asset and Liability Management Committee.
| | | | | | | | | | | | | | |
Instantaneous changes in rate (1) | | Net interest income ($ in millions) | | Projected change in net interest income |
+200 | | $1,904 | | 1% |
+100 | | $1,891 | | —% |
0 | | $1,882 | | —% |
-100 | | $1,754 | | (7)% |
-200 | | $1,618 | | (14)% |
We utilize a hedging strategy using
(1) Our 0-basis point scenario was based on interest rate swapsrates as a result of RJ Bank’s assetSeptember 30, 2022 and liability management process described above. For further information regarding this risk management objective, seedid not include the discussion of this hedging strategy in Note 2 and Note 6impact of the Notes to Consolidated Financial StatementsFed’s November 2022 increase in this Form 10-K.short-term interest rates.
The following table is an analysis of RJ Bank’s estimated net interest income over a 12 month period based on instantaneous shifts in interest rates (expressed in basis points) using RJ Bank’s own asset/liability model:
|
| | | | |
Instantaneous changes in rate | | Net interest income ($ 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 of Financial Condition and Results of Operations - Net Interest Analysis” withininterest analysis” of this Form 10-K for a discussion of the impact that an increasechanges in short-term interest rates could have on RJF’sthe consolidated firm’s operations.
The following table shows the contractual maturities of RJ Bank’sour bank loan portfolio at September 30, 2017,2022, including contractual principal repayments. Maturities are generally determined based upon contractual terms; however, rollovers or extensions that are included for the purposes of measuring the allowance for credit losses are reflected in maturities in the following table. This table does not 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 - fifteen years | | > Fifteen years | | Total |
SBL | | $ | 15,025 | | | $ | 184 | | | $ | 87 | | | $ | 1 | | | $ | 15,297 | |
C&I loans | | 905 | | | 7,108 | | | 3,122 | | | 38 | | | 11,173 | |
CRE loans | | 772 | | | 3,966 | | | 1,788 | | | 23 | | | 6,549 | |
REIT loans | | 92 | | | 1,419 | | | 81 | | | — | | | 1,592 | |
Residential mortgage loans | | 17 | | | 27 | | | 220 | | | 7,122 | | | 7,386 | |
Tax-exempt loans | | 1 | | | 245 | | | 1,255 | | | — | | | 1,501 | |
| | | | | | | | | | |
Total loans held for investment | | 16,812 | | | 12,949 | | | 6,553 | | | 7,184 | | | 43,498 | |
Held for sale loans | | — | | | — | | | 37 | | | 100 | | | 137 | |
Total loans held for sale and investment | | $ | 16,812 | | | $ | 12,949 | | | $ | 6,590 | | | $ | 7,284 | | | $ | 43,635 | |
|
| | | | | | | | | | | | | | | | |
| | 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'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.2022.
| | | | | | | | | | | | | | | | | | | | |
| | Interest rate type |
$ in millions | | Fixed | | Adjustable | | Total |
SBL | | $ | 1 | | | $ | 271 | | | $ | 272 | |
C&I loans | | 700 | | | 9,568 | | | 10,268 | |
CRE loans | | 320 | | | 5,457 | | | 5,777 | |
REIT loans | | — | | | 1,500 | | | 1,500 | |
Residential mortgage loans | | 232 | | | 7,137 | | | 7,369 | |
Tax-exempt loans | | 1,500 | | | — | | | 1,500 | |
| | | | | | |
Total loans held for investment | | 2,753 | | | 23,933 | | | 26,686 | |
Held for sale loans | | 2 | | | 135 | | | 137 | |
Total loans held for sale and investment | | $ | 2,755 | | | $ | 24,068 | | | $ | 26,823 | |
|
| | | | | | | | | | | | |
| | 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 SBL, C&I loans, CRE CRE constructionloans, REIT loans, and residential mortgage loans may include an interest rate floor, cap and/or fixed interest rates for a certain period of time, which would impact the timing of the interest rate reset for the
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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 RJ Bank’sour 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, 2017,2022, our available-for-sale securities portfolio had a fair value of $2.08$9.89 billion with a weighted-average yield of 1.94% and average expected1.84%. The effective duration of 3 years.our available-for-sale securities portfolio as of September 30, 2022 was approximately 3.86, where duration is defined as the approximate percentage change in price for a 100-basis point change in rates. 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.our available-for-sale securities portfolio.
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, ourwe have a private equity portfolio, included in “Other investments” on our Consolidated Statements of Financial Condition, which is primarily comprised of investments may be impacted by equity prices.in third-party funds. 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 $1.51 billion and $1.29 billion at September 30, 2022 and 2021, respectively, when converted to the U.S. dollar. A majority of such loans are held in a Canadian subsidiary of Raymond James Bank, which is discussed in the following sections.
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 haveAt September 30, 2022, we had foreign exchange risk in our investment in RJ Ltd. of CDN $340CAD 381 million at September 30, 2017,and in our investment in Charles Stanley of £272 million, which iswere not hedged. Foreign exchange gains/losses related to this investment are primarily reflected in other comprehensive income/(loss) (“OCI”) on our Consolidated Statements of Income and Comprehensive Income. See Note 18 of the Notes to Consolidated Financial Statements in this Form 10-K for further information regarding allAll of our components of OCI.
We also have foreign exchange risk associated with ourother investments in subsidiaries located in the United Kingdom, France and Germany. These investmentsEurope 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, 2022. Foreign exchange gains/losses related to our foreign investments are primarily reflected in OCI on our Consolidated Statements of Income and Comprehensive Income. See Note 20 of the Notes to Consolidated Financial Statements of this Form 10-K for further information regarding our components of OCI.
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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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.
Brokerage activities
We are engaged in various trading and brokerage activities in which our counterparties primarily include broker-dealers, banks, exchanges, clearing organizations, and other financial institutions. We are exposed to risk that these counterparties may not fulfill their obligations. In addition, certain commitments, including underwritings, may create exposure to individual issuers and businesses.The risk of default depends on the creditworthiness of the counterparty and/or the issuer of the instrument. In addition, we may be subject to concentration risk if we hold large positions in or have large commitments to a single counterparty, borrower, or group of similar counterparties or borrowers (e.g., in the same industry).We 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, derivative and loan concentrations, holding and calculating the fair value of collateral on certain transactions and conducting business through clearing organizations, which may guarantee performance. See 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 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 inSee Note 2 of the account beforeNotes to Consolidated Financial Statements of this Form 10‑K for further information about our determination of the trade is executed.allowance for credit losses associated with certain of our brokerage lending activities.
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
Our Bank has substantial C&I, CRE, tax-exempt, SBL and residential mortgage loan portfolios. A significant downturn in the overall economy, deterioration in real estate values or a significant issue within any sector or sectors where RJ Banksegment has a concentration could result in large provisions forsubstantial loan losses and/or charge-offs.
RJ Bank’sportfolio. Our strategy for credit risk management related to bank loans includes well-defined credit policies, uniform underwriting criteria, and ongoing risk monitoring and review processes for all corporate, tax-exempt, residential and SBL credit exposures. The strategy also includes diversification on aacross loan types, geographic location, 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 reviewreviews 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 comprehensivethorough 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.commitments. For its SBL andour residential mortgage loans RJ Bank utilizesand substantially all of our SBL, we utilize the credit risk rating system used by bank regulators in measuring the credit quality of each homogeneous class of loans. In evaluating credit risk, we consider trends in loan performance, historical experience through various economic cycles, industry or client concentrations, the loan portfolio composition and macroeconomic factors (both current and forecasted). These factors have a potentially negative impact on loan performance and net charge-offs.
RJ Bank’sWhile our bank loan portfolio is diversified, a significant downturn in the overall economy, deterioration in real estate values or a significant issue within any sector or sectors where we have a concentration will generally result in large provisions for credit losses and/or charge-offs. We determine the allowance required for specific loan pools based on relative risk characteristics of the loan portfolio. On an ongoing basis, we evaluate our methods for determining the allowance for loaneach class of loans and make enhancements we consider appropriate. Our allowance for credit 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,
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
likewise, the allowance for loancredit losses is segregated by these same segments. The risk characteristics relevant to each portfolio segment are as follows:follows.
SBL: Loans in this segment are primarily collateralized by the borrower’s marketable securities at advance rates consistent with industry standards and, to a lesser extent, the cash surrender value of life insurance policies issued by an investment-grade insurance company. Substantially all SBL are monitored daily for adherence to loan-to-value (“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 the collateral which will bring the loan to a current status. The vast majority of our SBL qualify for the practical expedient allowed under the CECL guidance whereby we estimate zero credit losses to the extent the fair value of the collateral securing the loan equals or exceeds the related carrying value of the loan. SBL also generally qualify for lower capital requirements under regulatory capital rules.
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 quarterlyan ongoing 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 involve risks such as described above. In addition, project budget overruns, and performance variables related to the contractor and subcontractors, may affector the credit quality of loans in this segment.inability to sell the project or secure permanent financing once the project is completed. 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 significantlyhave 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.
Residential mortgage (includes home equity loans/lines): All of our residential mortgage loans adhere to stringent 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). We do not originate or purchase adjustable rate mortgage (“ARM”) loans with negative amortization, reverse mortgages, or 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.
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’s 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 does not originate or purchase option adjustable rate mortgage (“ARM”) loans with negative amortization, reverse mortgages, or other types of non-traditional loan products. Loans with deeply discounted teaser rates are 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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis
SBL: Loans in this segment are secured by 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 securities which will bring the loan current and may bring the loan within the prescribed LTV guidelines.
In evaluating credit risk, RJ Bank considers trends in loan performance, theThe level of allowance coverage relative to similar banking institutions, industry or customer concentrations, the loan portfolio composition and macroeconomic factors. Retail sales continue to be sluggish 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. These factors havecharge-off activity is a potentially negative impact on loan performance and net charge-offs. However, during fiscal year 2017, corporate borrowers have continued to access the markets for new equity and debt.
Several factors were taken into considerationfactor that is considered in evaluating the allowance for loan losses at September 30, 2017, including the risk profilepotential severity of the portfolios, net charge-offs during the period, the level of nonperforming loans, and delinquency ratios. RJ Bank also considered the uncertainty related to certain industry sectors and the extent offuture credit exposure to specific borrowers within the portfolio. Finally, RJ Bank 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 compared to fiscal 2016 was significantly lower C&I loan growth during fiscal 2017, which has higher allowance percentages, and the impact of higher growth 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. 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.
Management's Discussion and Analysis
losses. The following table presents 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, |
| | For the year ended September 30, | | | 2022 | | 2021 | | 2020 |
$ in millions | | $ 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 |
| | 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 | % | C&I loans | | $ | (28) | | | 0.29 | % | | $ | (4) | | | 0.05 | % | | $ | (96) | | | 1.22 | % |
CRE loans | | 5,013 |
| | 0.18 | % | | — |
| | — |
| | 3,773 |
| | 0.22 | % | CRE loans | | 1 | | | 0.02 | % | | (10) | | | 0.37 | % | | (2) | | | 0.08 | % |
REIT loans | | REIT loans | | — | | | — | % | | — | | | — | % | | (2) | | | 0.15 | % |
Residential mortgage loans | | 83 |
| | — |
| | (53 | ) | | — |
| | (436 | ) | | 0.02 | % | Residential mortgage loans | | 1 | | | 0.02 | % | | 1 | | | 0.02 | % | | 2 | | | 0.04 | % |
Total | | $ | (20,652 | ) | | 0.13 | % | | $ | (3,009 | ) | | 0.02 | % | | $ | 2,757 |
| | 0.02 | % | |
| Total loans held for sale and investment | | Total loans held for sale and investment | | $ | (26) | | | 0.08 | % | | $ | (13) | | | 0.06 | % | | $ | (98) | | | 0.45 | % |
|
| | | | | | | | | | | | | | |
| | 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 | % |
(1) Charge-offs related to loan sales amounted to $4 million, $4 million, and $87 million for the years ended September 30, 2022, 2021, and 2020, respectively.
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's Discussion and Analysis
The level of nonperforming loansassets is another indicator of potential future credit losses. Nonperforming assets are comprised of both nonperforming loans and other real estate owned. Nonperforming loans include those loans which have been placed on nonaccrual status and certain accruing loans which are 90 days or more past due and in the process of collection. The amountfollowing table presents the balance of nonperforming loans, decreased $42 million during the year endednonperforming assets, and related key credit ratios.
| | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2022 | | 2021 |
| | | | |
Nonperforming loans (1) | | $ | 74 | | | $ | 74 | |
Nonperforming assets | | $ | 74 | | | $ | 74 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Nonperforming loans as a % of total loans held for sale and investment | | 0.17 | % | | 0.29 | % |
Allowance for credit losses as a % of nonperforming loans | | 535 | % | | 432 | % |
Nonperforming assets as a % of Bank segment total assets | | 0.13 | % | | 0.20 | % |
(1) Nonperforming loans at September 30, 2017, due to a $302022 and September 30, 2021 included $63 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$61 million of loans, forrespectively, which $15 million in charge-offs were previously recorded, resulting in less exposure within the remaining balance.current pursuant to their contractual terms.
The nonperforming loan balances above exclude $14 million, $14 million, $15 million, $14in the preceding table excluded $7 million and $10$8 million as of September 30, 2017, 2016, 2015, 20142022 and 20132021, respectively, of residential troubled debt restructurings (“TDR”) which were returned to accrual status in accordance with our policy.
Although our nonperforming assets as a percentage of our Bank segment’s assets remained low as of September 30, 2022, any prolonged period of market deterioration could result in an increase in our nonperforming assets, an increase in our allowance for credit losses and/or an increase in net charge-offs in future periods, although the extent would depend on future developments that are highly uncertain. See further explanation of our bank loan portfolio segments, allowance for credit losses, and the credit loss provision in Notes 2 and 8 of the Notes to Consolidated Financial Statements of this Form 10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Bank” of this Form 10-K.
Loan underwriting policies
A component of RJ Bank’sour Bank segment’s credit risk management strategy is conservative, well-defined policies and procedures. RJ Bank’sOur Bank segment’s underwriting policies for the major types of loans are described below.in the following sections.
SBL and residential mortgage loan portfolios
RJ Bank’sOur residential mortgage loan portfolio largely 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. Allus. Substantially 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, 2017,2022, approximately 80% of the residential loans were fully documented loans to industry standards and 96%95% of the residential mortgage loan portfolio consisted of owner-occupant borrowers (80%(approximately 75% for their primary residences and 20% for second home residences). Approximately 20%35% of the first lien residential mortgage loans were ARMs withARM
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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 residential mortgage loans are sold in the secondary market. RJ Bank’s
Our SBL portfolio is primarily comprised of loans fully collateralized by client’s marketable securities and represented 14%35% of RJ Bank’sour total loan portfolioloans held for sale and investment as of September 30, 2017.2022. The underwriting policy for RJ Bank’sthe SBL portfolio primarily includes a review of collateral, including LTV, withand a limited review of repayment history.
While RJ Bank has chosen not to participate in any government-sponsored loan modification programs, its loan modification policy does take 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 considers the qualification terms outlined in the government-sponsored programs as well as the affordability test and other factors. RJ Bank retains 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 Bank to mitigate credit losses.
Corporate and tax-exempt loan portfolios
RJRaymond James Bank: Raymond James Bank’s corporate and tax-exempt loan portfolios were comprised of approximately 500 borrowers, the majority of which are underwritten, managed, and reviewed at our Raymond James Bank corporate headquarters location, which facilitates close monitoring of the portfolio by credit risk personnel, relationship officers and senior RJ Bankbank executives. RJApproximately half of Raymond James Bank’s corporate borrowers are public companies. A large portion of Raymond James Bank’s corporate loan portfolio is diversified among a number of industries in both the U.S.U.S and Canada and a large portion of these loans are to borrowers in industries in which we have expertise through coverage provided by our Capital Markets research analysts. Raymond James Bank’s corporate loan portfolio 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. RJRaymond James Bank is sometimestypically either involved in the syndication of the loanloans at inception and some of theseor purchases 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. RJRaymond James Bank’s tax-exempt loans are long-term loans to governmental and nonprofitnon-profit 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.
TriState Capital Bank: TriState Capital Bank’s corporate loan portfolio was comprised of 900 borrowers, all of which are underwritten, managed, and reviewed by credit risk personnel, relationship officers, and senior bank executives. All corporate loans are approved by a committee of senior executives. TriState Capital Bank primarily targets middle-market businesses with revenues between $5 million and $300 million located within the primary markets of Pennsylvania, Ohio, New Jersey, and New York. Each representative office is led by an experienced regional president to understand the unique borrowing needs of the middle-market businesses in the area. They are supported by highly experienced relationship managers who target middle-market business customers and maintain strong credit quality within their loan portfolios. TriState Capital Bank’s loan portfolio is diversified by geography, loan type, and industry and is primarily comprised of project finance real estate loans, commercial lines of credit, and term loans, the majority of which are direct originations.
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 limits, secondary sources of repayment, municipality demographics, and other criteria. A large portion of RJ Bank’s corporate loans are to borrowers in industries in which we have expertise, through coverage provided by our Capital Markets research analysts. More than half of RJ Bank’s 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
in some instances are secured by mortgages on specific real estate, and with respect to tax-exemptestate. 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, for all residential, SBL, corporate and tax-exempt credit exposures,including our internal loan review process, as well as our rigorous processes to manage and limit credit losses arising from loan delinquencies. There are various other factors included in these processes, depending on the loan portfolio.
SBL and residential mortgage loansloan portfolios
The marketableSubstantially all collateral securing RJ Bank’sour SBL portfolio is monitored on a daily basis. Collateral adjustments, as triggered by our monitoring procedures, are made by the borrower as necessary to ensure RJ Bank’sour loans are adequately secured, resulting in minimizing itsour credit risk. Collateral calls have been minimal relative to our SBL portfolio with no losses incurred to date.
We track and review many factors to monitor credit risk in 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
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount of delinquent residential mortgage loans | | Delinquent residential mortgage loans as a percentage of outstanding residential mortgage loan balances |
$ in millions | | 30-89 days | | 90 days or more | | Total | | 30-89 days | | 90 days or more | | Total |
September 30, 2022 | | $ | 6 | | | $ | 6 | | | $ | 12 | | | 0.08 | % | | 0.08 | % | | 0.16 | % |
September 30, 2021 | | $ | 4 | | | $ | 6 | | | $ | 10 | | | 0.08 | % | | 0.11 | % | | 0.19 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | 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 | % |
Management's Discussion and Analysis
To manage and limit credit losses, we maintain a rigorous process to manage our loan delinquencies. WithSubstantially all of our residential first mortgages are serviced by a third party whereby 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 through requirements of timely and appropriate collection orof property management actions and reporting, including management of third parties used in the collection process (appraisers,(e.g., appraisers, attorneys, etc.). Additionally, every residentialResidential mortgage loanloans over 60 days past due isare generally 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 everysubstantially all residential mortgage loan over 60 days past due. Updated collateral valuations are generally obtained for loans over 90 days past due and charge-offs are typically taken on individual loans based on these valuations.
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.
| | | | | | | | | | | | | | |
| | September 30, 2022 |
| | Loans outstanding as a % of total residential mortgage loans held for sale and investment | | Loans outstanding as a % of total loans held for sale and investment |
CA | | 26% | | 4% |
FL | | 17% | | 3% |
TX | | 8% | | 1% |
NY | | 8% | | 1% |
CO | | 4% | | 1% |
The occurrence of a natural disaster or severe weather event in any of these states, for example wildfires in California and hurricanes in Florida, could result in additional credit loss provisions and/or charge-offs on our loans are as follows:in such states and therefore negatively impact our net income and regulatory capital in any given period.
|
| | | | | | | | |
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, 20172022 and 2016,2021, these loans totaled $683 million$2.55 billion and $308 million,$1.97 billion, respectively, or approximately 20%35% and 10%37% 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, 2017,2022, begins amortizing is 6.96.6 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, where applicable, municipality demographics and other factors including industry performance and concentrations. As part of the credit review process, the loan graderating is reviewed at least quarterlyon an ongoing basis 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
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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 loansbank loans.
| | | | | | | | | | | | | | |
| | September 30, 2022 |
| | Loans outstanding as a % of total corporate bank loans held for sale and investment | | Loans outstanding as a % of total loans held for sale and investment |
Multi-family | | 10% | | 5% |
Industrial warehouse | | 8% | | 4% |
Office real estate | | 7% | | 3% |
Loan fund | | 6% | | 3% |
Consumer products and services | | 5% | | 2% |
Certain sectors continue to be impacted by supply chain disruptions and changes in consumer behavior. In addition, macroeconomic uncertainty and the Ukraine conflict have further exacerbated supply chain stresses and inflation concerns. In addition, the Fed’s measures to control inflation, including through increases in short-term interest rates, have had an impact on consumer behavior and are likely to continue to do so in the near-term. These and related factors could negatively impact our borrowers, particularly those in consumer-facing or supply-dependent industries. In addition, we continue to monitor our exposure to office real estate where trends have changed as follows:a result of the COVID-19 pandemic.
|
| | | | | | | | |
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.
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.
Periods of severe market volatility can result in a significantly higher level of transactions on specific days, which may present operational challenges from time to time that may result in losses. These losses can result from, but are not limited to, trade errors, failed transaction settlements, late collateral calls to borrowers and counterparties, or interruptions to our system processing.We did not incur any significant losses related to such operational challenges during the year ended September 30, 2022.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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) 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 Committee of the Board of Directors. MRMModel Risk Management 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
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Table of Contents
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| PAGE |
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Report of Independent Registered Public Accounting Firm (PCAOB ID No. 185) | |
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)Shareholders’ equity | |
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) | |
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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, 20172022 and 2016, and2021, 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. 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three‑year period ended September 30, 2022, 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, 2022, 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 22, 2022 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 Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements referredthat were communicated or required to above present fairly,be communicated to the audit committee and that: (1) relate 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 critical audit matters 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
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 loans was $396 million as of September 30, 20172022, a portion of which related to the Raymond James Bank 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, 2022 collective ACL on Raymond James 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, 2022 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, 2022 collective ACL estimate on Raymond James 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 conformity2022 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 the 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, based2022 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 accounting practices and
•potential bias in the accounting estimate.
The fair value measurement of a customer relationship intangible asset, bank loans, and core deposit intangible asset acquired in business combinations
As discussed in Note 3 to the consolidated financial statements, on January 21, 2022, the Company completed the acquisition of Charles Stanley Group, PLC (Charles Stanley), and on June 1, 2022, the Company completed the acquisition of TriState Capital Holdings, Inc. (TriState Capital) and its wholly owned subsidiaries. The Company accounted for these transactions as business combinations. Accordingly, the purchase price attributable to these respective acquisitions was allocated to the assets acquired and liabilities assumed based on their estimated fair values. In the Charles Stanley acquisition, the Company acquired a customer relationship intangible asset at a fair value of $65 million. The fair value of the customer relationship intangible asset was based on a multi-period excess earnings approach that considered future period post-tax earnings and a discount rate. In the TriState Capital acquisition, the Company acquired bank loans at a fair value of $11.5 billion, and a core deposit intangible asset at a fair value of $89 million. The fair value of the bank loans was based on a discounted cash flow methodology that considered loan type and related collateral, credit loss expectations, classification status, market interest rates and other market factors from the perspective of a market participant using key assumptions of credit loss expectations and discount rate. The fair value of the core deposit intangible asset was based on the discounted cash flow approach, specifically the favorable source of funds method, that considered the servicing and interest costs of the acquired deposit base, an estimate of the cost associated with alternative funding sources, expected client attrition rates, deposit growth rates, and discount rate.
We identified the evaluation of the fair value measurements of the customer relationship intangible asset, bank loans, and core deposit intangible asset 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 of the fair value measurements due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the (1) fair value measurement methodologies, and (2) customer relationship intangible asset fair value measurement key assumptions, including future period post-tax earnings and a discount rate; bank loans fair value measurement key assumptions, including the credit loss expectations and discount rate; and core deposit intangible asset fair value measurement key assumptions, including servicing and interest cost of the acquired deposit base, cost associated with alternative funding sources, expected client attrition rates, deposit growth rates, and discount rate.
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 controlcontrols related to the Company’s fair value measurements of the customer relationship intangible asset, bank loans, and core deposit intangible asset including controls over financial reporting.the (1) development of the overall fair value measurement methodologies, and (2) determination of the key assumptions used in the fair value estimates.
We evaluated the Company’s process to develop the fair value measurements of the customer relationship intangible asset, bank loans and core deposit intangible asset by testing certain sources of data, inputs, and assumptions that the Company used, and considered the relevance and reliability of such data, inputs, and assumptions. We involved valuation professionals with specialized skills and knowledge, who assisted in:
•evaluating the fair value measurement methodology for compliance with U.S. generally accepted accounting principles
•reviewing the underlying methodologies for the development of the key assumptions as compared to commonly applied industry valuation techniques as well as internal and external data
•evaluating the historical data for the future period post-tax earnings by comparing to internal data, and the discount rate by comparing to internal and publicly available data for the customer relationship intangible asset
•evaluating the credit loss expectations and discount rate by comparing to internal and publicly available data for the bank loans and
•evaluating the servicing cost, interest cost, and discount rate, by comparing to internal and publicly available data; the costs of alternative funding and client attrition rates by comparing to internal data, and the deposit growth rates by comparing to publicly available data for the core deposit intangible asset.
/s/ KPMG LLP
We have served as the Company’s auditor since 2001.
Tampa, Florida
November 21, 2017
Certified Public Accountants
22, 2022
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 | | 2022 | | 2021 |
Assets: | | | | |
Cash and cash equivalents | | $ | 6,178 | | | $ | 7,201 | |
Assets segregated for regulatory purposes and restricted cash | | 8,481 | | | 11,348 | |
Collateralized agreements | | 704 | | | 480 | |
Financial instruments, at fair value: | | | | |
Trading assets ($1,188 and $326 pledged as collateral) | | 1,270 | | | 610 | |
Available-for-sale securities ($74 and $20 pledged as collateral) | | 9,885 | | | 8,315 | |
Derivative assets | | 188 | | | 255 | |
Other investments ($14 and $22 pledged as collateral) | | 292 | | | 357 | |
Brokerage client receivables, net | | 2,934 | | | 2,831 | |
Other receivables, net | | 1,615 | | | 999 | |
Bank loans, net | | 43,239 | | | 24,994 | |
Loans to financial advisors, net | | 1,152 | | | 1,057 | |
Deferred income taxes, net | | 630 | | | 305 | |
Goodwill and identifiable intangible assets, net | | 1,931 | | | 882 | |
Other assets | | 2,452 | | | 2,257 | |
Total assets | | $ | 80,951 | | | $ | 61,891 | |
| | | | |
Liabilities and shareholders’ equity: | | | | |
Bank deposits | | $ | 51,357 | | | $ | 32,495 | |
Collateralized financings | | 466 | | | 277 | |
Financial instrument liabilities, at fair value: | | | | |
Trading liabilities | | 836 | | | 176 | |
Derivative liabilities | | 530 | | | 228 | |
Brokerage client payables | | 11,446 | | | 13,991 | |
Accrued compensation, commissions and benefits | | 1,787 | | | 1,825 | |
Other payables | | 1,768 | | | 1,701 | |
Other borrowings | | 1,291 | | | 858 | |
Senior notes payable | | 2,038 | | | 2,037 | |
Total liabilities | | 71,519 | | | 53,588 | |
Commitments and contingencies (see Note 19) | | | | |
Shareholders’ equity | | | | |
Preferred stock | | 120 | | | — | |
Common stock; $.01 par value; 650,000,000 shares authorized, 248,018,564 shares issued, and 215,122,523 shares outstanding as of September 30, 2022; 350,000,000 shares authorized, 239,062,254 shares issued, and 205,738,821 shares outstanding as of September 30, 2021 | | 2 | | | 2 | |
Additional paid-in capital | | 2,987 | | | 2,088 | |
Retained earnings | | 8,843 | | | 7,633 | |
Treasury stock, at cost; 32,896,041 and 33,323,433 common shares as of September 30, 2022 and 2021, respectively | | (1,512) | | | (1,437) | |
Accumulated other comprehensive loss | | (982) | | | (41) | |
Total equity attributable to Raymond James Financial, Inc. | | 9,458 | | | 8,245 | |
Noncontrolling interests | | (26) | | | 58 | |
Total shareholders’ equity | | 9,432 | | | 8,303 | |
Total liabilities and shareholders’ equity | | $ | 80,951 | | | $ | 61,891 | |
See accompanying Notes to Consolidated Financial Statements
Statements.
83
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions, except per share amounts | | 2022 | | 2021 | | 2020 |
Revenues: | | | | | | |
Asset management and related administrative fees | | $ | 5,563 | | | $ | 4,868 | | | $ | 3,834 | |
Brokerage revenues: | | | | | | |
Securities commissions | | 1,589 | | | 1,651 | | | 1,468 | |
Principal transactions | | 527 | | | 561 | | | 488 | |
Total brokerage revenues | | 2,116 | | | 2,212 | | | 1,956 | |
Account and service fees | | 833 | | | 635 | | | 624 | |
Investment banking | | 1,100 | | | 1,143 | | | 650 | |
Interest income | | 1,508 | | | 823 | | | 1,000 | |
Other | | 188 | | | 229 | | | 104 | |
Total revenues | | 11,308 | | | 9,910 | | | 8,168 | |
Interest expense | | (305) | | | (150) | | | (178) | |
Net revenues | | 11,003 | | | 9,760 | | | 7,990 | |
Non-interest expenses: | | | | | | |
Compensation, commissions and benefits | | 7,329 | | | 6,584 | | | 5,465 | |
Non-compensation expenses: | | | | | | |
Communications and information processing | | 506 | | | 429 | | | 393 | |
Occupancy and equipment | | 252 | | | 232 | | | 225 | |
Business development | | 186 | | | 111 | | | 134 | |
Investment sub-advisory fees | | 152 | | | 130 | | | 101 | |
Professional fees | | 131 | | | 122 | | | 91 | |
Bank loan provision/(benefit) for credit losses | | 100 | | | (32) | | | 233 | |
Losses on extinguishment of debt | | — | | | 98 | | | — | |
Reduction in workforce expenses | | — | | | — | | | 46 | |
Other | | 325 | | | 295 | | | 250 | |
Total non-compensation expenses | | 1,652 | | | 1,385 | | | 1,473 | |
Total non-interest expenses | | 8,981 | | | 7,969 | | | 6,938 | |
Pre-tax income | | 2,022 | | | 1,791 | | | 1,052 | |
Provision for income taxes | | 513 | | | 388 | | | 234 | |
Net income | | 1,509 | | | 1,403 | | | 818 | |
Preferred stock dividends | | 4 | | | — | | | — | |
Net income available to common shareholders | | $ | 1,505 | | | $ | 1,403 | | | $ | 818 | |
| | | | | | |
Earnings per common share – basic | | $ | 7.16 | | | $ | 6.81 | | | $ | 3.96 | |
Earnings per common share – diluted | | $ | 6.98 | | | $ | 6.63 | | | $ | 3.88 | |
Weighted-average common shares outstanding – basic | | 209.9 | | 205.7 | | 206.4 |
Weighted-average common and common equivalent shares outstanding – diluted | | 215.3 | | 211.2 | | 210.3 |
| | | | | | |
Net income | | $ | 1,509 | | | $ | 1,403 | | | $ | 818 | |
Other comprehensive income/(loss), net of tax: | | | | | | |
Available-for-sale securities | | (897) | | | (94) | | | 68 | |
Currency translations, net of the impact of net investment hedges | | (114) | | | 16 | | | — | |
Cash flow hedges | | 70 | | | 26 | | | (34) | |
Total other comprehensive income/(loss), net of tax | | (941) | | | (52) | | | 34 | |
Total comprehensive income | | $ | 568 | | | $ | 1,351 | | | $ | 852 | |
|
| | | | | | | | | | | | |
| | 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.
84
| | | | | | | | | | | | | | | | | | | | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY |
|
| | Year ended September 30, |
$ in millions, except per share amounts | | 2022 | | 2021 | | 2020 |
Preferred stock: | | | | | | |
Balance beginning of year | | $ | — | | | $ | — | | | $ | — | |
Preferred stock issued for TriState Capital Holdings, Inc. (“TriState Capital”) acquisition | | 120 | | | — | | | — | |
Balance end of year | | 120 | | | — | | | — | |
| | | | | | |
Common stock, par value $.01 per share: | | | | | | |
Balance beginning of year | | 2 | | | 2 | | | 2 | |
| | | | | | |
Issuance of shares for stock split | | — | | | 1 | | | — | |
Other | | — | | | (1) | | | — | |
Balance end of year | | 2 | | | 2 | | | 2 | |
| | | | | | |
Additional paid-in capital: | | | | | | |
Balance beginning of year | | 2,088 | | | 2,007 | | | 1,938 | |
Common stock issued for TriState Capital acquisition | | 778 | | | — | | | — | |
Restricted stock awards issued for TriState Capital acquisition | | 28 | | | — | | | — | |
Employee stock purchases | | 42 | | | 32 | | | 36 | |
Distributions due to vesting of restricted stock units and exercise of stock options, net of forfeitures | | (135) | | | (77) | | | (80) | |
Share-based compensation amortization | | 186 | | | 126 | | | 113 | |
Issuance of shares for stock split | | — | | | (1) | | | — | |
Other | | — | | | 1 | | | — | |
Balance end of year | | 2,987 | | | 2,088 | | | 2,007 | |
| | | | | | |
Retained earnings: | | | | | | |
Balance beginning of year | | 7,633 | | | 6,484 | | | 5,874 | |
Net income attributable to Raymond James Financial, Inc. | | 1,509 | | | 1,403 | | | 818 | |
Common and preferred stock cash dividends declared (see Note 20) | | (299) | | | (219) | | | (208) | |
Cumulative adjustments for changes in accounting principles | | — | | | (35) | | | — | |
Balance end of year | | 8,843 | | | 7,633 | | | 6,484 | |
| | | | | | |
Treasury stock: | | | | | | |
Balance beginning of year | | (1,437) | | | (1,390) | | | (1,210) | |
Purchases/surrenders | | (173) | | | (128) | | | (273) | |
Reissuances due to vesting of restricted stock units and exercise of stock options | | 98 | | | 81 | | | 93 | |
Balance end of year | | (1,512) | | | (1,437) | | | (1,390) | |
| | | | | | |
Accumulated other comprehensive income/(loss): | | | | | | |
Balance beginning of year | | (41) | | | 11 | | | (23) | |
Other comprehensive income/(loss), net of tax | | (941) | | | (52) | | | 34 | |
| | | | | | |
Balance end of year | | (982) | | | (41) | | | 11 | |
Total equity attributable to Raymond James Financial, Inc. | | $ | 9,458 | | | $ | 8,245 | | | $ | 7,114 | |
| | | | | | |
Noncontrolling interests: | | | | | | |
Balance beginning of year | | $ | 58 | | | $ | 62 | | | $ | 62 | |
Net income/(loss) attributable to noncontrolling interests | | (1) | | | 23 | | | (26) | |
| | | | | | |
Deconsolidations and sales | | (83) | | | (27) | | | 26 | |
| | | | | | |
| | | | | | |
Balance end of year | | (26) | | | 58 | | | 62 | |
Total shareholders’ equity | | $ | 9,432 | | | $ | 8,303 | | | $ | 7,176 | |
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.
85
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2022 | | 2021 | | 2020 |
Cash flows from operating activities: | | | | | | |
Net income | | $ | 1,509 | | | $ | 1,403 | | | $ | 818 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | | 145 | | | 134 | | | 119 | |
Deferred income taxes, net | | (16) | | | (37) | | | (39) | |
Premium and discount amortization on available-for-sale securities and bank loans and net unrealized gain/loss on other investments | | 23 | | | 15 | | | 57 | |
Provisions/(benefits) for credit losses and legal and regulatory proceedings | | 111 | | | (20) | | | 257 | |
Share-based compensation expense | | 192 | | | 132 | | | 120 | |
Unrealized (gain)/loss on company-owned life insurance policies, net of expenses | | 174 | | | (150) | | | (46) | |
Losses on extinguishment of debt | | — | | | 98 | | | — | |
| | | | | | |
Other | | 49 | | | 66 | | | 92 | |
Net change in: | | | | | | |
Assets segregated for regulatory purposes excluding cash and cash equivalents | | 2,100 | | | (2,100) | | | — | |
Collateralized agreements, net of collateralized financings | | (37) | | | (29) | | | (55) | |
Loans provided to financial advisors, net of repayments | | (120) | | | (90) | | | (49) | |
Brokerage client receivables and other receivables, net | | (203) | | | (420) | | | 127 | |
Trading instruments, net | | 48 | | | (141) | | | 150 | |
Derivative instruments, net | | 479 | | | 53 | | | (51) | |
Other assets | | (126) | | | 16 | | | (13) | |
Brokerage client payables and other payables | | (4,213) | | | 7,306 | | | 2,505 | |
Accrued compensation, commissions and benefits | | (76) | | | 416 | | | 70 | |
Purchases and originations of loans held for sale, net of proceeds from sales of securitizations and loans held for sale | | 33 | | | (5) | | | 11 | |
Net cash provided by operating activities | | 72 | | | 6,647 | | | 4,073 | |
| | | | | | |
Cash flows from investing activities: | | | | | | |
Increase in bank loans, net | | (7,235) | | | (4,027) | | | (1,136) | |
Proceeds from sales of loans held for investment | | 213 | | | 287 | | | 634 | |
Purchases of available-for-sale securities | | (3,069) | | | (4,218) | | | (5,710) | |
Available-for-sale securities maturations, repayments and redemptions | | 1,712 | | | 2,181 | | | 1,188 | |
Proceeds from sales of available-for-sale securities | | 52 | | | 969 | | | 222 | |
Cash and cash equivalents acquired in business acquisitions, including those segregated for regulatory purposes, net of cash paid for acquisitions | | 1,461 | | | (266) | | | (5) | |
Additions to property and equipment | | (91) | | | (74) | | | (124) | |
Investment in note receivable | | (125) | | | — | | | — | |
(Purchases)/sales of other investments, net | | 24 | | | 27 | | | 5 | |
Other investing activities, net | | (93) | | | (19) | | | (59) | |
Net cash used in investing activities | | (7,151) | | | (5,140) | | | (4,985) | |
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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 |
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Loss on extinguishment of senior notes payable | | 45,746 |
| | — |
| | — |
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Other | | 29,532 |
| | 16,940 |
| | 5,681 |
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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 |
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Accrued compensation, commissions and benefits | | 160,038 |
| | 46,367 |
| | 34,702 |
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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 |
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Cash flows from investing activities: | | |
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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 |
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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 |
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Proceeds from sales of available-for-sale securities | | 93,774 |
| | 11,062 |
| | 84,785 |
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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 | ) |
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(continued on next page) |
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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 |
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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 |
| | — |
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Extinguishment of senior notes payable | | (650,000 | ) | | (250,000 | ) | | — |
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Premium paid on extinguishment of senior notes payable | | (36,892 | ) | | — |
| | — |
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Acquisition-related contingent consideration received, net of payments | | 2,992 |
| | — |
| | — |
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Exercise of stock options and employee stock purchases | | 57,462 |
| | 43,331 |
| | 47,964 |
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Increase in bank deposits | | 3,469,815 |
| | 2,342,666 |
| | 1,890,957 |
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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 |
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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 |
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Cash and cash equivalents at beginning of year | | 1,650,452 |
| | 2,601,006 |
| | 2,199,063 |
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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 |
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Cash paid for income taxes | | $ | 349,009 |
| | $ | 303,793 |
| | $ | 378,928 |
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See accompanying Notes to Consolidated Financial Statements.
86
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS |
| | Year ended September 30, |
$ in millions | | 2022 | | 2021 | | 2020 |
Cash flows from financing activities: | | | | | | |
Proceeds from senior notes issuances, net of debt issuance costs paid | | — | | | 737 | | | 494 | |
Extinguishment of senior notes payable | | — | | | (844) | | | — | |
Increase in bank deposits | | 6,269 | | | 5,694 | | | 4,520 | |
Repurchases of common stock and share-based awards withheld for payment of withholding tax requirements | | (216) | | | (150) | | | (291) | |
Dividends on preferred and common stock | | (277) | | | (218) | | | (205) | |
Exercise of stock options and employee stock purchases | | 52 | | | 53 | | | 62 | |
Proceeds from Federal Home Loan Bank advances | | 1,025 | | | — | | | 850 | |
Repayments of Federal Home Loan Bank advances and other borrowed funds | | (967) | | | (31) | | | (855) | |
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Other financing, net | | (7) | | | (9) | | | (1) | |
Net cash provided by financing activities | | 5,879 | | | 5,232 | | | 4,574 | |
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Currency adjustment: | | | | | | |
Effect of exchange rate changes on cash and cash equivalents, including those segregated for regulatory purposes | | (590) | | | 76 | | | 1 | |
Net increase/(decrease) in cash and cash equivalents, including those segregated for regulatory purposes and restricted cash | | (1,790) | | | 6,815 | | | 3,663 | |
Cash and cash equivalents, including those segregated for regulatory purposes and restricted cash at beginning of year | | 16,449 | | | 9,634 | | | 5,971 | |
Cash and cash equivalents, including those segregated for regulatory purposes and restricted cash at end of year | | $ | 14,659 | | | $ | 16,449 | | | $ | 9,634 | |
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Cash and cash equivalents | | $ | 6,178 | | | $ | 7,201 | | | $ | 5,390 | |
Cash and cash equivalents segregated for regulatory purposes and restricted cash | | 8,481 | | | 9,248 | | | 4,244 | |
Total cash and cash equivalents, including those segregated for regulatory purposes and restricted cash at end of year | | $ | 14,659 | | | $ | 16,449 | | | $ | 9,634 | |
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Supplemental disclosures of cash flow information: | | | | | | |
Cash paid for interest | | $ | 323 | | | $ | 145 | | | $ | 164 | |
Cash paid for income taxes, net | | $ | 524 | | | $ | 437 | | | $ | 246 | |
Cash outflows for lease liabilities | | $ | 111 | | | $ | 110 | | | $ | 101 | |
Non-cash right-of-use assets recorded for new and modified leases | | $ | 68 | | | $ | 168 | | | $ | 74 | |
Common stock issued as consideration for TriState Capital acquisition | | $ | 778 | | | $ | — | | | $ | — | |
Restricted stock awards issued as consideration for TriState Capital acquisition | | $ | 28 | | | $ | — | | | $ | — | |
Preferred stock issued as consideration for TriState Capital acquisition | | $ | 120 | | | $ | — | | | $ | — | |
Effective settlement of note receivable for TriState Capital acquisition | | $ | 123 | | | $ | — | | | $ | — | |
See accompanying Notes to Consolidated Financial Statements.
87
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 20172022
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 retailconsumer 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.
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
DuringWe reclassified acquisition and disposition-related expenses which in prior years were reported separately as “Acquisition and disposition-related expenses” on our Consolidated Statements of Income and Comprehensive Income to the period, we made a number changesrespective income statement line items that align with the nature of the expenses, including reclassifications to “Compensation, commissions, and benefits,” “Professional fees,” or “Other” expenses, as appropriate. Prior years have been conformed to the current and previously reportedpresentation.
In addition to the reclassifications discussed above, certain other prior period amounts in the Consolidated Statements of Cash Flows. These included cash flow reclassificationshave been reclassified to conform to the current period’s presentation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recognition of non-interest revenues
Revenue from contracts with changes madecustomers 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 Consolidated Statementstransaction 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 Financial Condition (including derivative balances and the Jay Peak legal settlement), required adjustments associated withservice, which is generally measured based on time elapsed, as our customers receive the adoptionbenefit of accounting principles (includingour services as they are provided.
Payment for the deconsolidationmajority of certain VIEs and treatmentour services is considered to be variable consideration, as the amount of excess tax benefits relatedrevenue we expect to share-based compensation), and immaterial adjustments between line items (including foreign exchange impact on cash adjustments and payments with noncontrolling interest holders). receive is subject to factors outside of our control, including market conditions. Variable consideration is only included in
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In additionrevenue 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 reclassification discussed above, certain other prior period amounts have also been reclassified to conformperformance of our obligation to the current year’s presentation.customer.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recognition of revenues
Securities commissions and fees - The significant componentsWe 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 our Raymond James Investment Management division (“Raymond James Investment Management,” formerly 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 Raymond James Investment Management for retail accounts managed on behalf of third-party institutions, institutional accounts and 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. 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 on eligible products are generally received monthly or quarterly in periods 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 over-the-counter 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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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. We make markets in certain fixed income securities and we carry inventories of financial instruments to facilitate such transactions. 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 third-party financial entities 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 parties. These fees, which are received monthly or quarterly, are generally based on the market value of the related assets, 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.
Raymond James Bank Deposit Program 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 our Bank segment, which is calculated as the greater of a base servicing fee or a net yield equivalent to the average yield that the firm would otherwise receive from third-party banks in the RJBDP. These intercompany fees, and the offsetting intercompany expense in the 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 received. 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 usedheld for trading purposes.
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, RJ&A, as a broker-dealerOur broker-dealers carrying client accounts isare generally subject to requirements to maintain cash or qualified securities on deposit in a segregated reserve account for the exclusive benefit of itstheir 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, and highly liquid securities, such as U.S. Treasury securities (“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.
We may also from time-to-time be required to restrict cash for other corporate purposes. 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 institutionsCanadian retirement plan regulations.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to maintain minimum average reserve balances against its deposits.Consolidated Financial Statements
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
We may 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 or our clients or others we have received as collateral. Securities borrowed and securities loaned transactions are reportedaccounted for as collateralized agreements and collateralized financings, respectively, 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.
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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.
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 or market multiples.
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Notes to Consolidated Financial Statements
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, 20172022 and 2016.2021. 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 “Principal transactions” in current period net income.
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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, whichmethods. 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
Within each broker-dealer subsidiary, we offset our long and short positions for sale and allowances for losses section that follows.
Level 3: Positions in illiquididentical securities that do not have readily determinablerecorded at 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 the 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).
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Notes to Consolidated Financial Statements
Available-for-sale securities -
Available-for-sale securities are generally classified at the date of purchase andpurchase. They are comprised primarily of agency MBSmortgage-backed securities (“MBS”), agency collateralized mortgage obligations (“CMOs”), and CMOs and equityother securities held predominatelywhich are guaranteed by RJ Bank and ARS. the U.S. government or its agencies. Available-for-sale securities held at RJ Bank are used as part of itsour 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. Available-for-sale securities are valued using valuation techniques that rely on observable market data. Substantially all available-for-sale securities are classified within Level 2 of the fair value hierarchy; however, certain available-sale-securities are classified within Level 1 of the fair value hierarchy.
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Notes to Consolidated Financial Statements
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 are 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 any 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 order 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, 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 its amortized cost basis, and whether the evidence indicating that we will recover the amortized cost basis of a security 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. Those securities whose amortized cost basis we do not expect to recover in full are deemed to be other-than-temporarily impaired and are written down to fair value with the credit loss portion of the write-down recorded as a realized loss in other revenue 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. On a quarterly basis, we utilize bid quotations from other third party pricing services 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 participating 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 underlying 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.
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.counterparty within the same subsidiary. 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. WeGenerally the collateral we accept collateralis in the form of either cash or other marketable securities. Where permitted, we elect to net-by-counterparty certain derivative contractsderivatives entered into under a legally
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Notes to Consolidated Financial Statements
enforceable master netting agreement and, therefore, the fair value of those derivative contractsderivatives are netted by counterparty in theand subsidiary on 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 anyand subsidiary cash collateral exchanged as part of those derivative agreements. We may also require certain counterparties to make a cash deposit at the inception of a derivative agreement, referred to as “initial margin.” This initial margin is included in “Cash and cash equivalents” and “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.
Interest rate derivatives
We enter into interest rate contracts eitherderivatives as part of our trading activities 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 realizedIn addition, we enter into interest rate derivatives with clients of our Bank segment, including clients with whom we have entered into loans or other lending arrangements, to facilitate their respective interest rate risk management strategies. 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. Realized and unrealized gains or losses including interest,on such 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 or third-party 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 ourthese 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 security contracts (“TBAs”) that are accounted for as derivatives, which are classified within Level 1 of the fair value hierarchy.
Matched 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 matched book 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 contractsmatched book derivatives 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 matched book derivatives. As a result, matched book 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 matched book 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
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Notes to Consolidated Financial Statements
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.
RJ Bank Derivatives: 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 that 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 the designated derivative instruments is recorded, net of tax, in shareholders’ equity as part of the cumulative translation adjustment component of AOCI with such balance impacting “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 the 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 relationship and performed using the hypothetical derivative method. However, as the terms of the hedging instrument and hypothetical derivative generally match at inception, there is no expected ineffectiveness to be recorded in earnings.
The fair value of our forward foreign exchange contracts is determined by obtaining valuations from a third party pricing service or model. These valuations are based on observable inputs such as spot rates, foreign exchange rates and both U.S. and foreign interest rate curves. We validate the observable inputs utilized in the third 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.
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. We enter into floating-rate advances from the FHLBFederal Home Loan Bank (“FHLB”) to, in part, fund these assetslending and investing activities in our Bank segment and then enter into interest rate swapscontracts which swap variable interest payments on this debtsuch borrowings for fixed interest payments. These interest rate swaps are designated as cash flow hedges and effectively fix a portion of our Bank segment’s cost of funds associated with these assets toand mitigate a portion of the market risk.
risk associated with its lending and investing activities. The effective portion of the gain or loss on these interest rate derivativesour Bank segment’s 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 levelsservice. These third-party valuations are based on observable inputs such as time value and yield curves. We validate these observable inputs by preparing an independent calculation using a secondary model. Cash flows from hedging activities are included in the contractual prices forsame category as the underlying financialitems being hedged. Cash flows from derivative instruments used to manage interest rates are classified as operating activities. We classify these derivatives within Level 2 of the fair value hierarchy.
Foreign-exchange derivatives
We enter into three-month forward foreign exchange contracts primarily to hedge the risks related to Raymond James Bank’s investment in its Canadian subsidiary, as well as time value, yield curveits 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 gain or loss related to these designated net 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 in the event the net investment is sold or substantially liquidated. Gains and other volatility factors underlyinglosses on undesignated derivative instruments are recorded in “Other” revenues on 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 and measured using the positions. Sincehypothetical derivatives method. As the terms of the hedging instrument and hypothetical derivative generally match at inception, the hedge is expected to be highly effective.
The fair values of our forward foreign exchange contracts are determined by obtaining valuations from a third-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-party valuation model inputs can be observed inby preparing an independent calculation using a liquid market and the models do not require significant judgment, such derivativesecondary valuation model. These forward foreign exchange contracts are classified 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. Treasuries, 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 primarily of direct investments and investments in third-party private equity funds and various Company-sponsoredfunds. The private equity funds. The private 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 substantially all of our private equity fund investments are determined utilizing either the net asset value (“NAV”) of the fund as a practical expedient orwith the remainder utilizing Level 3 valuation techniques.
We utilize NAVFractional shares
Within our broker-dealer subsidiaries, when dividend reinvestment programs or its equivalent asother corporate action events result in clients receiving 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 portfolioquantity that is not valued at NAV is valued initially at the transaction price until significant transactions or developments indicate that a changewhole number, we transact in the carrying values offractional shares on a principal basis. We include 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 changesfractional shares 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“Other assets” in a current sale or immediate settlement of the instrument.
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.Condition and record an associated liability to the client in “Other payables” as we must fulfill our clients’ future fractional share redemptions. We useaccount for the fractional share assets and the liability to the client at fair value. The fair values of the fractional share assets and liabilities are determined based on quoted prices in active markets to determine the fair value of these investments. Such instrumentsand 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.
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Notes to Consolidated Financial Statements
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.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Whencredit losses. See the receivable held is considered to be impaired, the amount“Allowance for credit losses” section below for a discussion of our application of the impairment is generally measured based onpractical expedient under 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. expected credit losses (“CECL”) guidance 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 cash deposits placed with clearing organizations, which includes cash deposited as initial margin, as well as 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
Receivables from brokers, dealers and clearing organizationsWe 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, net ofCondition. 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 RJour Bank segment and include securities-based loans (“SBL”), commercial and industrial (“C&I”) loans, real estate investment trust (“REIT”) loans, tax-exempt loans, and commercial and residential real estate loans. Other than the loans tax-exempt loans, as well as securities-based loans (“SBL”)acquired in the TriState Capital acquisition which are fully collateralized bywere recorded at acquisition-date fair value (see Note 3 for additional information), the borrower’s marketable securities. 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 or less the allowance for loan losses and any discounts received in connection with the purchase of the loan, less the allowance for credit losses 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.method, taking into consideration scheduled payments and prepayments. Loan discounts include fair value adjustments associated with our acquisition of TriState Capital Bank totaled $145 million as of June 1, 2022 and will be accreted into interest income over the weighted-average life of the underlying loans, estimated to approximate 4 years as of the acquisition date, which may vary based on prepayments. For revolving loans, the straight-line method is used based on the contractual term. Syndicated loans purchased in the secondary market are recorded on the trade date. Interest income is recorded on an accrual basis.
We segregate our loan portfolio into six loan portfolio segments,segments: SBL, C&I, commercial real estate (“CRE”), (primarily loans that are secured by income-producing properties and CRE construction tax-exempt,loans), REIT (loans made to businesses that own or finance income-producing real estate), residential mortgage, and SBL.tax-exempt. Loans in our SBL portfolio segment are primarily collateralized by the borrower’s marketable securities at advance rates consistent with industry standards and, to a lesser extent, the cash surrender value of any applicable life insurance policies. 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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 salewhich we may purchase with intent to sell in the secondary market, as part of a securitization as discussed below, but have not yet been 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 theand are carried at fair value of the securitized pools as well as any realized gains or losses earned thereon are reflected in net trading profit.value. 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.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Corporate loans, which include C&I, CRE and CRE construction,REIT loans, as well as tax-exempt loans are designated as held for investment upon inception and recognizedrecorded 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 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, we issue or participate in the issuance of standby letters of credit whereby we provide 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, we 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. 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, anycertain 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 placed on nonaccrual status are considered nonperforming loans.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Loans of all classes are generally 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 SBL and substantially all residential (first mortgage and home equity) 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 discounted cash flow 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
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
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.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
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 a number of factors, including 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)regulators). Additional charge-offs are taken when the value of the collateral changes or there is an adverse change in the expected cash flows.
The majorityA portion 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 three 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 our 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 either the OCCFlorida Office of Financial Regulation (“OFR”) and the Board of Governors of the Federal Reserve System (“the Fed”) or the Federal Deposit Insurance Corporation (“FDIC”) and the Pennsylvania Department of Banking and Securities (“PDBS”) as part of our respective banks’ regulatory examination.examinations.
EverySubstantially all residential mortgage loanloans over 60 days past due isare 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
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
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 and certain other key revenue producers, primarily for recruiting transitional cost assistance, and retention purposes. These loansThe decision to extend credit to a financial advisor 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 continued 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 analyze this asset on a portfolio segment or class basis. Further,
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
affiliation status (i.e., whether 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 longeractively affiliated with us.us or has terminated affiliation with us) is the primary credit risk factor within this 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 withallowance for credit losses section that follows for further information related to our allowance for credit losses on our loans to financial advisors. See Note 9 for additional information on our loans to financial advisors.
Loans to financial advisors who are no longeractively affiliated with us was approximately $22 millionare considered past due once they are 30 days or more delinquent as to the payment of contractual interest or principal. Such loans are placed on nonaccrual status when we determine that full payment of contractual principal and $13 million at September 30, 2017interest 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 2016, respectively. Ourunpaid 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 doubtful accounts was approximately $8 millioncredit losses for the difference between the amortized cost and $5 million at September 30, 2017 and 2016, respectively.the amount we estimate will ultimately be collected. Additional charge-offs are taken if there is an adverse change in the expected cash flows.
Other assetsAllowance for credit losses
We carry investments in stockevaluate 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 (“ACL”) over the remaining life of the Federal Home Loan Bankfinancial instrument. The remaining life of Atlanta (“FHLB”)our financial assets is determined by considering contractual terms and expected prepayments, among other factors.
We use multiple methodologies in estimating an allowance for credit losses and our approaches may differ by the subsidiary which holds the asset, the type of financial asset and the Federal Reserve Bankrisk characteristics within each financial asset type. Our estimates are based on ongoing evaluations of Atlanta (the “FRB”) at cost. These investments are heldthe portfolio, 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., SBL, collateralized agreements, and margin loans), we apply the practical expedient allowed under the CECL guidance in accordance with certain membership requirements, are restricted, and lackestimating an allowance for credit losses. We reasonably expect that borrowers (or counterparties, as applicable) will replenish the collateral as required. As a market. FHLB and FRB stock can only be soldresult, we estimate zero credit losses to the issuerextent that the fair value equals or another member institution at its par value. We annually evaluate our holdings in FHLB and FRB stock for potential impairment based upon its assessment ofexceeds the ultimate recoverability of the parrelated carrying value of the stock. This annual evaluation is comprised of a review offinancial asset. When the capital adequacy, liquidity position and the overall financial condition of the FHLB and FRB to determine the impact these factors have on the ultimate recoverability of the parfair value of the respective stock. Impairment evaluationscollateral securing the financial asset is less than the carrying value, qualitative factors such as historical experience (adjusted for current risk characteristics and economic conditions) as well as reasonable and supportable forecasts are performed more frequentlyconsidered in estimating the allowance for credit losses on the unsecured portion of the financial asset.
Credit losses are charged-off against the allowance when we believe the uncollectibility of the financial asset is confirmed. Subsequent recoveries, if eventsany, are credited to the allowance once received. A credit loss expense, or circumstances indicate there may be impairment. Any cash dividends received from these investments are recognizedbenefit, is recorded in earnings in an amount necessary to adjust the allowance for credit losses to our estimate as “Interest income”of the end of each reporting period. Our provision or benefit for credit losses for outstanding bank loans is included in the“Bank loan provision/(benefit) for credit losses” on our Consolidated Statements of Income and Comprehensive Income.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 also maintain investments ingenerally 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 significant numbervariety of company-owned life insurance policies utilizedeconomic forecast scenarios, each model is run using a single forecast scenario selected for such model. Our forecasts incorporate assumptions related to fund certain non-qualified deferred compensation plansmacroeconomic indicators including, but not limited to, U.S. gross domestic product (“GDP”), equity market indices, unemployment rates, 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. See Note 9 for additional information.
Investments incommercial real estate partnerships held by consolidated variable interest entities
Raymond James Tax Credit Funds, Inc. (“RJTCF”), a wholly owned subsidiary of RJF, or one of its affiliates, isand residential home price indices. At the managing member or general partner in LIHTC funds, some of which require consolidation (refer to the separate discussion that followsconclusion of our policies regarding the evaluation of VIEs to determine if consolidation is required ). These funds invest in housing project limited partnerships or limited liability companies (“LLCs”)reasonable and supportable forecast period, 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 all of the LIHTC fund VIEs which require consolidation. Additional information is presented 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 provided for using the straight-line method over the estimated useful lives of the assets, which rangecurrently ranges from two to 10four years depending on the model and macroeconomic variables, we generally use a straight-line reversion approach over a one-year period, where applicable, to revert to historical loss information for software, three to five years for furniture, fixturesC&I, REIT and equipmenttax-exempt loans. For CRE and 10 to 31 years for buildings, building components, building improvementsresidential mortgage loans, we incorporate a reasonable and land improvements. Leasehold improvements are amortized using the straight-line methodsupportable forecast of various macroeconomic variables over the shorter of the remaining lease term or the estimated useful liveslife of the assets. Depreciation expense associated with property, equipmentThe development of the forecast used for CRE 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.
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
residential mortgage loans incorporates an assumption that each macroeconomic variable will revert to a long-term expectation starting in years two to four 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.
Additions, improvementsThe allowance for credit losses on loans is generally evaluated and expendituresmeasured on a collective basis, based on the subsidiary which holds the asset, and then 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 for each respective bank 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 extendare not incorporated into the useful lifequantitative 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 an asset are capitalized. Expenditures for repairs and maintenance are charged to operationsdelinquent loans; changes in the period incurred. Gainsseasoning of the loan portfolio and losses on disposalsthe nature, volume and terms of propertyloans; loan diversification and equipment arecredit concentrations; changes in the value of underlying collateral; changes in legal and regulatory environments; local, regional, national and international economic conditions, or recent catastrophic events not already reflected in the Consolidated Statementsquantitative estimate; and the routine time delay between when economic data is gathered, analyzed and distributed by our service providers and current macroeconomic developments.
Held for investment bank loans
Raymond James Bank: The allowance for credit losses for the C&I, CRE, REIT, residential mortgage, and tax-exempt portfolio segments is estimated using credit risk models that project a probability of Incomedefault (“PD”), which is then multiplied by the loss given default (“LGD”) and Comprehensive Incomethe estimated exposure at default (“EAD”) at the loan-level for every period remaining in the period realized.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 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.
IntangibleTriState Capital Bank: The allowance for credit losses utilizes a lifetime or cumulative loss rate methodology, which identifies macroeconomic factors and asset-specific characteristics correlated with credit loss experience including loan age, loan type, and leverage. The lifetime loss rate is applied to the amortized cost of the loan and builds on default and recovery probabilities by utilizing pool-specific historical loss rates. These pool-specific historical loss rates may be adjusted for forecasted macroeconomic variables and other factors such as differences in underwriting standards, portfolio mix, or when historical asset terms do not reflect the contractual terms of the financial assets. Each quarter, the relevancy of historical loss information is assessed and management considers any necessary adjustments. Loss rates are based on historical averages for each loan pool, adjusted to reflect the impact of a single, forward-looking forecast of certain macroeconomic variables such as GDP, unemployment rates, corporate bond credit spreads and commercial property values, which management considers to be both reasonable and supportable.
See Note 8 for further information about our bank loans, including credit quality indicators considered in developing the allowance for credit losses.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
Available-for-sale securities
Credit losses on available-for-sale securities are limited to the difference between the security’s amortized cost basis, or for the securities acquired in the TriState Capital acquisition, the fair value of such securities on the acquisition date, and its fair value on the reporting date. Credit losses, if any, are recognized through an allowance for credit losses rather than as a direct reduction in amortized cost basis or the acquisition date fair value, as applicable. We expect zero credit losses on the portion of our available-for-sale securities portfolio that is comprised of U.S. government and government agency-backed securities and the related accrued interest receivable for which payments of both principal and interest are guaranteed, and for which we have not historically experienced any credit losses. In addition, we have the ability and intent to hold these securities and unrealized losses related to these available-for-sale securities are generally due to changes in market interest rates. On a quarterly basis, we reassess our expectation of zero credit losses on such securities, giving consideration to any relevant changes in the securities or the issuer.
On a quarterly basis, we also evaluate non-agency-backed available-for-sale securities in an unrealized loss position for expected credit losses. We first determine whether it is more likely than not that we will sell the impaired securities, giving consideration to current and forecasted liquidity requirements, regulatory and capital requirements, and our securities portfolio management. If it is more likely than not that we will sell an available-for-sale security with a fair value below amortized cost before recovery, the security’s book basis is written down to fair value through earnings. For available-for-sale debt securities that it is more likely than not that we will not sell before recovery, a provision for credit losses is recorded through earnings for the amount of the valuation decline below book basis that is attributable to credit losses. We consider the extent to which fair value is less than amortized cost, credit ratings and other factors related to the security in assessing whether a credit loss exists, and we measure the credit loss by comparing the present value of cash flows expected to be collected to the book basis of the security limited by the amount that the fair value is less than the book basis. The remaining difference between the security’s fair value and its book basis (that is, the decline in fair value not attributable to credit losses) is recognized in other comprehensive income on an after-tax basis. Changes in the allowance for credit losses are recorded as provisions for credit losses. Losses are charged against the allowance when we believe the security is uncollectible or we intend to sell the security. At September 30, 2022, based on our assessment of those securities not guaranteed by the U.S government or its agencies, we recognized an insignificant allowance for credit losses.
Identifiable intangible assets, net
Certain identifiable intangible assets we acquire such as those related to customer relationships, trade names,core deposits, developed technology, intellectual property,trade names 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 suchrelated to our identifiable intangible assets is included in “Other expenses” in the“Other” expenses on our Consolidated Statements of Income and Comprehensive Income. See Note 3 for further information on our intangible assets resulting from recent acquisitions.
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
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 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.
In the course of our evaluation of thea potential impairment ofto goodwill, we may performelect either a qualitative or a quantitative assessment. Our qualitative assessments consider macroeconomic indicators, such as trends in equity and fixed income markets, GDP, labor markets, interest rates, and housing markets. We also consider regulatory changes, reporting unit specific results, and changes in key personnel and strategy. Changes in these indicators, and our ability to respond to such changes, may trigger the need for impairment testing at a point other than our annual assessment of potential impairment may result in the determination that a quantitative impairment analysis is not necessary. Under this elective process, wedate. 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 Alternatively, 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 caseevent of a 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, investments in real estate partnerships held by consolidated VIEs, and certain investments held in our Bank segment. See Note 12 for further information. Other assets also includes client fractional shares for which we act in a principal capacity. See our fractional shares policy above 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 Affordable Housing Investments, Inc. (“RJAHI”) (formerly Raymond James Tax Credit Funds, Inc.) a wholly-owned subsidiary of RJF, or one of its affiliates, acts as 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 and/or provide a mechanism for banks and other institutions to meet certain regulatory obligations. 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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Our Bank segment holds investments which deliver tax benefits, including in LIHTC funds, some of which are managed by RJAHI. We have determined that LIHTC funds managed by RJAHI are VIEs. See additional discussion in this Note 2 regarding our evaluation and conclusions around consolidation of such VIEs. These investments are included in “Other assets” on our Consolidated Statements of Financial Condition. See the “Income taxes” section of this Note 2 for a discussion of our accounting for investments which qualify for tax credits.
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 that has been placed in service, including certain software 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.
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 of disposal. See Note 13 for additional information regarding our property and equipment.
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 a 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 or acquired 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 (or acquisition date, for leases assumed through acquisitions) based on the present value of lease payments over the lease term, which is discounted using our commencement date or acquisition 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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Bank deposits
Bank deposits include money market accounts, savings accounts, interest-bearing and non-interest-bearing checking accounts, and certificates of deposit held at Raymond James Bank and TriState Capital Bank. Raymond James Bank deposits are substantially comprised of deposits that are swept from the investment accounts of PCG clients through the RJBDP. TriState Capital Bank’s deposits are generally comprised of money market and savings accounts and interest-bearing checking accounts. Deposits are stated at the principal amount outstanding. Interest on deposits is accrued and charged to interest expense daily and is paid or credited in accordance with the terms of the respective accounts. The interest rates on the vast majority of our deposits are determined based on market rates and, in certain cases, may be linked to an index, such as the effective federal funds rate. For additional detail regarding deposits, see Note 15.
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
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
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.
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 and directors based on estimated fair values. The compensation cost 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 Such defense costs 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 thatprimarily 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 awardsexternal legal fees 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 inare included within “Professional fees” on our Consolidated Statements of Income and Comprehensive Income. See Note 2019 for additional information.
Share-based compensation
We account for the compensation cost related to share-based payment awards made to employees, directors, and independent contractors based on the estimated fair values of the awards on the date of grant. The compensation cost of our share-based awards, net of estimated forfeitures, is amortized over the requisite service period of the awards. Share-based compensation amortization is included in “Compensation, commissions and benefits” expense on our Consolidated Statements of Income and Comprehensive Income. See Note 23 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 and other investments,policies, 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
103
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, INCINC. 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. Gains and losses relating to transactions in currencies other than the respective subsidiaries’ functional currency are reported in “Other” revenues in our Consolidated Statements of Income and Comprehensive Income.
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. Our net deferred tax assets and net deferred tax liabilities presented on the financial statements are based upon the jurisdictional footprint of the firm. We consider our major jurisdictions for disclosure purposes to be federal, state, Canada, and the United Kingdom (“U.K.”). 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.
We hold investments in certain LIHTC and other funds which deliver tax benefits. For those investments in LIHTC funds that qualify for application of the proportional amortization method, we apply such method. Under the proportional amortization method, the LIHTC investment is amortized in proportion to the allocation of tax credits received in each period, and the investment amortization and the tax credits are presented on a net basis within “Provision for income taxes” in our Consolidated Statements of Income and Comprehensive Income. Where our LIHTC investments do not qualify for such treatment, we account for such LIHTC and other fund investments under the equity method, with any losses recorded in “Other” expenses. The federal tax credits that result from these investments reduce our provision for income taxes in the year the investment’s activity is included in our taxable income. As a result, inclusion of these credits may not align to the period in which we recognize the losses on the related investments in our financial statements.
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 preferred stock dividends as well as 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, restricted stock awards (“RSAs”), 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.LLCs.
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 creditor funds (“NMTC Funds”).of a similar nature. See Note 10 for further information on our VIEs.
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.104
Restricted Stock Trust Fund - We utilize a trust in connection with certain of our restricted stock unit 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 units 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, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
LIHTC funds
LIHTC Funds - RJTCF
RJAHI is the managing member or general partner in a number of LIHTC Fundsfunds having one 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 RJTCFRJAHI 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’sRJAHI’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, certain fund while RJTCF,VIEs which invest and hold 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, RJAHI, as the managing member or general partner of the fund, is responsible for overseeing the fund’s operations.
Non-guaranteed LIHTCRJAHI sponsors two general types of tax credit funds - Except for one guaranteed fund discussed below, RJTCFdesigned 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. RJAHI 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). RJTCFRJAHI 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-guaranteed single investor funds, or non-guaranteed multi-investor funds. In single investor funds RJTCFthat deliver tax benefits, RJAHI has concluded that the one 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 economics of the fund. Therefore RJTCF,RJAHI, as managing member or general partner of such funds, is not the one 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 RJTCFthat deliver tax benefits, RJAHI 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, RJTCFRJAHI is deemed to have the power over such activities. RJTCFRJAHI 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, RJTCF doesin nearly all cases, these funds are not consolidate non-guaranteedconsolidated.
RJAHI may also sponsor other funds designed to hold projects to monetize future tax benefits for which the projects may qualify in 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 which RJTCFfund, and therefore RJAHI 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, we have concluded that we meet the power criteria since participating rights are not held by any one single investor and thus RJAHI is deemed to have the power over such activities; however, we have concluded that we do not meet the benefits criteria given we do not expect the benefits to be potentially significant and therefore we are not the primary beneficiary and we do not consolidate the funds.
Direct investments in LIHTC project partnerships - RJ
Raymond James Bank is alsoand TriState Capital Bank are the investor membermembers of a LIHTC fundfunds that deliver tax benefits which we have determined to be a VIE,VIEs, and in which aRJAHI, or its subsidiary, of RJTCF is the managing member. WeFor Raymond James Bank, we have determined that RJ Bankit is the primary beneficiary of this VIE and therefore, we consolidate the fund. AllTriState Capital Bank also holds investments in other LIHTC funds for which we have determined that we are not the primary beneficiary. 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 valuevalues of the funds’ project partnership investments are included in “Investments in real estate partnerships held by consolidated variable interest entities” on our Consolidated Statements of Financial Condition (see Note 10 for additional information).
New market tax credit funds - An entity which was at one time an affiliate of Morgan Keegan (as hereinafter defined) is the managing member of a number of NMTC Funds. NMTC Funds 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 against their federal tax liability. These new market tax credits are taken by the investor member over a seven year period.105
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,
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therefore,the funds’ project partnership investments are included in “Other assets” on our affiliate as the managing memberConsolidated Statements of the NMTC Fund does not have the power overFinancial Condition. Any losses on such activities. Accordingly, weequity method investments 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 issuedincluded 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 impact“Other” expenses on our Consolidated Statements of Income and Comprehensive IncomeIncome. See “Income taxes” section of this Note 2 for a discussion of our accounting for the prior year periodstax benefits related to such investments.
Private Equity Interests
As part of our private equity investments, at one time we held interests in a number of limited partnerships (our “Private Equity Interests”). We concluded that the Private Equity Interests are VIEs, primarily as the net change in revenues, interest and other expenses were offset by the impacta result of the deconsolidation ontreatment of limited partner kick-out and participation rights as a simple majority of the net income/(loss) attributablelimited partners cannot initiate an action to noncontrolling interests. kick-out the general partner without cause and the limited partners with equity at-risk lack substantive participating rights.
In addition,our analysis of the new consolidation guidancecriteria to determine whether we were the primary beneficiary of the Private Equity Interests VIEs, we analyzed the power and benefits criteria. As of September 30, 2021, we had concluded that we were the primary beneficiary in certain of these entities as we met the power and benefits criteria. In such instances, we consolidated the Private Equity Interests VIE. However, as of September 30, 2022 we had sold or restructured such investments such that we were no longer deemed the primary beneficiary and therefore did not changeconsolidated these entities. In our consolidation conclusions for certain entities but did changeremaining Private Equity Interests, we are a passive limited partner investor, and thus, we do not have the determinationpower to make decisions that most significantly affect the economic performance of whether an entity was considered a VIEsuch VIEs. Accordingly, in such circumstances, we have determined we are not the primary beneficiary and therefore impactswe do not consolidate the VIE.
Restricted Stock Trust Fund
We utilize a trust in connection with certain of our disclosures relatedRSU awards. This trust fund was established and funded for the purpose of acquiring our common stock in the open market to VIEs.be used to settle RSUs granted as a retention vehicle for certain employees of our Canadian subsidiaries. We are deemed to be the primary beneficiary and, accordingly, consolidate this trust fund.
Goodwill - In September 2015,Acquisitions
Our financial statements include the FASB issued guidance governing adjustments tooperations of acquired businesses starting from the provisional amounts recognized at the acquisition date with a corresponding adjustment to goodwill (ASU 2015-16). Such adjustments are required when new information is obtained about facts and circumstances that existed ascompletion of the acquisition. Acquisitions are generally recorded as business combinations, whereby the assets acquired and liabilities assumed are recorded on the date of acquisition date that, if known, would have affectedat their respective estimated fair values, including any identifiable intangible assets. Any excess of the measurement amounts initially recognized or would have resultedpurchase price over the estimated fair values of the net assets acquired is recorded as goodwill.
Significant judgment is required in estimating the recognitionfair value of additionalcertain acquired assets and liabilities. This new guidance eliminates the requirementThe fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management, but are inherently uncertain as they pertain to retrospectively account for such adjustments. This new guidance was effective for this fiscal year beginning on October 1, 2016. The adoptionforward-looking views 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, includingbusinesses, client behavior, and market conditions. We consider the income, tax consequences, classification of awards as either equity or liabilities,market and classificationcost approaches and place reliance on the statementapproach or approaches deemed most appropriate to estimate the fair value of cash flows. We early adopted this guidance asintangible assets. Significant estimates and assumptions inherent in the valuations reflect a consideration of October 1, 2016. Our adoption of the new stock compensation simplification guidance impacts our determination of income tax expense. Generally,other marketplace participants and include the amount and timing of compensation cost recognized for financial reporting purposes varies fromfuture cash flows (including expected growth rates and profitability) and 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 equitydiscount rate applied to the extentcash flows.
Determining the useful life of previously recognized windfalls, with any remaining shortfall recorded in income tax expense. Underan intangible asset also requires judgment. With the new guidance, all tax effects relatedexception of certain customer relationships, the majority of our acquired intangible assets (e.g., customer relationships, trade names and non-compete agreements) are expected to share-based paymentshave determinable useful lives. We estimate the useful lives of these intangible assets based on a number of factors including competitive environment, market share, trademark, brand history, underlying demand, and operating plans. Finite-lived intangible assets 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 prospectivelyamortized over their estimated useful life. Refer to excess tax benefits arising from vesting after the October 1, 2016 adoption dateNote 3 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 16our goodwill and 20intangible assets policies above 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 scope of the standard, analyzing contracts and reviewing potential changes to our existing revenue recognition accounting policies. Based on our106
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implementation efforts to date, we expect that we will be required to change our current presentation of certain costs from a net presentation within revenues 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 for under the equity method or those that result from the consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any.
Simplifies 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 cost on the balance sheet.
Requires the use of the exit price notion when measuring the fair value of financial instruments 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 disclosure 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.
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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 have on our Consolidated Statements of Cash Flows.
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Notes 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 guidance in the earliest period it applies to our facts 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:
Expands 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 change in the fair value of a hedging instrument to be presenting in the same income statement line as the hedged item.
Modifies accounting for components excluded from the assessment of hedge effectiveness.
Eases certain documentation and hedge effectiveness assessment requirements.
The new guidance is first effective for our fiscal year beginning 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
TriState Capital
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. As of December 31, 2016, Scout and its Reams division had combined assets under management and advisement of
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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”)
InOn June 2016,1, 2022, we completed our acquisition of all of the outstanding shares of Mummert,TriState Capital, including its wholly-owned subsidiaries, TriState Capital Bank and Chartwell Investment Partners, LLC (“Chartwell”), in a middle market M&A advisorycash and stock transaction valued at $1.4 billion. TriState Capital Bank serves the commercial banking needs of middle-market businesses and financial services providers and focused private banking needs of high-net-worth individuals. Chartwell, a registered investment adviser, provides investment management services primarily to institutional investors, mutual funds, and individual investors. TriState Capital Bank will continue to operate as a separately branded 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,as an independently-chartered bank. TriState Capital Bank and hasChartwell have 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 assetsBank and liabilities of Mummert recorded as of the acquisition date atAsset Management segments, respectively, and their respective fair values in our consolidated financial statements. Mummert’s results of operations have been included in our results prospectively from the closing date of June 1, 2016.2022.
Under the terms of the acquisition agreement, TriState Capital common stockholders received $6.00 cash and 0.25 shares of RJF common stock for each share of TriState Capital common stock. Additionally, the TriState Capital Series C Perpetual Non-Cumulative Convertible Non-Voting Preferred Stock (“Series C Convertible Preferred Stock”) was converted to common shares at the prescribed exchange ratio and cashed out at $30 per share and each share of TriState Capital’s 6.75% Fixed-to-Floating Rate Series A Non-Cumulative Perpetual Preferred Stock and TriState Capital’s 6.375% Fixed-to-Floating Rate Series B Non-Cumulative Perpetual Preferred Stock was converted, respectively, into the right to receive one share of a newly created series A and series B preferred stock of RJF. The fair values of these newly created RJF series A and series B preferred stock were estimated as of the June 1, 2022 acquisition date based on quoted market prices for the instruments. See Note 1720 for information regardingfurther details on these new classes of preferred stock.
Furthermore, as a component of our total purchase consideration for TriState Capital on June 1, 2022, in accordance with the contingentterms of the acquisition agreement, 551 thousand RJF RSAs were issued at terms that mirrored RSAs of TriState Capital which were outstanding as of the acquisition date. In accordance with the terms of the acquisition agreement, the TriState Capital RSAs were converted to RJF RSAs using an exchange ratio that considered the RJF volume weighted average price for 10 trading days ending on the third business day prior to the closing of the acquisition. The fair value of the RSAs upon completion of the transaction was calculated as of the June 1, 2022 acquisition date based on the June 1, 2022 closing share price of our common stock and was allocated between the pre-acquisition service period ($28 million treated as purchase consideration) and the post-acquisition requisite service period, over which we will recognize share-based compensation amortization. See Note 23 for further details on these RSAs.
On December 15, 2021, during the period between announcement of the intent to acquire TriState Capital and the acquisition closing date, we had loaned TriState Capital $125 million under an unsecured fixed-to-floating rate note (the “Note”). The Note was set to mature on December 15, 2024 and bore interest at a fixed annual rate of 2.25%. Upon acquisition, the Note reverted to an intercompany instrument and subsequent to the closing date, the Note was forgiven. In accordance with GAAP, as of the acquisition date the Note was considered to have been effectively settled and the acquisition-date fair value of $123 million was treated as purchase consideration and included in the purchase price. The fair value of the Note on the acquisition date was determined using a discounted cash flow analysis based on the incremental borrowing rates for similar types of instruments at the acquisition date.
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Notes to Consolidated Financial Statements
We accounted for our completed acquisition of TriState Capital as a business combination in accordance with GAAP. Accordingly, the purchase price attributable to this acquisition was allocated to the assets acquired and liabilities assumed based on their estimated fair values. The following table summarizes the purchase consideration, fair value estimates of the assets acquired and liabilities assumed, and resulting goodwill as of the June 1, 2022 acquisition date.
| | | | | | | | |
| | TriState Capital |
$ in millions, except share and per share amounts | | June 1, 2022 |
Fair value of consideration transferred: | | |
Fair value of common stock issued: | | |
Shares of RJF common stock issued | | 7,861,189 |
RJF share price as of June 1, 2022 | | $ | 97.74 | |
Fair value of RJF common stock issued for TriState Capital common stock | | $ | 768 | |
Other common stock consideration | | 10 | |
Total fair value of common stock issued | | 778 | |
Cash consideration (1) | | 359 | |
Effective settlement of the Note | | 123 | |
Preferred stock issued | | 120 | |
RSAs issued | | 28 | |
Total purchase price | | $ | 1,408 | |
Fair value of assets acquired: | | |
Cash and cash equivalents | | $ | 457 | |
Available-for-sale securities | | 1,524 | |
Derivative assets | | 51 | |
| | |
Bank loans, net | | 11,549 | |
Deferred income taxes, net | | 26 | |
Identifiable intangible assets | | 197 | |
Other assets | | 226 | |
All other assets acquired | | 59 | |
Total assets acquired | | $ | 14,089 | |
Fair value of liabilities assumed: | | |
Bank deposits | | $ | 12,593 | |
Derivative liabilities | | 125 | |
Other borrowings | | 375 | |
All other liabilities assumed | | 117 | |
Total liabilities assumed | | $ | 13,210 | |
Fair value of net identifiable assets acquired | | $ | 879 | |
Goodwill (2) | | $ | 529 | |
(1) Cash consideration includes $6 per TriState Capital common share outstanding (for a total of $189 million) and $30 per TriState Capital Series C Convertible Preferred Stock outstanding (for a total of $154 million), as well as other cash amounts paid to settle TriState Capital warrants and options outstanding as of the closing and cash paid in lieu of fractional shares. We utilized our cash on hand to fund the cash component of the purchase consideration.
(2) The goodwill associated with this acquisition, which has been allocated to our Bank segment and primarily represents synergies from combining TriState Capital with our existing businesses, is not deductible for tax purposes.
Our Consolidated Statements of Income and Comprehensive Income included net revenues and pre-tax income attributable to TriState Capital of $141 million and $38 million, respectively, for the Mummert transaction.year ended September 30, 2022. The pre-tax income included an initial provision for credit losses on loans and lending commitments acquired as part of the acquisition of $26 million (included in “Bank loan provision/(benefit) for credit losses”) and $5 million (included in “Other” expense), respectively. These provisions were required under GAAP to be recorded in earnings in the reporting period following the acquisition date.
MacDougall, MacDougall & MacTier Inc. (“3Macs”)
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
In August 2016,Notes to Consolidated Financial Statements
All other acquisitions
On January 21, 2022, 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 ClientU.K.-based Charles Stanley 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 recordedPLC (“Charles Stanley”) using cash on hand as of the acquisition date at their respective fair valuesdate. The acquisition enables us to accelerate our financial planning, investment advisory and securities transaction services growth in the U.K. and, through Charles Stanley’s multiple affiliation options, gives us the ability to offer wealth management affiliation choices to financial advisors in the U.K. consistent with our consolidated financial statements. 3MacsPCG model in the U.S. and Canada. Charles Stanley has been integrated into our PCG segment and its results of operations have been included in our results prospectively from August 31, 2016.the closing date of January 21, 2022.
U.S. Private Client Services unit of Deutsche Bank Wealth Management
In September 2016,On July 1, 2022, we completed anour acquisition of certain specified assets and the assumption of certain specified liabilities of the U.S. Private Client Services unit of Deutsche Bank Wealth ManagementSumRidge Partners, LLC (“Alex. Brown”SumRidge Partners”) 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 recordedusing cash on hand as of the acquisition date at their respective fair valuesdate. SumRidge Partners is a technology-driven fixed income market maker specializing in investment-grade and high-yield corporate bonds, municipal bonds, and institutional preferred securities. The acquisition of SumRidge Partners added an institutional market-making operation, as well as additional trading technologies and risk management tools to our consolidated financial statements. Alex. Brown’sexisting fixed income operations. SumRidge Partners has been integrated into our Capital Markets segment and its results of operations have been included in our results of operations prospectively from September 6, 2016.the closing date of July 1, 2022.
As partWe accounted for our completed acquisitions of Charles Stanley and SumRidge Partners as business combinations in accordance with GAAP. Accordingly, the aggregate purchase price attributable to each acquisition was allocated to the assets acquired and liabilities assumed based on their respective estimated fair values. The following table summarizes the aggregate purchase consideration, fair value estimates of the assets acquired and liabilities assumed, and resulting goodwill as of their respective acquisition dates.
| | | | | | | | |
$ in millions | | Charles Stanley (1) and SumRidge Partners |
Aggregate purchase consideration | | $ | 686 | |
Fair value of assets acquired: | | |
Cash and cash equivalents | | $ | 156 | |
Assets segregated for regulatory purposes | | 1,890 | |
Trading assets | | 631 | |
Brokerage client receivables | | 91 | |
Other receivables | | 440 | |
Identifiable intangible assets | | 137 | |
All other assets acquired | | 38 | |
Total assets acquired | | $ | 3,383 | |
Fair value of liabilities assumed: | | |
Trading liabilities | | $ | 552 | |
Brokerage client payables | | 2,064 | |
| | |
All other liabilities assumed | | 347 | |
Total liabilities assumed | | $ | 2,963 | |
Fair value of net identifiable assets acquired | | $ | 420 | |
Goodwill | | $ | 266 | |
| | |
Goodwill by segment: | | |
PCG (2) | | $ | 164 | |
Capital Markets (3) | | 102 | |
Total goodwill | | $ | 266 | |
(1) The fair values of Alex. Brown, weassets acquired and liabilities assumed associated with the liabilityCharles Stanley acquisition were denominated in British pounds sterling (“GBP”) and converted to U.S. dollars using the spot rate of 1.3554 as of January 21, 2022.
(2) The goodwill associated with the Charles Stanley acquisition, which has been allocated to our PCG segment, primarily represents synergies from combining Charles Stanley with our existing businesses and is not deductible for certain DBRSU awards, includingtax purposes.
(3) The goodwill associated with the associated plan termsSumRidge Partners acquisition, which has been allocated to our Capital Markets segment, primarily represents synergies from combining SumRidge Partners with our existing businesses and conditions, which will ultimately be settled in DB common shares ifis deductible for tax purposes over 15 years.
Our Consolidated Statements of Income and Comprehensive Income included combined net revenues attributable to Charles Stanley and SumRidge Partners of $187 million and an insignificant amount of pre-tax income for 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.ended September 30, 2022.
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Acquisition-related expenses
Determination of fair value
The “Acquisition-related expenses” presented in our Consolidated Statementsfollowing is a description of Incomethe methods used to determine the fair values of significant assets and Comprehensive Incomeliabilities acquired:
Cash and cash equivalents; Assets segregated for regulatory purposes; Brokerage client receivables; Other receivables; and Brokerage client payables: The pre-close carrying amount of these assets and liabilities was a reasonable estimate of fair value based on the short-term nature of these assets and liabilities.
Trading assets and liabilities: The pre-close carrying amount of trading assets and liabilities as of the acquisition date were used as reasonable estimates of fair value. We utilized prices from third-party pricing services to corroborate these estimates of fair value.
Available-for-sale securities: The fair values of available-for-sale securities were based on quoted market prices for the year endedsame or similar securities, recently executed transactions or third-party pricing models.
Derivatives assets and liabilities: The pre-close carrying amount of derivative assets and liabilities, which utilized valuations from third-party pricing services, were used as reasonable estimates of fair value.
Bank loans: Fair values for bank loans were determined using a discounted cash flow methodology that considered loan type and related collateral, credit loss expectations, classification status, market interest rates and other market factors from the perspective of a market participant. Loans were segregated into specific pools according to similar characteristics, including risk, interest rate type (i.e., fixed or floating), underlying benchmark rate, and payment type and were treated in the aggregate when determining the fair value of each pool. The discount rates were derived using a build-up method inclusive of the weighted average cost of funding, estimated servicing costs and an adjustment for liquidity and then compared to current origination rates and other relevant market data.
Purchased loans were evaluated and classified as either purchased credit deteriorated (“PCD”), which indicates that the loan has experienced more than insignificant credit deterioration since origination, or non-PCD loans. For PCD loans, the sum of the loan’s purchase price and allowance for credit losses, which was determined as of the acquisition date using the same allowance methodology applied to the TriState Capital Bank loan portfolio as of September 30, 20172022, became its initial amortized cost basis. The initial allowance for credit losses on PCD loans is established in purchase accounting, with a corresponding offset to goodwill (i.e., is not recorded in earnings). As required under GAAP, an initial allowance for credit losses on non-PCD loans is required to be established through a provision for credit losses (i.e., recorded in earnings) in the first reporting period following the acquisition. Subsequent changes in the allowance for credit losses for PCD and 2016 pertainnon-PCD loans are recognized in the bank loan provision/(benefit) for credit losses. For non-PCD loans, the difference between the fair value and the unpaid principal balance was considered the fair value mark. The non-credit discount or premium related to certain incremental expenses incurredPCD loans and the fair value mark on non-PCD loans will be accreted or amortized into interest income over the weighted average life of the underlying loans, which may vary based on prepayments.
Of the total bank loans acquired in connectionthe TriState Capital acquisition 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 unamortizedan unpaid principal balance of $11.70 billion, $11.36 billion were considered non-PCD loans and $337 million were considered PCD loans. The following table reconciles the prepaid compensation asset associated with terminated associates, which was not collected. See Note 9 for more information.difference between the unpaid principal balance and purchase price of PCD loans at acquisition.
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. | | | | | | | | |
$ in millions | | June 1, 2022 |
Unpaid principal balance of PCD loans | | $ | 337 | |
Allowance for credit losses on PCD loans | | (3) | |
Non-credit discount on PCD loans | | (10) | |
Purchase price of PCD loans | | $ | 324 | |
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, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Identifiable intangible assets: The fair values of the significant identifiable intangible assets were estimated using the following income approaches.
•Customer relationships — The fair values of customer relationships were estimated using a multi-period excess earnings approach that considered future period post-tax earnings, as well as a discount rate.
•Trade names — The fair values of trade names were estimated using a relief from royalty approach which was based on a forecast of the after-tax royalties we would save by ownership of the intangible assets rather than licensing the use of those assets.
•Core deposit intangible (“CDI”) — The fair value of the CDI asset was estimated using a discounted cash flow approach, specifically the favorable source of funds method, that considered the servicing and interest costs of the acquired deposit base, an estimate of the cost associated with alternative funding sources, expected client attrition rates, deposit growth rates, and a discount rate.
•Developed technology — The fair value of developed technology was estimated primarily using a multi-period excess earnings approach which was based on a forecast of the expected future net cash flows attributable to the assets over the estimated remaining lives of the assets.
These cash flow forecasts were then adjusted to present value by applying appropriate discount rates based on current market rates that reflect the risks associated with the cash flow streams.
The following table summarizes the fair value and weighted average estimated useful life of identifiable intangibles assets acquired as of the respective acquisition dates.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | TriState Capital | | | | | | Charles Stanley and SumRidge Partners |
$ in millions | | Estimated fair value | | Weighted average estimated useful life | | | | | | | | | | Estimated fair value | | Weighted average estimated useful life |
Fair value of identifiable intangible assets acquired: | | | | | | | | | | | | | | | | |
Core deposit intangible | | $ | 89 | | | 10 years | | | | | | | | | | $ | — | | | — | |
Customer relationships | | 54 | | | 17 years | | | | | | | | | | 80 | | | 12 years |
Trade names | | 33 | | | 20 years | | | | | | | | | | 17 | | | 9 years |
Developed technology | | 16 | | | 10 years | | | | | | | | | | 40 | | | 8 years |
Non-amortizing customer relationships | | 5 | | | N/A | | | | | | | | | | — | | | N/A |
Total identifiable intangibles assets acquired | | $ | 197 | | | | | | | | | | | | | $ | 137 | | | |
Other assets: Other assets primarily include company-owned life insurance policies, ROU assets, investments in FHLB stock, and investments in LIHTC funds. The pre-close historical carrying values of company-owned life insurance policies, investments in FHLB stock and investments in LIHTC funds were used as a reasonable estimate of fair value. ROU lease assets were measured at the same amount as the lease liability, as adjusted to reflect favorable or unfavorable terms of the lease when compared with market terms (see “Other payables” section below for additional details regarding acquired lease liabilities).
Bank deposits: The fair values used for demand and savings deposits equaled the amounts payable on demand at the acquisition date. The fair values for time deposits were estimated by applying a discounted cash flow method to discount the principal and interest payments from maturity at the yields offered by similar banks as of the acquisition date.
Other borrowings: Other borrowings was comprised of 5.75% fixed-to-floating subordinated notes due 2030 and short-term FHLB advances (see Note 16 for further details on these borrowings). The fair value of the subordinated note was estimated based on quoted market prices as of the valuation date. The carrying amount of the FHLB advances was a reasonable estimate of fair value based on the short-term nature of these instruments and that the vast majority are floating-rate advances.
All other liabilities assumed: All other liabilities assumed primarily included payables to brokers, dealers, and clearing organizations, lease liabilities, accrued compensation, commissions, and benefits, and the fair value of unfunded lending commitments. The pre-close historical carrying amount of payables to brokers, dealers, and clearing organizations and accrued compensation, commissions, and benefits was a reasonable estimate of fair value based on the short-term nature of these liabilities. Lease liabilities were measured at the present value of the remaining lease payments determined using a discounted cash flow method based on our cost of borrowing, as if the acquired lease were a new lease at the acquisition date. The fair value of unfunded lending commitments was estimated using a discounted cash flow approach.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Pro forma financial information (unaudited)
The following table presents unaudited pro forma RJF consolidated net revenues and pre-tax income as if the TriState Capital, Charles Stanley, and SumRidge Partners acquisitions had occurred on October 1, 2020. The unaudited pro forma results reflect adjustments for amortization of acquired identifiable intangible assets, the initial provision for credit losses on non-PCD loans and lending commitments, acquisition-related retention expense, and accretion of the purchase accounting fair value adjustments to loans, available-for-sale securities, lending commitments, deposits, and other borrowings, with accretion generally recognized over the weighted average life of the underlying asset or liability. Legal and other professional fees and other costs incurred to effect these acquisitions are treated as if they were incurred on October 1, 2020. The pro forma amounts do not reflect potential revenue growth or cost savings that may be realized as a result of these acquisitions. The unaudited pro forma financial information is presented for informational purposes only, and is not necessarily indicative of future operations or results had these acquisitions been completed as of October 1, 2020.
| | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2022 | | 2021 |
Net revenues | | $ | 11,364 | | | $ | 10,395 | |
Pre-tax income | | $ | 2,195 | | | $ | 1,872 | |
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, 2022 |
Assets at fair value on a recurring basis: | | | | | | | | | | |
| | | | | | | | | | |
Trading assets: | | | | | | | | | | |
Municipal and provincial obligations | | $ | — | | | $ | 269 | | | $ | — | | | $ | — | | | $ | 269 | |
Corporate obligations | | 16 | | | 579 | | | — | | | — | | | 595 | |
Government and agency obligations | | 86 | | | 85 | | | — | | | — | | | 171 | |
Agency MBS, CMOs, and asset-backed securities (“ABS”) | | — | | | 123 | | | — | | | — | | | 123 | |
Non-agency CMOs and ABS | | — | | | 61 | | | — | | | — | | | 61 | |
Total debt securities | | 102 | | | 1,117 | | | — | | | — | | | 1,219 | |
Equity securities | | 20 | | | — | | | — | | | — | | | 20 | |
Brokered certificates of deposit | | — | | | 30 | | | — | | | — | | | 30 | |
Other | | — | | | — | | | 1 | | | — | | | 1 | |
Total trading assets | | 122 | | | 1,147 | | | 1 | | | — | | | 1,270 | |
Available-for-sale securities (1) | | 986 | | | 8,899 | | | — | | | — | | | 9,885 | |
Derivative assets: | | | | | | | | | | |
Interest rate - matched book | | — | | | 52 | | | — | | | — | | | 52 | |
Interest rate - other | | 42 | | | 432 | | | — | | | (348) | | | 126 | |
Foreign exchange | | — | | | 10 | | | — | | | — | | | 10 | |
| | | | | | | | | | |
Total derivative assets | | 42 | | | 494 | | | — | | | (348) | | | 188 | |
Other investments - private equity - not measured at NAV | | — | | | — | | | 5 | | | — | | | 5 | |
All other investments: | | | | | | | | | | |
Government and agency obligations (2) | | 79 | | | — | | | — | | | — | | | 79 | |
Other | | 92 | | | 2 | | | 24 | | | — | | | 118 | |
Total all other investments | | 171 | | | 2 | | | 24 | | | — | | | 197 | |
Other assets - fractional shares | | 78 | | | — | | | — | | | — | | | 78 | |
Subtotal | | 1,399 | | | 10,542 | | | 30 | | | (348) | | | 11,623 | |
Other investments - private equity - measured at NAV | | | | | | | | | | 90 | |
Total assets at fair value on a recurring basis | | $ | 1,399 | | | $ | 10,542 | | | $ | 30 | | | $ | (348) | | | $ | 11,713 | |
| | | | | | | | | | |
Liabilities at fair value on a recurring basis: | | | | | | | | | | |
Trading liabilities: | | | | | | | | | | |
Municipal and provincial obligations | | $ | 5 | | | $ | — | | | $ | — | | | $ | — | | | $ | 5 | |
Corporate obligations | | — | | | 555 | | | — | | | — | | | 555 | |
Government and agency obligations | | 249 | | | — | | | — | | | — | | | 249 | |
| | | | | | | | | | |
Total debt securities | | 254 | | | 555 | | | — | | | — | | | 809 | |
Equity securities | | 27 | | | — | | | — | | | — | | | 27 | |
| | | | | | | | | | |
Total trading liabilities | | 281 | | | 555 | | | — | | | — | | | 836 | |
Derivative liabilities: | | | | | | | | | | |
Interest rate - matched book | | — | | | 52 | | | — | | | — | | | 52 | |
Interest rate - other | | 40 | | | 495 | | | — | | | (65) | | | 470 | |
Foreign exchange | | — | | | 5 | | | — | | | — | | | 5 | |
Other | | — | | | — | | | 3 | | | — | | | 3 | |
Total derivative liabilities | | 40 | | | 552 | | | 3 | | | (65) | | | 530 | |
Other payables - fractional shares | | 78 | | | — | | | — | | | — | | | 78 | |
Total liabilities at fair value on a recurring basis | | $ | 399 | | | $ | 1,107 | | | $ | 3 | | | $ | (65) | | | $ | 1,444 | |
|
| | | | | | | | | | | | | | | | | | | | |
$ 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, 2021 |
Assets at fair value on a recurring basis: | | | | | | | | | | |
Assets segregated for regulatory purposes (3) | | $ | 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 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 (1) | | 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 (2) | | 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 | |
(1) Our available-for-sale securities primarily consist of agency MBS and agency CMOs. See Note 5 for further information.
(2) These assets are comprised of U.S. Treasuries primarily purchased to meet certain deposit requirements with clearing organizations.
(3) These assets consisted of U.S. Treasuries with maturities greater than 3 months as of our date of purchase. These assets did not include U.S. Treasuries with maturities of less than 3 months as of our date of purchase with a fair value of $3.55 billion at September 30, 2021 which were considered cash equivalents segregated for regulatory purposes. These assets are classified as Level 1. Such cash equivalents were $500 million at September 30, 2022.
|
| | | | | | | | | | | | | | | | | | | | |
$ 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 is to treat transfers between levels ofIn the fair value hierarchy as having occurred at the end of the reporting period.
RAYMOND JAMES FINANCIAL, INC 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 includedfollowing tables, gains/(losses) on trading and derivative 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 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. Income.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended September 30, 2022 Level 3 instruments at fair value |
| | | | Financial assets | | | | | Financial liabilities |
| | | | Trading assets | | | | | Other investments | | | | | Derivative liabilities |
$ in millions | | | | Other | | | | | Private equity investments | | All other | | | | | Other |
Fair value beginning of year | | | | $ | 14 | | | | | | $ | 75 | | | $ | 23 | | | | | | $ | (1) | |
Total gains/(losses) included in earnings | | | | 1 | | | | | | 12 | | | (3) | | | | | | (2) | |
Purchases and contributions | | | | 108 | | | | | | — | | | 7 | | | | | | — | |
Sales, distributions, and deconsolidations | | | | (122) | | | | | | (70) | | | (3) | | | | | | — | |
Transfers: | | | | | | | | | | | | | | | | |
Into Level 3 | | | | — | | | | | | — | | | — | | | | | | — | |
Out of Level 3 | | | | — | | | | | | (12) | | | — | | | | | | — | |
Fair value end of year | | | | $ | 1 | | | | | | $ | 5 | | | $ | 24 | | | | | | $ | (3) | |
Unrealized gains/(losses) for the year included in earnings for instruments held at the end of the year | | | | $ | — | | | | | | $ | 1 | | | $ | 1 | | | | | | $ | (2) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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, distributions, and deconsolidations | | (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) | |
As of September 30, 2017, 10%2022, 14% of our assets and 2% of our liabilities are instrumentswere 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, 2017 represent 6% of our assets measured at fair value. In comparison, as of September 30, 2016, 8% and 3%2021, 19% of our assets and 1% of our liabilities respectively, represented instrumentswere measured at fair value on a recurring basis. InstrumentsAs of both September 30, 2022 and 2021, 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, 2016 represented 8% of our assets measured at fair value. Level 3 instruments as a percentage ofbasis.
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 table below presents the valuation techniques and significant unobservable inputs used in the valuation of a significant majority of our financial instruments classified as level 3. These inputs represent those that a market participant would take into account when pricing these instruments.
|
| | | | | | | | | | |
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 disclosure 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 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) in our investment entities’ future economic performance will have a corresponding increase/(decrease) on the valuation results. The value of our investment moves inversely with the market’s expectation of returns from such investments. Should the market require higher returns from industries in which we are invested, all other factors held constant, our investments will decrease in value. Should the market accept lower returns from industries in which we are invested, all other factors held constant, our investments will increase in value.
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, 2017 includes various direct and third party private2022 primarily included investments in third-party funds, including growth equity, investments and various private equity funds which we sponsor. The portfolio is primarily invested in a broad range of industries including leveraged buyouts, growth capital, distressed capital, venture capital, and mezzanine capital.
Due to the closed-end nature of certain of ourlending fund investments, suchinvestments. Our investments cannot be redeemed directly with the funds. Our investment is monetized through distributions received through the liquidation of the underlying assets of those funds. We anticipate 90% 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.
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Our investments are monetized through the liquidation of underlying assets of fund investments, the timing of which is uncertain.
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, 2022 | | | | |
Private equity investments measured at NAV | | $ | 90 | | | $ | 39 | |
Private equity investments not measured at NAV | | 5 | | | |
Total private equity investments | | $ | 95 | | | |
| | | | |
September 30, 2021 | | | | |
Private equity investments measured at NAV | | $ | 94 | | | $ | 24 | |
Private equity investments not measured at NAV | | 75 | | | |
Total private equity investments (1) | | $ | 169 | | | |
|
| | | | | | | | | | | | | | | | |
| | | | 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 |
| | | | | | |
The portions of(1) Of the total private equity investments at September 30, 2021, the portion we doowned was $120 million, while the portion that we did not own were $54was $49 million and $51 million as of September 30, 2017 and September 30, 2016, respectively, and as such arewas 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. As a result of such holding limitations, we exited or restructured certain of our private equity investments the weighted average portion we own is $145 million or 73% and $144 million or 74% as ofduring fiscal 2022 to conform with such regulatory deadlines, which resulted in a decline in private equity investments not measured at NAV compared to September 30, 20172021 and September 30, 2016, respectively.
Manya decline in noncontrolling interests on our Consolidated Statements of theseFinancial Condition related to the portion of such investments we did not own. Additionally, many of our private equity fund investments meetmet 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 for2022. As a result, we have exited or restructured our covered fund investments to conform to such investments.regulatory deadlines.
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, 2022 | | | | | | | | | | | | | | |
Bank loans: | | | | | | | | | | | | | | |
Residential mortgage loans | | | | $ | 2 | | | $ | 10 | | | $ | 12 | | | Collateral or discounted cash flow (1) | | Prepayment rate | | 7 yrs. - 12 yrs. (10.4 yrs.) |
Corporate loans | | | | $ | — | | | $ | 57 | | | $ | 57 | | | Collateral or discounted cash flow (1) | | Recovery rate | | 24% - 66% (47%) |
Loans held for sale | | | | $ | 3 | | | $ | — | | | $ | 3 | | | N/A | | N/A | | N/A |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
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) | | Recovery rate | | 74 | % |
Loans held for sale | | | | $ | 29 | | | $ | — | | | $ | 29 | | | 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. Unobservable inputs used in the collateral valuation technique are not meaningful and unobservable inputs used in the discounted cash flow valuation technique are presented in the table.
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, 2022 and 2021. 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, 2022 | | | | | | | | | | |
Financial assets: | | | | | | | | | | |
Bank loans, net | | | | $ | 134 | | | $ | 42,336 | | | $ | 42,470 | | | $ | 43,167 | |
Financial liabilities: | | | | | | | | | | |
Bank deposits - certificates of deposit | | | | $ | 400 | | | $ | 579 | | | $ | 979 | | | $ | 999 | |
Other borrowings - subordinated notes payable | | | | $ | 95 | | | $ | — | | | $ | 95 | | | $ | 100 | |
Senior notes payable | | | | $ | 1,706 | | | $ | — | | | $ | 1,706 | | | $ | 2,038 | |
| | | | | | | | | | |
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 | |
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 RJour Bank segment and include SBL, C&I loans, commercial and residential real estate loans, REIT loans, and tax-exempt loans as well as SBL 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 offered 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
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
flow calculation that applies interest rates currently being offered on certificates of deposit to a schedule of expected monthly maturities on time deposits. These fixed ratefixed-rate certificates of deposit are classified as LevelLevels 2 and 3 under the fair value hierarchy.
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: Other borrowings primarily include 5.75% fixed-to-floating subordinated notes due 2030 and our Bank segment’s borrowings from the FHLB. The fair value of the mortgage note payable associated withsubordinated notes is estimated by discounting scheduled cash flows through the financing of our Saint Petersburg, Florida corporate offices is based upon an estimate of the currentestimated maturity using market rates for borrowings of similar loans. The carrying amount ofmaturities and is classified as Level 2 under 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 RJ Bank’s borrowings from thehierarchy. FHLB which, by their nature,advances reflect terms that approximate current market rates for similar loans. Under theloans and therefore, their carrying value approximates fair value hierarchy, our other borrowingsvalue. Our FHLB advances 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-saleWe own available-for-sale securities are comprised of MBS and CMOs owned by RJat Raymond James Bank and ARS owned by one of our non-broker-dealer subsidiaries. SeeTriState Capital Bank. Refer to Note 2 for a discussion of our available-for-sale securities accounting policies including the fair value determination process.applicable to our available-for-sale 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, 2022 | | | | | | | | |
Agency residential MBS | | $ | 5,662 | | | $ | — | | | $ | (668) | | | $ | 4,994 | |
Agency commercial MBS | | 1,518 | | | — | | | (208) | | | 1,310 | |
Agency CMOs | | 1,637 | | | — | | | (233) | | | 1,404 | |
Other agency obligations | | 613 | | | — | | | (31) | | | 582 | |
Non-agency residential MBS | | 492 | | | — | | | (41) | | | 451 | |
U.S. Treasuries | | 1,014 | | | — | | | (28) | | | 986 | |
Corporate bonds | | 146 | | | — | | | (5) | | | 141 | |
Other | | 18 | | | — | | | (1) | | | 17 | |
Total available-for-sale securities | | $ | 11,100 | | | $ | — | | | $ | (1,215) | | | $ | 9,885 | |
| | | | | | | | |
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 | |
U.S Treasuries | | 15 | | | — | | | — | | | 15 | |
| | | | | | | | |
Total available-for-sale securities | | $ | 8,322 | | | $ | 62 | | | $ | (69) | | | $ | 8,315 | |
The amortized costs and fair values in the preceding table exclude $24 million and $14 million of accrued interest on available-for-sale securities as follows:of September 30, 2022 and September 30, 2021, 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 securitiessecurities. Weighted-average yields are as presented below.calculated on a taxable-equivalent basis based on estimated annual income divided by the average amortized cost of these 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, 2022, the rightweighted-average life of our available-for-sale securities portfolio was approximately 4.65 years.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 |
$ 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 | | $ | — | | | $ | 147 | | | $ | 2,516 | | | $ | 2,999 | | | $ | 5,662 | |
Carrying value | | $ | — | | | $ | 140 | | | $ | 2,242 | | | $ | 2,612 | | | $ | 4,994 | |
Weighted-average yield | | — | % | | 2.45 | % | | 1.25 | % | | 1.76 | % | | 1.55 | % |
Agency commercial MBS | | | | | | | | | | |
Amortized cost | | $ | 15 | | | $ | 714 | | | $ | 716 | | | $ | 73 | | | $ | 1,518 | |
Carrying value | | $ | 15 | | | $ | 644 | | | $ | 588 | | | $ | 63 | | | $ | 1,310 | |
Weighted-average yield | | 1.91 | % | | 1.70 | % | | 1.22 | % | | 1.69 | % | | 1.47 | % |
Agency CMOs | | | | | | | | | | |
Amortized cost | | $ | — | | | $ | 12 | | | $ | 30 | | | $ | 1,595 | | | $ | 1,637 | |
Carrying value | | $ | — | | | $ | 12 | | | $ | 27 | | | $ | 1,365 | | | $ | 1,404 | |
Weighted-average yield | | — | % | | 2.08 | % | | 1.54 | % | | 1.48 | % | | 1.49 | % |
Other agency obligations | | | | | | | | | | |
Amortized cost | | $ | — | | | $ | 487 | | | $ | 114 | | | $ | 12 | | | $ | 613 | |
Carrying value | | $ | — | | | $ | 464 | | | $ | 107 | | | $ | 11 | | | $ | 582 | |
Weighted-average yield | | — | % | | 2.16 | % | | 3.55 | % | | 2.99 | % | | 2.43 | % |
Non-agency residential MBS | | | | | | | | | | |
Amortized cost | | $ | — | | | $ | — | | | $ | — | | | $ | 492 | | | $ | 492 | |
Carrying value | | $ | — | | | $ | — | | | $ | — | | | $ | 451 | | | $ | 451 | |
Weighted-average yield | | — | % | | — | % | | — | % | | 4.13 | % | | 4.13 | % |
U.S. Treasuries | | | | | | | | | | |
Amortized cost | | $ | 6 | | | $ | 1,006 | | | $ | 2 | | | $ | — | | | $ | 1,014 | |
Carrying value | | $ | 6 | | | $ | 978 | | | $ | 2 | | | $ | — | | | $ | 986 | |
Weighted-average yield | | 1.91 | % | | 2.64 | % | | 1.30 | % | | — | % | | 2.63 | % |
Corporate bonds | | | | | | | | | | |
Amortized cost | | $ | — | | | $ | 83 | | | $ | 63 | | | $ | — | | | $ | 146 | |
Carrying value | | $ | — | | | $ | 81 | | | $ | 60 | | | $ | — | | | $ | 141 | |
Weighted-average yield | | — | % | | 4.12 | % | | 4.91 | % | | — | % | | 4.46 | % |
Other | | | | | | | | | | |
Amortized cost | | $ | — | | | $ | 5 | | | $ | — | | | $ | 13 | | | $ | 18 | |
Carrying value | | $ | — | | | $ | 5 | | | $ | — | | | $ | 12 | | | $ | 17 | |
Weighted-average yield | | — | % | | 4.19 | % | | — | % | | 5.33 | % | | 4.95 | % |
Total available-for-sale securities | | | | | | | | | | |
Amortized cost | | $ | 21 | | | $ | 2,454 | | | $ | 3,441 | | | $ | 5,184 | | | $ | 11,100 | |
Carrying value | | $ | 21 | | | $ | 2,324 | | | $ | 3,026 | | | $ | 4,514 | | | $ | 9,885 | |
Weighted-average yield | | 1.91 | % | | 2.31 | % | | 1.39 | % | | 1.91 | % | | 1.84 | % |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to call or prepay obligations with or without call or prepayment penalties.
Consolidated Financial Statements
|
| | | | | | | | | | | | | | | | | | | | |
| | 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, 2022 | | | | | | | | | | | | |
Agency residential MBS | | $ | 2,165 | | | $ | (226) | | | $ | 2,829 | | | $ | (442) | | | $ | 4,994 | | | $ | (668) | |
Agency commercial MBS | | 494 | | | (41) | | | 816 | | | (167) | | | 1,310 | | | (208) | |
Agency CMOs | | 337 | | | (32) | | | 1,067 | | | (201) | | | 1,404 | | | (233) | |
Other agency obligations | | 582 | | | (31) | | | — | | | — | | | 582 | | | (31) | |
Non-agency residential MBS | | 451 | | | (41) | | | — | | | — | | | 451 | | | (41) | |
U.S. Treasuries | | 982 | | | (28) | | | 4 | | | — | | | 986 | | | (28) | |
Corporate bonds | | 128 | | | (5) | | | — | | | — | | | 128 | | | (5) | |
Other | | 17 | | | (1) | | | — | | | — | | | 17 | | | (1) | |
Total | | $ | 5,156 | | | $ | (405) | | | $ | 4,716 | | | $ | (810) | | | $ | 9,872 | | | $ | (1,215) | |
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) | |
U.S. Treasuries | | 3 | | | — | | | — | | | — | | | 3 | | | — | |
Total | | $ | 4,721 | | | $ | (50) | | | $ | 602 | | | $ | (19) | | | $ | 5,323 | | | $ | (69) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 the agency MBS and CMOs. At September 30, 2017,2022, of the 133 U.S. government-sponsored enterprise MBS and CMOs1,071 available-for-sale securities in an unrealized loss position, 100734 were in a continuous unrealized loss position for less than 12 months and 33337 securities were in a continuous unrealized loss position for greater than 12 months or more. We do not consider these securities other-than-temporarily impaired due to the guarantee provided by FNMA, FHLMC, and GNMA as to the full payment of principal and interest, and the fact that we have the ability and intent to hold these securities. months.
At September 30, 2017,2022, 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$5.42 billion and $586$3.21 billion, respectively, and fair values of $4.74 billion and $2.80 billion, respectively.
We received proceeds of $52 million, $969 million, and $222 million, respectively, and a fair valuefrom 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. In 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 ability2022, 2021, 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,2020, respectively, 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.gains.
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” on our Consolidated Statements of Income and Comprehensive Income. During 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:
|
| | | | | | | | | | | | |
| | 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, 2022 | | September 30, 2021 |
$ in millions | | Derivative assets | | Derivative liabilities | | Notional amount | | Derivative assets | | Derivative liabilities | | Notional amount |
Derivatives not designated as hedging instruments | | | | | | | | | | | | |
Interest rate - matched book | | $ | 52 | | | $ | 52 | | | $ | 1,340 | | | $ | 193 | | | $ | 193 | | | $ | 1,736 | |
Interest rate - other (1) | | 462 | | | 535 | | | 14,647 | | | 144 | | | 122 | | | 15,087 | |
Foreign exchange | | 4 | | | 5 | | | 958 | | | 3 | | | — | | | 826 | |
Other | | — | | | 3 | | | 531 | | | — | | | 1 | | | 551 | |
Subtotal | | 518 | | | 595 | | | 17,476 | | | 340 | | | 316 | | | 18,200 | |
Derivatives designated as hedging instruments | | | | | | | | | | | | |
Interest rate - other | | 12 | | | — | | | 1,050 | | | — | | | — | | | 850 | |
Foreign exchange | | 6 | | | — | | | 1,092 | | | 2 | | | — | | | 939 | |
Subtotal | | 18 | | | — | | | 2,142 | | | 2 | | | — | | | 1,789 | |
Total gross fair value/notional amount | | 536 | | | 595 | | | $ | 19,618 | | | 342 | | | 316 | | | $ | 19,989 | |
Offset on the Consolidated Statements of Financial Condition | | | | | | | | | | | | |
Counterparty netting | | (35) | | | (35) | | | | | (46) | | | (46) | | | |
Cash collateral netting | | (313) | | | (30) | | | | | (41) | | | (42) | | | |
Total amounts offset | | (348) | | | (65) | | | | | (87) | | | (88) | | | |
Net amounts presented on the Consolidated Statements of Financial Condition | | 188 | | | 530 | | | | | 255 | | | 228 | | | |
Gross amounts not offset on the Consolidated Statements of Financial Condition | | | | | | | | | | | | |
Financial instruments (2) | | (60) | | | (52) | | | | | (205) | | | (193) | | | |
Total | | $ | 128 | | | $ | 478 | | | | | $ | 50 | | | $ | 35 | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 subjectRelates 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 valuederivatives, as well as our banking operations, including those of $19 million and $12 million as of September 30, 2017 and 2016, respectively,TriState Capital Bank which are a component of “Other investments”was acquired on our Consolidated Statements of Financial Condition. See additional discussion of the DBRSUs in Note 20.
June 1, 2022.
(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 | | 2022 | | 2021 | | 2020 |
Interest rate (cash flow hedges) | | $ | 70 | | | $ | 26 | | | $ | (34) | |
Foreign exchange (net investment hedges) | | 72 | | | (34) | | | 5 | |
Total gains/(losses) included in AOCI, net of taxes | | $ | 142 | | | $ | (8) | | | $ | (29) | |
|
| | | | | | | | | | | | |
| | 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 andwere no components of derivative gains or losses were excluded from the assessment of hedge effectiveness for anyeach of the years ended September 30, 2017, 20162022, 2021 or 2015.2020. We expect to reclassify an estimated $4$25 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 10five 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:
|
| | | | | | | | | | | | | | |
| | 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 aboveIncome. These amounts do not include the impactany offsetting gains/(losses) 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.hedged item.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Year ended September 30, |
$ in millions | | Location of gain/(loss) | | 2022 | | 2021 | | 2020 |
Interest rate | | Principal transactions/other revenues | | $ | 22 | | | $ | 13 | | | $ | 7 | |
Foreign exchange | | Other revenues | | $ | 102 | | | $ | (21) | | | $ | — | |
Other | | Principal transactions | | $ | (1) | | | $ | 4 | | | $ | (5) | |
| | | | | | | | |
Risks associated with our derivatives and ourrelated risk mitigation related to, our derivative contracts
Credit risk
We are exposed to credit losses primarily 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 continue to monitor their credit standings. Currently, we anticipate that all of the counterparties will be able to fully satisfy their obligations under those agreements.standings on an ongoing basis. We may require initial margin or collateral from counterparties, generally 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. We also enter into derivatives with clients to which Raymond James Bank and TriState Capital Bank have provided loans. Such derivatives are generally collateralized by marketable securities or other assets of the client.
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, 2022 and 2021. 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, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Derivatives with credit-risk-related contingent features
Certain of theour derivative instruments arising from our interest rate contracts and forward foreign exchange contracts contain provisions that require our debt to maintain an investment gradeinvestment-grade rating from one or more of the major credit rating agencies.agencies or contain provisions related to default on certain of our outstanding debt. If our debt were to fall below investment grade,investment-grade or we were to default on certain of our outstanding debt, the counterparties to the derivative instruments could terminate the derivative 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 arewere in a liability position at bothwas $8 million as of September 30, 20172022 and 2016 was not material.insignificant as of September 30, 2021.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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, 2022 | | | | | | | | | | | | |
Gross amounts of recognized assets/liabilities | | $ | 367 | | | $ | 337 | | | $ | 704 | | | $ | 294 | | | $ | 172 | | | $ | 466 | |
Gross amounts offset on the Consolidated Statements of Financial Condition | | — | | | — | | | — | | | — | | | — | | | — | |
Net amounts included in the Consolidated Statements of Financial Condition | | 367 | | | 337 | | | 704 | | | 294 | | | 172 | | | 466 | |
Gross amounts not offset on the Consolidated Statements of Financial Condition | | (367) | | | (327) | | | (694) | | | (294) | | | (162) | | | (456) | |
Net amounts | | $ | — | | | $ | 10 | | | $ | 10 | | | $ | — | | | $ | 10 | | | $ | 10 | |
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 included in 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 | |
|
| | | | | | | | | | | | | | | | |
| | 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
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Repurchase agreements and securities loaned accounted for as secured borrowings
The following table presents the event the market valueremaining contractual maturity of therepurchase agreements and securities we pledgelending transactions accounted for as collateral in these activities declines, we may have to post additional collateral or reduce the borrowing amounts. We monitor such levels daily.secured borrowings.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | Overnight and continuous | | Up to 30 days | | 30-90 days | | Greater than 90 days | | Total |
September 30, 2022 | | | | | | | | | | |
Repurchase agreements: | | | | | | | | | | |
Government and agency obligations | | $ | 183 | | | $ | — | | | $ | — | | | $ | — | | | $ | 183 | |
Agency MBS and agency CMOs | | 111 | | | — | | | — | | | — | | | 111 | |
Total repurchase agreements | | 294 | | | — | | | — | | | — | | | 294 | |
Securities loaned: | | | | | | | | | | |
Equity securities | | 172 | | | — | | | — | | | — | | | 172 | |
Total collateralized financings | | $ | 466 | | | $ | — | | | $ | — | | | $ | — | | | $ | 466 | |
| | | | | | | | | | |
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 | |
Collateral received and pledged
We receive cash and securities as collateral, primarily in connection with reverse repurchase agreements, and other collateralized financings, securities borrowed,borrowing agreements, 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 | | 2022 | | 2021 |
Collateral we received that was available to be delivered or repledged | | $ | 3,812 | | | $ | 3,429 | |
Collateral that we delivered or repledged | | $ | 947 | | | $ | 830 | |
|
| | | | | | | | |
| | 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 |
|
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 | | 2022 | | 2021 |
Had the right to deliver or repledge | | $ | 1,276 | | | $ | 368 | |
Did not have the right to deliver or repledge | | $ | 63 | | | $ | 65 | |
Bank loans, net pledged at the FHLB and the Federal Reserve Bank of Atlanta | | $ | 8,800 | | | $ | 5,716 | |
|
| | | | | | | | |
| | 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 transactions 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:
|
| | | | | | | | | | | | | | | | | | | | |
$ 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 include “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.
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 8 – BANK LOANS, NET
Bank client receivables are comprised of loans originated or purchased by RJour Bank segment and include SBL, C&I loans, tax-exempt loans, SBL, and commercial and residential real estate loans, REIT loans, and tax-exempt 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: SBL, C&I, CRE, CRE construction, tax-exempt,REIT, 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.
tax-exempt. See Note 2 for a discussion of accounting policies related to bank loans.
Loan balances in the following tables are presented at amortized cost (outstanding principal balance net of unamortized purchase discounts or premiums, unearned income, and deferred origination fees and costs), except for certain held for sale loans recorded at fair value. Bank loans are presented on our Consolidated Statements of Financial Condition at amortized cost (or fair value where applicable) less the allowance for credit losses. As it pertains to TriState Capital Bank’s loans acquired as of June 1, 2022, the amortized cost of such purchased loans reflects the fair value of the loans on the acquisition date, and allowances for losses.as described further in Note 3, the purchase discount on such loans is accreted to interest income over the weighted-average life of the underlying loans, which may vary based on prepayments.
The following tables presenttable presents the balances for both theheld for investment loans by portfolio segment and held for sale loans.
| | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2022 | | 2021 |
| | | | |
SBL | | $ | 15,297 | | | $ | 6,106 | |
C&I loans | | 11,173 | | | 8,440 | |
CRE loans | | 6,549 | | | 2,872 | |
REIT loans | | 1,592 | | | 1,112 | |
Residential mortgage loans | | 7,386 | | | 5,318 | |
Tax-exempt loans | | 1,501 | | | 1,321 | |
| | | | |
Total loans held for investment | | 43,498 | | | 25,169 | |
Held for sale loans | | 137 | | | 145 | |
Total loans held for sale and investment | | 43,635 | | | 25,314 | |
Allowance for credit losses | | (396) | | | (320) | |
Bank loans, net (1) | | $ | 43,239 | | | $ | 24,994 | |
| | | | |
ACL as a % of total loans held for investment | | 0.91 | % | | 1.27 | % |
Accrued interest receivable on bank loans (included in “Other receivables, net”) | | $ | 137 | | | $ | 48 | |
(1) Bank loans, net as of September 30, 2022 are presented net of $112 million of net unamortized discount, unearned income, and held for investmentdeferred loan portfolios, as well asfees and costs. The net unamortized discount primarily arose from the associated percentage of each portfolio segment in RJ Bank’s total loan portfolio. “Loans held for sale, net” and “Totalacquisition date fair value purchased discount on bank loans held for investment, net”acquired in the table belowTriState Capital acquisition. See Note 3 for further information. Bank loans, net as of September 30, 2021 are presented net of $1 million of unearned income and deferred expenses, which include purchase premiums, purchase discounts and net deferred originationloan fees and costs.
|
| | | | | | | | | | | | | | | | | | | | | |
| | 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, 2017,2022, we had pledged $6.58 billion of residential mortgage loans and $1.43 billion of CRE loans with the FHLB had a blanket lien on RJ Bank’s residential mortgage loan portfolio as security for both the repayment of certain borrowings.borrowings and to secure capacity for additional borrowings as needed. Additionally, as of September 30, 2022, we had pledged $791 million of C&I loans with the FRB to be eligible to participate in the Federal Reserve’s discount window program. See Note 14Notes 7 and 16 for more information regarding borrowings from the FHLB.FHLB and bank loans pledged with the FHLB and FRB.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Loans heldHeld for sale loans
RJExclusive of the loans acquired on June 1, 2022 in our acquisition of TriState Capital Bank, we originated or purchased $1.67$3.38 billion, $1.80$2.15 billion, and $1.24$1.79 billion of loans held for sale during the years ended September 30, 2017, 20162022, 2021 and 2015,2020, respectively. Of these loans purchased during the years ended September 30, 2022, 2021 and 2020, $2.09 billion, $1.19 billion, and $1.03 billion, respectively, related to the guaranteed portions of SBA loans that were initially classified as loans for held sale upon purchase and subsequently transferred to trading instruments once they had been securitized into pools. Proceeds from the salesales of all other loans held for sale loansand not securitized amounted to $439 million, $383$1.29 billion, $973 million, and $213$776 million for the years ended September 30, 2017, 20162022, 2021 and 2015,2020, respectively. Net gains resulting from such sales amounted to $2 million inwere insignificant for each of the years ended September 30, 2017, 20162022, 2021, and 2015. Unrealized losses recorded in the2020.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial 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, 2016 and 2015.
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. Purchases do not include loans obtained from the acquisition of TriState Capital Bank.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | C&I loans | | | | CRE loans | | | | Residential mortgage loans | | | | Total |
Year ended September 30, 2022 | | | | | | | | | | | | | | |
Purchases | | $ | 1,288 | | | | | $ | — | | | | | $ | 1,207 | |
| | | $ | 2,495 | |
Sales | | $ | 147 | | | | | $ | — | | | | | $ | 1 | | | | | $ | 148 | |
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 | |
|
| | | | | | | | | | | | | | | | |
$ 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 |
|
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, 2022 | | | | | | | | | | | | | | |
SBL | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 15,297 | | | $ | 15,297 | |
C&I loans | | — | | | — | | | — | | | 32 | | | — | | | 11,141 | | | 11,173 | |
CRE loans | | — | | | — | | | — | | | 12 | | | 16 | | | 6,521 | | | 6,549 | |
REIT loans | | — | | | — | | | — | | | — | | | — | | | 1,592 | | | 1,592 | |
Residential mortgage loans | | 4 | | | — | | | 4 | | | — | | | 14 | | | 7,368 | | | 7,386 | |
Tax-exempt loans | | — | | | — | | | — | | | — | | | — | | | 1,501 | | | 1,501 | |
| | | | | | | | | | | | | | |
Total loans held for investment | | $ | 4 | | | $ | — | | | $ | 4 | | | $ | 44 | | | $ | 30 | | | $ | 43,420 | | | $ | 43,498 | |
| | | | | | | | | | | | | | |
September 30, 2021 | | | | | | | | | | | | | | |
SBL | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 6,106 | | | $ | 6,106 | |
C&I loans | | — | | | — | | | — | | | 39 | | | — | | | 8,401 | | | 8,440 | |
CRE loans | | — | | | — | | | — | | | — | | | 20 | | | 2,852 | | | 2,872 | |
REIT loans | | — | | | — | | | — | | | — | | | — | | | 1,112 | | | 1,112 | |
Residential mortgage loans | | 2 | | | — | | | 2 | | | 2 | | | 13 | | | 5,301 | | | 5,318 | |
Tax-exempt loans | | — | | | — | | | — | | | — | | | — | | | 1,321 | | | 1,321 | |
| | | | | | | | | | | | | | |
Total loans held for investment | | $ | 2 | | | $ | — | | | $ | 2 | | | $ | 41 | | | $ | 33 | | | $ | 25,093 | | | $ | 25,169 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
$ 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 $63 million and $61 million at September 30, 2022 and 2021, respectively, of nonaccrual loans which were current pursuant to their contractual terms. The table also includes TDRs of $11 million, $9 million, and $10 million for C&I loans, CRE loans, and residential first mortgage loans, respectively, at September 30, 2022, and $12 million and $13 million for CRE loans and residential first mortgage loans, respectively, at September 30, 2021.
| |
(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 $5 millioninsignificant at both September 30, 20172022 and 2021.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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. Collateral-dependent loans are recorded based upon the fair value of the collateral less the estimated selling costs. At September 30, 2022, we had $11 million of collateral-dependent C&I loans, which were collateralized by commercial real estate and other business assets and $21 million of collateral-dependent CRE loans which were collateralized by retail, industrial, and health care real estate. At September 30, 2021, we had $20 million of collateral-dependent CRE loans which were collateralized by retail and industrial real estate. We had $6 million and $5 million of collateral-dependent residential mortgage loans at September 30, 2022 and September 30, 2016.2021, respectively, which were collateralized by single family homes. The recorded investment in residential mortgage loans secured by one-to-four family residential properties for which formal foreclosure proceedings were in process was $18$5 million and $21$4 million at September 30, 20172022 and 2016,2021, 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 and generally are performing in a timely manner.accordance with the contractual terms.
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 | | | | | | |
| | Loans by origination fiscal year | | | | | | | | | | | | |
$ in millions | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving loans | | | | Total | | | | | | |
SBL | | | | | | | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 14 | | $ | 27 | | $ | 72 | | $ | 44 | | $ | 36 | | $ | 41 | | $ | 15,063 | | | | $ | 15,297 | | | | | | |
Special mention | | — | | — | | — | | — | | — | | — | | — | | | | — | | | | | | |
Substandard | | — | | — | | — | | — | | — | | — | | — | | | | — | | | | | | |
Doubtful | | — | | — | | — | | — | | — | | — | | — | | | | — | | | | | | |
Total SBL | | $ | 14 | | $ | 27 | | $ | 72 | | $ | 44 | | $ | 36 | | $ | 41 | | $ | 15,063 | | | | $ | 15,297 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
C&I loans | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | |
Pass | | $ | 1,011 | | $ | 1,448 | | $ | 1,301 | | $ | 1,124 | | $ | 1,389 | | $ | 2,200 | | $ | 2,380 | | | | $ | 10,853 |
Special mention | | 10 | | 28 | | 3 | | 37 | | — | | 82 | | 6 | | | | 166 |
Substandard | | 1 | | — | | 60 | | 28 | | 40 | | 6 | | 14 | | | | 149 |
Doubtful | | — | | — | | — | | — | | 5 | | — | | — | | | | 5 |
Total C&I loans | | $ | 1,022 | | $ | 1,476 | | $ | 1,364 | | $ | 1,189 | | $ | 1,434 | | $ | 2,288 | | $ | 2,400 | | | | $ | 11,173 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CRE loans | | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 1,916 | | $ | 1,345 | | $ | 892 | | $ | 707 | | $ | 816 | | $ | 551 | | $ | 176 | | | | $ | 6,403 | |
Special mention | | — | | 1 | | — | | — | | 36 | | 2 | | — | | | | 39 | |
Substandard | | — | | — | | 14 | | 17 | | 46 | | 30 | | — | | | | 107 | |
Doubtful | | — | | — | | — | | — | | — | | — | | — | | | | — | |
Total CRE loans | | $ | 1,916 | | $ | 1,346 | | $ | 906 | | $ | 724 | | $ | 898 | | $ | 583 | | $ | 176 | | | | $ | 6,549 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
REIT loans | | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 169 | | $ | 230 | | $ | 96 | | $ | 53 | | $ | 40 | | $ | 222 | | $ | 782 | | | | $ | 1,592 | |
Special mention | | — | | — | | — | | — | | — | | — | | — | | | | — | |
Substandard | | — | | — | | — | | — | | — | | — | | — | | | | — | |
Doubtful | | — | | — | | — | | — | | — | | — | | — | | | | — | |
Total REIT loans | | $ | 169 | | $ | 230 | | $ | 96 | | $ | 53 | | $ | 40 | | $ | 222 | | $ | 782 | | | | $ | 1,592 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential mortgage loans | | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 2,984 | | $ | 1,704 | | $ | 1,023 | | $ | 477 | | $ | 290 | | $ | 843 | | $ | 35 | | | | $ | 7,356 | |
Special mention | | 1 | | 1 | | — | | 2 | | — | | 4 | | — | | | | 8 | |
Substandard | | 1 | | — | | — | | — | | 1 | | 20 | | — | | | | 22 | |
Doubtful | | — | | — | | — | | — | | — | | — | | — | | | | — | |
Total residential mortgage loans | | $ | 2,986 | | $ | 1,705 | | $ | 1,023 | | $ | 479 | | $ | 291 | | $ | 867 | | $ | 35 | | | | $ | 7,386 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tax-exempt loans | | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 264 | | $ | 169 | | $ | 56 | | $ | 115 | | $ | 192 | | $ | 705 | | $ | — | | | | $ | 1,501 | |
Special mention | | — | | — | | — | | — | | — | | — | | — | | | | — | |
Substandard | | — | | — | | — | | — | | — | | — | | — | | | | — | |
Doubtful | | — | | — | | — | | — | | — | | — | | — | | | | — | |
Total tax-exempt loans | | $ | 264 | | $ | 169 | | $ | 56 | | $ | 115 | | $ | 192 | | $ | 705 | | $ | — | | | | $ | 1,501 | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
|
| | | | | | | | | | | | | | | | | | | | |
$ 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 |
| | Loans by origination fiscal year | | | | | | |
$ in millions | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Revolving loans | | | | Total |
SBL | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | |
Pass | | $ | 3 | | $ | 45 | | $ | 12 | | $ | — | | $ | — | | $ | — | | $ | 6,046 | | | | $ | 6,106 |
Special mention | | — | | — | | — | | — | | — | | — | | — | | | | — |
Substandard | | — | | — | | — | | — | | — | | — | | — | | | | — |
Doubtful | | — | | — | | — | | — | | — | | — | | — | | | | — |
Total SBL | | $ | 3 | | $ | 45 | | $ | 12 | | $ | — | | $ | — | | $ | — | | $ | 6,046 | | | | $ | 6,106 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
C&I loans | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | |
Pass | | $ | 999 | | $ | 1,273 | | $ | 1,180 | | $ | 1,408 | | $ | 935 | | $ | 1,633 | | $ | 739 | | | | $ | 8,167 |
Special mention | | — | | — | | 41 | | — | | 26 | | 54 | | 1 | | | | 122 |
Substandard | | — | | — | | 24 | | 84 | | — | | 28 | | — | | | | 136 |
Doubtful | | — | | — | | 15 | | — | | — | | — | | — | | | | 15 |
Total C&I loans | | $ | 999 | | $ | 1,273 | | $ | 1,260 | | $ | 1,492 | | $ | 961 | | $ | 1,715 | | $ | 740 | | | | $ | 8,440 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
CRE loans | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | |
Pass | | $ | 533 | | $ | 459 | | $ | 442 | | $ | 652 | | $ | 223 | | $ | 174 | | $ | 62 | | | | $ | 2,545 |
Special mention | | — | | 45 | | 58 | | 36 | | — | | — | | — | | | | 139 |
Substandard | | — | | — | | 32 | | 98 | | 8 | | 50 | | — | | | | 188 |
Doubtful | | — | | — | | — | | — | | — | | — | | — | | | | — |
Total CRE loans | | $ | 533 | | $ | 504 | | $ | 532 | | $ | 786 | | $ | 231 | | $ | 224 | | $ | 62 | | | | $ | 2,872 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
REIT loans | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | |
Pass | | $ | 235 | | $ | 95 | | $ | 75 | | $ | 60 | | $ | 46 | | $ | 167 | | $ | 237 | | | | $ | 915 |
Special mention | | — | | — | | 13 | | 11 | | 33 | | 106 | | 6 | | | | 169 |
Substandard | | — | | — | | 21 | | — | | 4 | | — | | 3 | | | | 28 |
Doubtful | | — | | — | | — | | — | | — | | — | | — | | | | — |
Total REIT loans | | $ | 235 | | $ | 95 | | $ | 109 | | $ | 71 | | $ | 83 | | $ | 273 | | $ | 246 | | | | $ | 1,112 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Residential mortgage loans | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | |
Pass | | $ | 1,861 | | $ | 1,266 | | $ | 640 | | $ | 386 | | $ | 451 | | $ | 666 | | $ | 20 | | | | $ | 5,290 |
Special mention | | — | | — | | — | | — | | — | | 5 | | — | | | | 5 |
Substandard | | — | | — | | — | | 1 | | 2 | | 20 | | — | | | | 23 |
Doubtful | | — | | — | | — | | — | | — | | — | | — | | | | — |
Total residential mortgage loans | | $ | 1,861 | | $ | 1,266 | | $ | 640 | | $ | 387 | | $ | 453 | | $ | 691 | | $ | 20 | | | | $ | 5,318 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Tax-exempt loans | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | |
Pass | | $ | 158 | | $ | 57 | | $ | 124 | | $ | 204 | | $ | 272 | | $ | 506 | | $ | — | | | | $ | 1,321 |
Special mention | | — | | — | | — | | — | | — | | — | | — | | | | — |
Substandard | | — | | — | | — | | — | | — | | — | | — | | | | — |
Doubtful | | — | | — | | — | | — | | — | | — | | — | | | | — |
Total tax-exempt loans | | $ | 158 | | $ | 57 | | $ | 124 | | $ | 204 | | $ | 272 | | $ | 506 | | $ | — | | | | $ | 1,321 |
Loans classified as special mention, substandard or doubtful are all considered to be “criticized” loans.
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.
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
We also monitor the credit quality of the residential mortgage loan 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. The following table presents the held for investment residential mortgage loan portfolio by FICO score and by LTV ratio at origination.
Allowance for loan losses and reserve for unfunded lending commitments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 | | | | | | |
| | Loans by origination fiscal year | | | | | | | | | | | | |
$ in millions | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving loans | | | | Total | | | | | | |
FICO score: | | | | | | | | | | | | | | | | | | | | | | | | |
Below 600 | | $ | 1 | | $ | 3 | | $ | 2 | | $ | 3 | | $ | 1 | | $ | 54 | | $ | — | | | | $ | 64 | | | | | | |
600 - 699 | | 155 | | 112 | | 90 | | 32 | | 20 | | 68 | | 4 | | | | 481 | | | | | | |
700 - 799 | | 2,403 | | 1,301 | | 744 | | 353 | | 219 | | 470 | | 22 | | | | 5,512 | | | | | | |
800 + | | 424 | | 284 | | 184 | | 87 | | 48 | | 273 | | 6 | | | | 1,306 | | | | | | |
FICO score not available | | 3 | | 5 | | 3 | | 4 | | 3 | | 2 | | 3 | | | | 23 | | | | | | |
Total | | $ | 2,986 | | $ | 1,705 | | $ | 1,023 | | $ | 479 | | $ | 291 | | $ | 867 | | $ | 35 | | | | $ | 7,386 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
LTV ratio: | | | | | | | | | | | | | | | | | | | | | | | | |
Below 80% | | $ | 2,287 | | $ | 1,333 | | $ | 797 | | $ | 358 | | $ | 226 | | $ | 661 | | $ | 31 | | | | $ | 5,693 | | | | | | |
80%+ | | 699 | | 372 | | 226 | | 121 | | 65 | | 206 | | 4 | | | | 1,693 | | | | | | |
Total | | $ | 2,986 | | $ | 1,705 | | $ | 1,023 | | $ | 479 | | $ | 291 | | $ | 867 | | $ | 35 | | | | $ | 7,386 | | | | | | |
Changes in the allowance for loan losses of RJ Bank by portfolio segment are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 |
| | Loans by origination fiscal year | | | | | | |
$ in millions | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Revolving loans | | | | Total |
FICO score: | | | | | | | | | | | | | | | | | | |
Below 600 | | $ | 3 | | $ | 2 | | $ | 4 | | $ | 1 | | $ | 46 | | $ | 11 | | $ | — | | | | $ | 67 |
600 - 699 | | 134 | | 114 | | 46 | | 32 | | 16 | | 73 | | 1 | | | | 416 |
700 - 799 | | 1,420 | | 921 | | 483 | | 294 | | 252 | | 386 | | 16 | | | | 3,772 |
800 + | | 303 | | 228 | | 107 | | 59 | | 138 | | 220 | | 3 | | | | 1,058 |
FICO score not available | | 1 | | 1 | | — | | 1 | | 1 | | 1 | | — | | | | 5 |
Total | | $ | 1,861 | | $ | 1,266 | | $ | 640 | | $ | 387 | | $ | 453 | | $ | 691 | | $ | 20 | | | | $ | 5,318 |
| | | | | | | | | | | | | | | | | | |
LTV ratio: | | | | | | | | | | | | | | | | | | |
Below 80% | | $ | 1,451 | | $ | 990 | | $ | 480 | | $ | 304 | | $ | 378 | | $ | 500 | | $ | 20 | | | | $ | 4,123 |
80%+ | | 410 | | 276 | | 160 | | 83 | | 75 | | 191 | | — | | | | 1,195 |
Total | | $ | 1,861 | | $ | 1,266 | | $ | 640 | | $ | 387 | | $ | 453 | | $ | 691 | | $ | 20 | | | | $ | 5,318 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Allowance for credit losses
The following table presents by loan portfolio segment, RJ Bank’s recorded investment (excluding any net unearned income and deferred expenses) andchanges in the related allowance for loan losses.credit losses on held for investment bank loans by portfolio segment. The allowance for credit losses on held for investment bank loans and related provision for fiscal 2020 were calculated under the incurred loss model.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | SBL | | C&I loans | | CRE loans | | REIT loans | | Residential mortgage loans | | Tax-exempt loans | | | | Total |
Year ended September 30, 2022 | | | | | | | | | | | | | | | | |
Balance at beginning of year | | $ | 4 | | | $ | 191 | | | $ | 66 | | | $ | 22 | | | $ | 35 | | | $ | 2 | | | | | $ | 320 | |
Initial allowance on acquired PCD loans | | — | | | 1 | | | 2 | | | — | | | — | | | — | | | | | 3 | |
Provision/(benefit) for credit losses: | | | | | | | | | | | | | | | | |
Initial provision for credit losses on non-PCD loans acquired with TriState Capital | | 2 | | | 5 | | | 19 | | | — | | | — | | | — | | | | | 26 | |
Provision/(benefit) for credit losses | | (3) | | | 57 | | | — | | | (1) | | | 21 | | | — | | | | | 74 | |
Total provision/(benefit) for credit losses | | (1) | | | 62 | | | 19 | | | (1) | | | 21 | | | — | | | | | 100 | |
Net (charge-offs)/recoveries: | | | | | | | | | | | | | | | | |
Charge-offs | | — | | | (28) | | | (4) | | | — | | | — | | | — | | | | | (32) | |
Recoveries | | — | | | — | | | 5 | | | — | | | 1 | | | — | | | | | 6 | |
Net (charge-offs)/recoveries | | — | | | (28) | | | 1 | | | — | | | 1 | | | — | | | | | (26) | |
Foreign exchange translation adjustment | | — | | | — | | | (1) | | | — | | | — | | | — | | | | | (1) | |
Balance at end of year | | $ | 3 | | | $ | 226 | | | $ | 87 | | | $ | 21 | | | $ | 57 | | | $ | 2 | | | | | $ | 396 | |
ACL by loan portfolio segment as a % of total ACL | | 0.8 | % | | 57.0 | % | | 22.0 | % | | 5.3 | % | | 14.4 | % | | 0.5 | % | | | | 100.0 | % |
| | | | | | | | | | | | | | | | |
Year ended September 30, 2021 | | | | | | | | | | | | | | | | |
Balance at beginning of year | | $ | 5 | | | $ | 200 | | | $ | 81 | | | $ | 36 | | | $ | 18 | | | $ | 14 | | | | | $ | 354 | |
Impact of CECL adoption | | (2) | | | 19 | | | (11) | | | (9) | | | 24 | | | (12) | | | | | 9 | |
Provision/(benefit) for credit losses | | 1 | | | (25) | | | 5 | | | (5) | | | (8) | | | ��� | | | | | (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 | | $ | 4 | | | $ | 191 | | | $ | 66 | | | $ | 22 | | | $ | 35 | | | $ | 2 | | | | | $ | 320 | |
ACL by loan portfolio segment as a % of total ACL | | 1.3 | % | | 59.7 | % | | 20.6 | % | | 6.9 | % | | 10.9 | % | | 0.6 | % | | | | 100.0 | % |
| | | | | | | | | | | | | | | | |
Year ended September 30, 2020 | | | | | | | | | | | | | | | | |
Balance at beginning of year | | $ | 5 | | | $ | 139 | | | $ | 34 | | | $ | 15 | | | $ | 16 | | | $ | 9 | | | | | $ | 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 | | $ | 5 | | | $ | 200 | | | $ | 81 | | | $ | 36 | | | $ | 18 | | | $ | 14 | | | | | $ | 354 | |
ACL by loan portfolio segment as a % of total ACL | | 1.4 | % | | 56.4 | % | | 22.9 | % | | 10.2 | % | | 5.1 | % | | 4.0 | % | | | | 100.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 reserveallowance for credit losses on held for investment bank loans increased $76 million during the year ended September 30, 2022 resulting from a $100 million provision for credit losses, primarily due to the impacts of loan growth at Raymond James Bank and a weakener economic outlook, as well as the initial provision for credit losses of $26 million recorded on non-PCD loans acquired as part of the TriState Capital acquisition. These increases in the allowance for credit losses on held for investment bank loans were partially offset by net charge-offs during the year of $26 million, primarily related to a specific C&I loan.
The allowance for credit losses on unfunded lending commitments, which is included in “Other payables” on our Consolidated Statements of Financial Condition, was $11$19 million, $13 million, and $12 million at both September 30, 20172022, 2021, 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 |
|
As ofallowance for credit losses on unfunded lending commitments for the year ended September 30, 2017, the cumulative face value of our company-owned life insurance (“COLI”) policies was $1.87 billion.
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 liabilities2022 included $5 million related to such matters were included in “Other payables”the initial provision for credit losses on our Consolidated Statements of Financial Condition. See Note 17 for additional information.
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 treatedlending commitments assumed as a prepaid compensation asset asresult of 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 to oneacquisition 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 sale as a financing transaction. We continue to account for the asset transferred 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 asset and the related liability decrease. A related financing liability in the amount of $16 million and $21 millionTriState Capital which was included in “Other payables”“Other” expenses on our Consolidated Statements of Financial ConditionIncome and Comprehensive Income.
NOTE 9 – LOANS TO FINANCIAL ADVISORS, NET
Loans to financial advisors are primarily comprised of loans originated as of September 30, 2017 and 2016, respectively. See Note 17 for additional information.
See Note 20 for further information about prepaid compensation associated with the DBRSU awards that were assumed asa part of our 2016 acquisitionrecruiting activities. See Note 2 for a discussion of Alex. Brown.our accounting policies related to loans to financial advisors and the related allowance for credit losses. The following table presents the balances for our loans to financial advisors and the related accrued interest receivable.
| | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2022 | | 2021 |
Affiliated with the firm as of year-end (1) | | $ | 1,173 | | | $ | 1,074 | |
No longer affiliated with the firm as of year-end (2) | | 8 | | | 10 | |
Total loans to financial advisors | | 1,181 | | | 1,084 | |
Allowance for credit losses | | (29) | | | (27) | |
Loans to financial advisors, net | | $ | 1,152 | | | $ | 1,057 | |
Accrued interest receivable on loans to financial advisors (included in “Other receivables, net”) | | $ | 5 | | | $ | 4 | |
Allowance for credit losses as a percent of total loans to financial advisors | | 2.46 | % | | 2.49 | % |
(1) These loans were predominantly current.
(2) These loans were predominantly past due for a period of 180 days or more.
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. As of September 30, 2022, we are not the primary beneficiary of any Private Equity Interests. During the year ended September 30, 2022, we exited or restructured our Private Equity Interests VIEs for which we had been deemed to be the primary beneficiary and therefore were previously consolidated. See Note 4 for further information. 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, 2022 | | | | |
| | | | |
LIHTC funds | | $ | 59 | | | $ | 6 | |
Restricted Stock Trust Fund | | 17 | | | 17 | |
Total | | $ | 76 | | | $ | 23 | |
| | | | |
September 30, 2021 | | | | |
LIHTC funds | | $ | 111 | | | $ | 52 | |
Private Equity Interests | | 66 | | | 4 | |
Restricted Stock Trust Fund | | 15 | | | 15 | |
Total | | $ | 192 | | | $ | 71 | |
|
| | | | | | | | |
$ 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 whichconsolidation and are 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 | | 2022 | | 2021 |
Assets: | | | | |
Cash and cash equivalents and assets segregated for regulatory purposes and restricted cash | | $ | 5 | | | $ | 10 | |
Other investments | | — | | | 63 | |
| | | | |
Other assets | | 54 | | | 105 | |
Total assets | | $ | 59 | | | $ | 178 | |
Liabilities: | | | | |
Other payables | | $ | — | | | $ | 45 | |
Total liabilities | | $ | — | | | $ | 45 | |
Noncontrolling interests | | $ | (26) | | | $ | 58 | |
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 LIHTC funds, 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, |
| | 2022 | | 2021 |
$ in millions | | Aggregate assets | | Aggregate liabilities | | Our risk of loss | | Aggregate assets | | Aggregate liabilities | | Our risk of loss |
LIHTC funds | | $ | 7,752 | | | $ | 2,584 | | | $ | 136 | | | $ | 7,032 | | | $ | 2,280 | | | $ | 71 | |
Private Equity Interests | | 2,177 | | | 448 | | | 90 | | | 7,318 | | | 47 | | | 82 | |
Other | | 159 | | | 101 | | | 8 | | | 519 | | | 155 | | | 10 | |
Total | | $ | 10,088 | | | $ | 3,133 | | | $ | 234 | | | $ | 14,869 | | | $ | 2,482 | | | $ | 163 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 12 - 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 | | 2022 | | 2021 |
Goodwill | | $ | 1,422 | | | $ | 660 | |
Identifiable intangible assets, net | | 509 | | | 222 | |
Total goodwill and identifiable intangible assets, net | | $ | 1,931 | | | $ | 882 | |
|
| | | | | | | | |
| | 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 | | Bank | | Total |
Year ended September 30, 2022 | | | | | | | | | | |
Goodwill as of beginning of year | | $ | 417 | | | $ | 174 | | | $ | 69 | | | $ | — | | | $ | 660 | |
Additions | | 164 | | | 102 | | | — | | | 529 | | | 795 | |
Foreign currency translations | | (31) | | | (2) | | | ��� | | | — | | | (33) | |
| | | | | | | | | | |
Goodwill as of end of year | | $ | 550 | | | $ | 274 | | | $ | 69 | | | $ | 529 | | | $ | 1,422 | |
| | | | | | | | | | |
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 | |
|
| | | | | | | | | | | | |
| | 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, 2022 arose from our acquisitions of Charles Stanley in the Private Client Group, TriState Capital in our Bank segment, goodwill additionsand SumRidge Partners in fiscal year 2016 were attributable to our acquisitions of Alex. Brown 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, 2022 evaluation date, evaluating balances as of December 31, 2016, and no impairment was identified.2021. 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 of the fair value of any of the reporting units we elected to qualitatively analyzeimpairment was required, and we concluded that none of the goodwill allocated to any of those reporting units was impaired.identified. 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 | | Bank | | Total |
Year ended September 30, 2022 | | | | | | | | | | |
Net identifiable intangible assets as of beginning of year | | $ | 120 | | | $ | 17 | | | $ | 85 | | | $ | — | | | $ | 222 | |
Additions | | 85 | | | 52 | | | 61 | | | 136 | | | 334 | |
Amortization expense | | (13) | | | (9) | | | (7) | | | (4) | | | (33) | |
Foreign currency translations | | (14) | | | — | | | — | | | — | | | (14) | |
| | | | | | | | | | |
Net identifiable intangible assets as of end of year | | $ | 178 | | | $ | 60 | | | $ | 139 | | | $ | 132 | | | $ | 509 | |
| | | | | | | | | | |
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 | |
|
| | | | | | | | | | | | | | | | |
| | 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, 2022 arose from our acquisitions of Charles Stanley in fiscal year 2016 were primarily attributable to the acquisition of Alex. BrownPrivate Client Group segment, TriState Capital in our Bank and 3MacsAsset Management segments, and included customer relationships, trade names, seller relationship agreements and non-compete agreements.SumRidge Partners in our 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, |
| | 2022 | | 2021 |
$ in millions | | Gross carrying value | | Accumulated amortization | | Gross carrying value | | Accumulated amortization |
Customer relationships | | $ | 361 | | | $ | (103) | | | $ | 238 | | | $ | (79) | |
Core deposit intangible | | 89 | | | (3) | | | — | | | — | |
Developed technology | | 58 | | | (4) | | | 3 | | | (2) | |
Non-amortizing customer relationships | | 57 | | | — | | | 52 | | | — | |
Trade names | | 57 | | | (5) | | | 12 | | | (5) | |
All other | | 6 | | | (4) | | | 7 | | | (4) | |
Total | | $ | 628 | | | $ | (119) | | | $ | 312 | | | $ | (90) | |
|
| | | | | | | | | | | | | | | | |
| | 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 |
2023 | | $ | 43 | |
2024 | | 42 | |
2025 | | 40 | |
2026 | | 38 | |
2027 | | 37 | |
Thereafter | | 252 | |
Total | | $ | 452 | |
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, 2022 evaluation date, evaluating the balance as of December 31, 2021. 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 | | 2022 | | 2021 |
Investments in company-owned life insurance policies | | $ | 944 | | | $ | 952 | |
Property and equipment, net | | 503 | | | 499 | |
Lease ROU assets | | 480 | | | 446 | |
Prepaid expenses | | 173 | | | 127 | |
| | | | |
Investments in FHLB and FRB stock | | 88 | | | 72 | |
| | | | |
All other | | 264 | | | 161 | |
Total other assets | | $ | 2,452 | | | $ | 2,257 | |
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, |
| | 2022 | | 2021 |
$ 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 | | 660 | | | (422) | | | 238 | | | 606 | | | (362) | | | 244 | |
Buildings, building components, leasehold and land improvements | | 413 | | | (239) | | | 174 | | | 397 | | | (225) | | | 172 | |
Furniture, fixtures and equipment | | 356 | | | (294) | | | 62 | | | 321 | | | (267) | | | 54 | |
Total | | $ | 1,458 | | | $ | (955) | | | $ | 503 | | | $ | 1,353 | | | $ | (854) | | | $ | 499 | |
Depreciation expense associated with property and equipment was $50 million, $51 million, and $52 million for the years ended September 30, 2022, 2021, and 2020, 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, $62 million, and $54 million for the years ended September 30, 2022, 2021, and 2020, 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 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 the 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.
| | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2022 | | 2021 |
ROU assets (included in Other assets) | | $ | 480 | | | $ | 446 | |
Lease liabilities (included in Other payables) | | $ | 482 | | | $ | 450 | |
The weighted-average remaining lease term and discount rate for our leases is presented in the following table.
| | | | | | | | | | | | | | |
| | September 30, |
| | 2022 | | 2021 |
Weighted-average remaining lease term | | 6.8 years | | 6.7 years |
Weighted-average discount rate | | 3.95 | % | | 3.45 | % |
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 | | 2022 | | 2021 | | 2020 |
Lease costs | | $ | 118 | | | $ | 110 | | | $ | 98 | |
Variable lease costs | | $ | 28 | | | $ | 27 | | | $ | 26 | |
Variable lease costs in the preceding table include payments required under lease arrangements 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, 2022 are presented in the following table.
| | | | | | | | |
Fiscal year ended September 30, | | $ in millions |
2023 | | $ | 117 | |
2024 | | 97 | |
2025 | | 76 | |
2026 | | 62 | |
2027 | | 47 | |
Thereafter | | 160 | |
Gross lease payments | | 559 | |
Less: interest | | (77) | |
Present value of lease liabilities | | $ | 482 | |
Lease liabilities as of September 30, 2022 excluded $66 million of minimum lease payments related to lease arrangements that were legally binding but had not yet commenced. These leases are estimated to commence between fiscal year 2023 through fiscal year 2025 with lease terms ranging from three to 13 years.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 15 – BANK DEPOSITS
Bank deposits include money market and savings accounts, certificates of deposit, interest-bearing checking accounts, which include Negotiable Order of Withdrawal (“NOW”) accounts, demand deposits, savings and money market accounts, and certificates of deposit of RJ Bank.non-interest-bearing checking accounts. The following table presents a summary of bank deposits, includingas well as the weighted-average rate, theinterest rates on such deposits. The calculation of whichthe weighted-average rates was based on the actual deposit balances and rates at each respective period end.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2022 | | 2021 |
$ in millions | | Balance | | Weighted-average rate | | Balance | | Weighted-average rate |
Money market and savings accounts | | $ | 44,446 | | | 1.01 | % | | $ | 31,415 | | | 0.01 | % |
Interest-bearing checking accounts | | 5,286 | | | 2.77 | % | | 164 | | | 1.84 | % |
Certificates of deposit | | 999 | | | 1.85 | % | | 878 | | | 1.87 | % |
Non-interest-bearing checking accounts | | 626 | | | — | | | 38 | | | — | |
Total bank deposits | | $ | 51,357 | | | 1.21 | % | | $ | 32,495 | | | 0.07 | % |
At September 30, 20172022 and 2016, respectively.
|
| | | | | | | | | | | | | | |
| | 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 table above excludes affiliate deposits of $243 million2021, money market and $353 million at September 30, 2017 and 2016, respectively. These affiliate deposits include $192 million and $350 million as of September 30, 2017 and 2016, respectively, held in a deposit account at RJ Bank on behalf of RJF (see Note 25 for additional information).
Savings and money marketsavings accounts in the preceding table above consist primarilyincluded $38.71 billion and $31.41 billion, respectively, of deposits that are cash balances swept to our Bank segment from the client investment accounts maintained at Raymond James & Associates, Inc. (“RJ&A to RJ Bank. These balances&A”), which are held in Federal Deposit Insurance Corporation (“FDIC”) insuredFDIC-insured bank accounts through the Raymond JamesRJBDP. As of September 30, 2022, money market and savings accounts also included direct accounts held by TriState Capital Bank Deposit Program (“RJBDP”). The aggregateon behalf of third-party clients.
As of September 30, 2022 and September 30, 2021, the estimated amount of time deposit account balancestotal bank deposits that exceeded the FDIC insurance limit at September 30, 2017 was $23 million.
Scheduled maturities$7.84 billion and $3.08 billion, respectively. The following table sets forth the amount of estimated certificates of deposit that exceeded the FDIC insurance limit by time remaining until maturity as of September 30, 2022.
| | | | | | | | |
$ in millions | | September 30, 2022 |
Three months or less | | $ | 45 | |
Over three through six months | | 14 | |
Over six through twelve months | | 9 | |
Over twelve months | | 9 | |
Total estimated certificates of deposit that exceeded the FDIC insurance limit | | $ | 77 | |
The maturities by fiscal year of our certificates of deposit as of September 30, 2022 are as follows:presented in the following table.
| | | | | | | | |
Fiscal year ended September 30, | | $ in millions |
2023 | | $ | 600 | |
2024 | | 253 | |
2025 | | 129 | |
2026 | | 11 | |
2027 | | 6 | |
| | |
Total certificates of deposit | | $ | 999 | |
|
| | | | | | | | | | | | | | | | |
| | 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 affiliateaffiliated deposits, is summarized as follows:in the following table.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2022 | | 2021 | | 2020 |
Money market and savings accounts | | $ | 78 | | | $ | 3 | | | $ | 19 | |
Interest-bearing checking accounts | | 38 | | | 3 | | | 2 | |
Certificates of deposit | | 15 | | | 17 | | | 20 | |
Total interest expense on deposits | | $ | 131 | | | $ | 23 | | | $ | 41 | |
|
| | | | | | | | | | | | |
| | 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 our other borrowings:borrowings, which are primarily comprised of short-term and long-term FHLB advances and subordinated notes.
| | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2022 | | 2021 |
FHLB advances | | $ | 1,190 | | | $ | 850 | |
| | | | |
| | | | |
5.75% fixed-to-floating subordinated notes, due 2030 (including premium of $2 and $0, respectively) | | 100 | | | — | |
Other | | 1 | | | 8 | |
Total other borrowings | | $ | 1,291 | | | $ | 858 | |
|
| | | | | | | | |
| | 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
We have entered into advances from the FHLB at Raymond James Bank and TriState Capital Bank, which are secured by certain residential mortgage and CRE loans. As of September 30, 2022, our FHLB borrowings consisted of $850 million of floating-rate advances at interest rates which reset daily and mature in December 2023, $140 million of overnight floating-rate advances, which are available for borrowing through May 2023 at interest rates which reset daily, and $200 million of fixed-rate advances which incur a weighted-average interest rate of 3.45% and mature in December 2022. As of September 30, 2021 our FHLB borrowings consisted of $850 million of floating-rate advances. The interest rates on our floating-rate advances are generally based on a Secured Overnight Financing Rate. The weighted-average interest rate on our floating-rate FHLB advances as of September 30, 2017 were comprised of both floating2022 and fixed-rate advances. As of September 30, 2017 the floating-rate advances, which mature in June 20192021 was 3.29% and have interest rates which reset quarterly, totaled $850 million.0.26%, respectively. 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.majority of our FHLB advances. Refer to Note 62 for information regarding these interest rate swaps, which are accounted for as hedging instruments. The fixed-rate advance,
Subordinated notes
As part of the assets acquired and liabilities assumed in the TriState Capital acquisition, we assumed, as of the closing date, TriState Capital’s subordinated notes due 2030, with an aggregate principal amount of $25 million, matures in October 2020 and bears$98 million. The subordinated notes incur interest at a fixed rate of 3.4%. All5.75% until May 2025 and thereafter at a variable interest rate based on London Interbank Offered Rate (“LIBOR”), or an appropriate alternative reference rate at the time LIBOR ceases to be published. We may redeem these subordinated notes beginning in August 2025 at a redemption price equal to 100% of the advances were secured by a blanket lien grantedprincipal amount of the notes to be redeemed plus accrued and unpaid interest thereon 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%.redemption date.
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, and a fixed-rate advance in the amount of $25 million 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%.Other
RJF is a partyand RJ&A are parties to aan unsecured revolving credit facility agreement (the “RJF Credit“Credit Facility”) with a maturity datesyndicate of May 2022 in which the lenders are a number of financial institutions.lenders. This committed unsecured borrowing facility has a term through April 2026 and 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 of RJF. The interest rates on borrowings under the Credit Facility are variable and were based on LIBOR as of September 30, 2022, as adjusted for RJF’s credit rating; however, the administrative agent has the right to select an industry-accepted alternative reference rate at variable rates of interest.the time LIBOR ceases to be published. There were no borrowings outstanding on the RJF Credit Facility as of either September 30, 20172022 or 2016. The interest rateSeptember 30, 2021. 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, 2017,2022, the variable rate commitmentfacility fee, which is applied to any difference between the daily borrowed amount and the committed amount, was 0.20%0.150% 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, 2022 or 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.
A portion of our fixed income transactions are cleared and executed through a third-party clearing organization, which provides financing for the purchase of trading instruments to support such transactions. The amount of financing is based on the amount of trading inventory financed, as well as any deposits held at the clearing organization. Amounts outstanding under this financing arrangement, which are collateralized by a portion of our trading inventory and accrue interest based on market rates, are included in “Other payables” in our Consolidated Statements of Financial Condition. We also have other collateralized
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 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 interest at 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, INC 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 | | 2022 | | 2021 |
4.65% senior notes, due 2030 | | $ | 500 | | | $ | 500 | |
4.95% senior notes, due 2046 | | 800 | | | 800 | |
3.75% senior notes, due 2051 | | 750 | | | 750 | |
| | | | |
| | | | |
Total principal amount | | 2,050 | | | 2,050 | |
Unaccreted premiums/(discounts) | | 5 | | | 5 | |
Unamortized debt issuance costs | | (17) | | | (18) | |
Total senior notes payable | | $ | 2,038 | | | $ | 2,037 | |
|
| | | | | | | | |
| | 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 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 20 basis points; 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 March Redemption Date. Unamortized debt issuance costs asredemption date. We utilized the proceeds from this 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 March Redemption Dateextinguishment of $8such notes of $98 million were accelerated and were includedwhich was presented in “Losses on extinguishment of debt” in our Consolidated Statements of Income and Comprehensive Income for the year ended September 30, 2017.2021.
RAYMOND JAMES FINANCIAL, INCINC. 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 plus the sum of the present value of the remaining scheduled payments, which consist of principal and interest, discounted to the September Redemption Date on a semi-annual basis at a discount rate equal to a designated U.S. Treasury Rate, plus 50 basis points. A make-whole premium related to the redemption of $37 million was included in “Losses on extinguishment of debt” in our Consolidated Statements of Income and Comprehensive Income for the year ended September 30, 2017.
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 | | 2022 | | 2021 | | 2020 |
Recorded in: | | | | | | |
Net income | | $ | 513 | | | $ | 388 | | | $ | 234 | |
Equity, arising from available-for-sale securities recorded through OCI | | (311) | | | (32) | | | 23 | |
Equity, arising from currency translations, net of the impact of net investment hedges recorded through OCI | | 23 | | | (10) | | | 2 | |
Equity, arising from cash flow hedges recorded through OCI | | 24 | | | 8 | | | (12) | |
Total provision for income taxes | | $ | 249 | | | $ | 354 | | | $ | 247 | |
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 | | 2022 | | 2021 | | 2020 |
Current: | | | | | | | Current: | | | | | | |
Federal | | $ | 255,555 |
| | $ | 287,350 |
| | $ | 266,359 |
| Federal | | $ | 406 | | | $ | 321 | | | $ | 215 | |
State and local | | 37,553 |
| | 32,101 |
| | 48,130 |
| State and local | | 91 | | | 79 | | | 49 | |
Foreign | | 7,620 |
| | 10,640 |
| | 5,007 |
| Foreign | | 32 | | | 25 | | | 9 | |
| | 300,728 |
| | 330,091 |
| | 319,496 |
| |
Total current | | Total current | | $ | 529 | | | $ | 425 | | | $ | 273 | |
Deferred: | | | | | | | Deferred: | | | | | | |
Federal | | (11,316 | ) | | (51,383 | ) | | (20,567 | ) | Federal | | (10) | | | (28) | | | (36) | |
State and local | | (959 | ) | | (6,267 | ) | | (5,127 | ) | State and local | | (3) | | | (6) | | | (3) | |
Foreign | | 658 |
| | (1,148 | ) | | 2,232 |
| Foreign | | (3) | | | (3) | | | — | |
| | (11,617 | ) | | (58,798 | ) | | (23,462 | ) | |
Total provision for income tax | | $ | 289,111 |
| | $ | 271,293 |
| | $ | 296,034 |
| |
Total deferred | | Total deferred | | $ | (16) | | | $ | (37) | | | $ | (39) | |
Total provision for income taxes | | Total provision for income taxes | | $ | 513 | | | $ | 388 | | | $ | 234 | |
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, |
| | 2022 | | 2021 | | 2020 |
Provision calculated at statutory rate | | 21.0 | % | | 21.0 | % | | 21.0 | % |
State income tax, net of federal benefit | | 3.6 | % | | 3.6 | % | | 3.7 | % |
(Gains)/losses on company-owned life insurance policies which are not subject to tax | | 1.8 | % | | (1.8) | % | | (1.0) | % |
Nondeductible compensation | | 0.4 | % | | 0.3 | % | | 0.4 | % |
Change in uncertain tax positions | | 0.3 | % | | (0.1) | % | | 0.2 | % |
Foreign tax rate differential | | 0.2 | % | | 0.2 | % | | 0.2 | % |
Tax credits | | (1.2) | % | | (1.0) | % | | (1.6) | % |
Excess tax benefits related to share-based compensation | | (1.1) | % | | (0.2) | % | | (0.6) | % |
| | | | | | |
| | | | | | |
Other, net | | 0.4 | % | | (0.3) | % | | (0.1) | % |
Total provision for income tax | | 25.4 | % | | 21.7 | % | | 22.2 | % |
|
| | | | | | | | | |
| | 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 | | 2022 | | 2021 | | 2020 |
U.S. | | $ | 1,907 | | | $ | 1,701 | | | $ | 1,019 | |
Foreign | | 115 | | | 90 | | | 33 | |
Pre-tax income | | $ | 2,022 | | | $ | 1,791 | | | $ | 1,052 | |
|
| | | | | | | | | | | | |
| | 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 | | 2022 | | 2021 |
Deferred tax assets: | | | | |
Unrealized loss associated with available-for-sale securities | | $ | 343 | | | $ | 2 | |
Deferred compensation | | 272 | | | 287 | |
Lease liabilities | | 121 | | | 115 | |
Allowances for credit losses | | 106 | | | 81 | |
Accrued expenses | | 54 | | | 46 | |
Unrealized loss associated with loan portfolios | | 34 | | | — | |
Unrealized loss associated with foreign currency translations | | 27 | | | 3 | |
| | | | |
| | | | |
Partnership investments | | 2 | | | 9 | |
Unrealized loss associated with cash flow hedges | | — | | | 9 | |
Other | | 31 | | | 18 | |
| | | | |
| | | | |
Total deferred tax assets | | $ | 990 | | | $ | 570 | |
Deferred tax liabilities: | | | | |
Goodwill and identifiable intangible assets | | (126) | | | (64) | |
Lease ROU assets | | (118) | | | (114) | |
Property and equipment | | (110) | | | (85) | |
| | | | |
Unrealized gain associated with cash flow hedges | | (15) | | | — | |
| | | | |
Other | | (5) | | | (2) | |
Total deferred tax liabilities | | $ | (374) | | | $ | (265) | |
Net deferred tax assets | | $ | 616 | | | $ | 305 | |
| | | | |
Classified as follows in the Consolidated Statements of Financial Condition: | | | | |
Deferred income taxes, net | | $ | 630 | | | $ | 305 | |
Other payables | | (14) | | | — | |
Net deferred tax assets | | $ | 616 | | | $ | 305 | |
|
| | | | | | | | |
| | 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 thethese benefits will not be realized. As of September 30, 2022, total deferred tax carryforwards will expire unutilized.assets, net of an insignificant valuation allowance, aggregated to $990 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. Our net deferred tax assets principally related to a net unrealized loss associated with available-for-sale securities, deferred compensation, lease liabilities, and allowances for credit losses, partially offset by deferred tax liabilities related to goodwill and identifiable intangible assets and lease ROU assets.
The $14 million of net deferred tax liabilities included in “Other payables” on our Consolidated Statements of Financial Condition as of September 30, 2022, primarily arose from entities in the U.K., and accordingly were not netted against balances arising from our U.S. entities.
As of September 30, 2017,2022, we considerconsidered substantially all undistributed earnings of non-U.S. subsidiaries to be permanently reinvestedreinvested. The Tax Cut and therefore,Jobs Act (“TCJA”), enacted in December 2017, reduced our incremental tax cost of repatriating offshore earnings. As a result, 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, 2017,2022, we had approximately $219$431 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, 2017,2022, the current tax receivable, which iswas included in “Other receivables” inreceivables, net” on our Consolidated Statements of Financial Condition, was $102$7 million,, and the current tax payable, which iswas included in “Other payables,” was $23 million.$28 million. As of September 30, 2016,2021, the current tax receivable was $48$12 million and the current tax payable was $29 million.$7 million.
Balances associated with unrecognized
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Uncertain 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, 20172022 and 2016,2021, accrued interest and penalties were approximately $3$9 million and $4$7 million,, respectively.
The following table presents the aggregate changes in the balances for uncertain tax positions were as follows:positions.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2022 | | 2021 | | 2020 |
Uncertain tax positions beginning of year | | $ | 36 | | | $ | 45 | | | $ | 42 | |
Increases for tax positions related to the current year | | 5 | | | 5 | | | 5 | |
Increases for tax positions related to prior years | | 10 | | | 2 | | | 3 | |
Decreases for tax positions related to prior years | | (1) | | | (7) | | | (1) | |
Decreases due to lapsed statute of limitations | | (7) | | | (5) | | | (4) | |
Decreases related to settlements | | — | | | (4) | | | — | |
Uncertain tax positions end of year | | $ | 43 | | | $ | 36 | | | $ | 45 | |
|
| | | | | | | | | | | | |
| | 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$38 million,, $16 $31 million,, and $15$40 million at September 30, 2017, 2016, 2015,2022, 2021 and 2020, respectively. We anticipate that the uncertain tax position liability balance will not change significantlydecrease by approximately $11 million over the next 12 months. months due to expiration of statutes of limitations of federal and state tax returns.
We file U.S. federalRJF and its domestic subsidiaries are included in the consolidated income tax returns as well asof RJF in the U.S. federal jurisdiction and various consolidated states. Our subsidiaries also file separate income tax returns within various state and 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 fiscal years prior to fiscal year 2014 for federal tax returns,2019, with the fiscal year 2013 for2018 limited by a provision of the TCJA described as follows. Certain state and local and foreign tax returns are currently under various stages of audit and appeals processes. Our fiscal 2018 federal tax return remains open for limited examination under the TCJA. The TCJA provides the Internal Revenue Service a six year 2013 for foreignlimitation period to assess the net transition tax returns. Various foreign and state audits in process are expected to be completed in fiscal year 2018.liability reported by the firm.
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, 2017,2022, we had two 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
We have 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, INCINC. 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 regardingThe following table presents our commitments to extend credit and other credit-related off-balance sheet financial instruments such as standby lettersoutstanding at our Bank segment.
| | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2022 | | 2021 |
SBL and other consumer lines of credit | | $ | 33,641 | | | $ | 17,515 | |
Commercial lines of credit | | $ | 3,792 | | | $ | 2,075 | |
Unfunded lending commitments | | $ | 1,255 | | | $ | 548 | |
Standby letters of credit | | $ | 94 | | | $ | 22 | |
SBL and other consumer lines of credit primarily represent the unfunded amounts of bank loans to consumers that are secured by marketable securities or other liquid collateral 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.
Because many of our 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 loan purchases.8 for further discussion of this allowance for credit losses related to unfunded lending commitments. See Note 3 for a discussion of the initial provision for credit losses on loans and lending commitments acquired as part of the TriState Capital acquisition.
RJ&A enters into margin lending arrangements which allow customers to borrow against the value of qualifying securities. Margin loans are collateralized by the securities 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 our loans to financial advisors). These offers are contingent upon certain events occurring, including the individuals joining us and meeting certain other conditions outlined in their offer.
Investment Commitmentscommitments
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 subsidiaryWe had invested $61 million of the committed amount.
We have unfunded commitments to various private equity partnerships, which aggregate to $36investments, primarily held by Raymond James Bank and TriState Capital Bank, of $51 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.2022.
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, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Other Commitmentscommitments
RJF has committed an amount of up to $225 million, subject to certain limitations and to annual review and renewal by the RJF Board of Directors, to either lend to RJTCF or to guarantee RJTCF’s obligations, in connection with RJTCF’s low-income housing development/rehabilitation and syndication activities. As of September 30, 2017, RJTCF had $42 million outstanding against this commitment. RJTCF may borrow from RJF in order to makeRJAHI sells 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 RJTCFRJAHI serves as the managing member or general partner. RJTCFRJAHI typically sells investments in project partnerships to LIHTC Fundsfunds within 90 days of their acquisition,acquisition. Until such investments are sold to LIHTC funds, RJAHI is responsible for funding investment commitments to such partnerships. As of September 30, 2022, RJAHI had committed approximately $53 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. RJTCFmaterially impact our future liquidity requirements. RJAHI may also make short-term loans or advances to project partnerships and LIHTC Funds.funds.
As a partFor information regarding our lease commitments, including the maturities 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” inlease liabilities, see Note 2). At September 30, 2017, we had approximately $793 million principal amount of outstanding forward MBS purchase commitments which are expected to be purchased over the following 90 days. 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. These TBA securities and related purchase commitment are accounted for at fair value. As of September 30, 2017, the fair value of the TBA securities and the estimated fair value of the purchase commitments were not significant.14.
Contingencies
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 to one or more of the funds in which RJTCF is the managing member or general partner. In some instances, RJTCF is not the primary guarantor of these obligations, which aggregate to $3 million as of September 30, 2017.
144
RJTCF has provided a guaranteed return on investment to a third party investor in the Guaranteed LIHTC Fund and RJF has guaranteed RJTCF’s performance under the arrangement. Under the terms of the performance guarantee, should 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.
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, among other things, into industry practices, which can also result in the imposition of such sanctions. For example, the firm is currently cooperating with the SEC in connection with an investigation of the firm’s investment advisory business’ compliance with records preservation requirements relating to business communications sent over electronic messaging channels that have not been approved by the firm. The SEC is reportedly conducting similar investigations of record preservation practices at other reviews, investigationsfinancial institutions.
We may contest liability and/or the amount of damages, as appropriate, in each pending matter. 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, 2017,2022, 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 Regions
Under theSubsequent to our fiscal year ended September 30, 2022, we entered into an agreement with Regions governing our 2012 acquisitioncertain third-party insurance carriers to settle claims triggered by a previously settled litigation matter. Our fiscal first quarter of Morgan Keegan, Regions is obligated to indemnify us for losses2023 results will include this $32 million insurance settlement, which we may incur in connection with any Morgan Keegan legal proceedings pendingconsidered a gain contingency 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.2022.
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Morgan Keegan matter (subject
NOTE 20 – SHAREHOLDERS’ EQUITY
Preferred stock
On June 1, 2022, we completed our acquisition of TriState Capital. As a component of our total purchase consideration for TriState Capital on June 1, 2022, we issued two series of preferred stock, each described below, to indemnification)replace previously issued and, as of the acquisition date, outstanding preferred stock of TriState Capital. See Note 3 for further information about the acquisition.
In July 2006, Morgan Keegan & Company, Inc.,On June 1, 2022, we issued 1.61 million depositary shares, each representing a Morgan Keegan affiliate, and one of its former analysts were named as defendants1/40th interest in a lawsuit filed by Fairfax Financial Holdings Limitedshare of 6.75% Fixed-to-Floating Rate Series A Non-Cumulative Perpetual Preferred Stock, par value of $0.10 per share (“Series A Preferred Stock”), with a liquidation preference of $1,000 per share (equivalent of $25 per depositary share). Dividends on the Series A Preferred Stock are non-cumulative and, an affiliateif declared, payable quarterly at a rate of 6.75% per annum from original issue date up to, but excluding, April 1, 2023, and thereafter at a floating rate equal to 3-month LIBOR, or industry-accepted alternative reference rate at the time LIBOR ceases to be published, plus a spread of 3.985% per annum. Subject to requisite regulatory approvals, we may redeem the Series A Preferred Stock on or after April 1, 2023, in whole or in part, at our option, at the liquidation preference plus declared and unpaid dividends. As of September 30, 2022, there were 40,250 shares of Series A Preferred Stock issued and outstanding with a carrying value and aggregate liquidation preference of $41 million and $40 million, respectively.
We also issued 3.22 million depositary shares on June 1, 2022, each representing a 1/40th interest in a share of 6.375% Fixed-to-Floating Rate Series B Non-Cumulative Perpetual Preferred Stock, par value of $0.10 per share (“Series B Preferred Stock”), with a liquidation preference of $1,000 per share (equivalent of $25 per depositary share). Dividends on the Series B Preferred Stock are non-cumulative and, if declared, payable quarterly at a rate of 6.375% per annum from original issue date up to, but excluding, July 1, 2026, and thereafter at a floating rate equal to 3-month LIBOR, or industry-accepted alternative reference rate at the time LIBOR ceases to be published, plus a spread of 4.088% per annum. Under certain circumstances, the aforementioned fixed rate may apply in lieu of the floating rate. Subject to requisite regulatory approvals, we may redeem the Series B Preferred Stock on or after July 1, 2024, in whole or in part, at our option, at the liquidation preference plus declared and unpaid dividends. As of September 30, 2022, there were 80,500 shares of Series B Preferred Stock issued and outstanding with a carrying value and aggregate liquidation preference of $79 million and $81 million, respectively.
The following table details dividends declared and dividends paid on our preferred stock for the year ended September 30, 2022.
| | | | | | | | | | | | | | | | | | |
| | Year ended September 30, 2022 | |
$ in millions, except per share amounts | | Total dividends | | Per preferred share amount | | | | |
Dividends declared: | | | | | | | | |
Series A Preferred Stock | | $ | 1 | | | $ | 33.75 | | | | | |
Series B Preferred Stock | | 3 | | | $ | 31.88 | | | | | |
Total preferred stock dividends declared | | $ | 4 | | | | | | | |
Dividends paid: | | | | | | | | |
Series A Preferred Stock | | $ | 1 | | | $ | 16.88 | | | | | |
Series B Preferred Stock | | 1 | | | $ | 15.94 | | | | | |
Total preferred stock dividends paid | | $ | 2 | | | | | | | |
Common equity
Common stock issuance
We issue shares from time-to-time during the year to satisfy obligations under certain of our share-based compensation programs, see Note 23 for additional information on these programs. We may also reissue treasury shares for such purposes.
Additionally, on June 1, 2022, we issued 7.97 million shares of common stock as a component of the consideration in the Superior Courtsettlement of New Jersey, Law Division,TriState Capital common stock, and 551 thousand RSAs, in Morris County, New Jersey. Plaintiffs made claims under a civil RICO statute,conjunction with our acquisition of TriState Capital. See Note 3 for commercial disparagement, tortious interference with contractual relationships, tortious interference with prospective economic advantagefurther information on the TriState Capital acquisition and Note 23 for further information on the RSAs 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 damagesissuances made 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.our share-based compensation programs.
NOTE 18 - 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, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Share repurchases
Accumulated other comprehensive income/(loss)
All of the components of other comprehensive income/(loss) described below, net of tax, are attributable to RJF. The following table presents the changes, and the related tax effects, of each component of accumulated other comprehensive income/(loss):
|
| | | | | | | | | | | | | | | | | | | | | | | | |
$ 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 | ) |
Our net investment hedges and cash flow hedges relate to our derivatives associated with RJ Bank’s business operations (see Note 6 for additional information on these derivatives).
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Reclassifications out of AOCI
The following table presents the income statement line items impacted by reclassifications out of accumulated other comprehensive income/(loss), and the 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 |
See Note 6 for additional information regarding the RJ Bank cash flow hedges, and Note 4 for additional fair value information regarding these derivatives.
During the year ended September 30, 2017, we sold our interests in a number of Latin American joint ventures which had operations in Uruguay and Argentina. As a component of our computation of the gain or loss resulting 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.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 19 – INTEREST INCOME AND INTEREST EXPENSE
The components of interest income and interest expense are as follows:
|
| | | | | | | | | | | | |
| | 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 above table for the years ended September 30, 2017 and 2016 is presented net of interest expense associated with affiliate deposits, which have been eliminated in consolidation. The impact of such expense in the year ended September 30, 2015 was not significant.
NOTE 20 - 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 ofWe repurchase shares of our common stock heldfrom time to time for a number of reasons, including to offset dilution from share-based compensation or share issuances arising from an acquisition. In December 2021, our Board of Directors authorized share repurchases of up to $1 billion, which replaced the previous authorization. Our share repurchases are effected primarily through regular open-market purchases, typically under a SEC Rule 10b-18 plan, the amounts and timing of which are determined primarily by our current and projected capital position, applicable law and regulatory constraints, general market conditions and the ESOP at September 30, 2017price and 2016 was approximately 4,690,000 and 4,873,000, respectively. The market valuetrading volumes of our common stock. Following the acquisition of TriState Capital on June 1, 2022, we repurchased 1.74 million shares of our common stock held by the ESOPfor $162 million 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 one share-based compensation plan for our employees, Board of Directors and non-employees (comprised of independent contractor financial advisors). The Amended and Restated 2012 Stock Incentive Plan (the “2012 Plan”) authorizes us to grant 40,244,000 new shares, including the shares available for grant under six predecessor plans. We generally issue new shares under the 2012 Plan, however we are also permitted to reissue our treasury shares.
Share-based awards granted to our independent contractor financial advisors are measured at fair value on a quarterly basis until vesting, with changes 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 stock options and restricted stock units granted to our independent contractors were not material as of September 30, 2017.
Stock option awards
Options may be granted to key employees 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 marketaverage price of our stock on the grant date.
Expense and income tax benefit related to our stock options awards granted to 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 |
|
For 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).
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 unit awards
We may grant awards under the 2012 Plan in connection with initial employment or under various retention programs for individuals who are responsible for a contribution to our management, growth, and/or profitability. Through our Canadian subsidiary, we established a 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 the Canadian subsidiary (see Note 10 for discussion of our consolidation of this trust fund, which is a VIE). 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. Under the plan, the awards are generally restricted for a three to five year period, during which time the awards are forfeitable in the event of termination other than for death, disability or retirement.
Prior 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. The RSUs granted to these Directors vest over a one year period from their grant date, provided that the director is still serving on our Board of Directors at the end of such period.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following restricted equity award activity which includes restricted stock and RSUs for grants to employees and members of our Board of Directors occurred during the fiscal year ended September 30, 2017:
|
| | | | | | | |
| | 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 |
|
Expense and income tax benefits related to our restricted equity awards granted to our employees and members of our Board of Directors are presented below:
|
| | | | | | | | | | | | |
| | 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 for the year ended September 30, 2017 includes $5 million which is included as a component of “Acquisition-related expenses” on our Consolidated Statements of Income and Comprehensive Income. See Note 3 for additional information regarding such expense.
For the year ended 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, there was $125 million of total pre-tax compensation cost not yet recognized, net of estimated forfeitures, related to restricted equity awards granted to employees and members of our Board of Directors. These costs are expected to be recognized over a weighted-average period of approximately 3.1 years. The total fair value of shares and unit awards vested under this plan during the year ended September 30, 2017 was $59 million.
There are no outstanding RSUs related to our independent contractor financial advisors as of September 30, 2017.
Restricted 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 forfeiture in the event 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 ended 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$94 per unit fair value of the DBRSUs at the AB Closing Date was $14.90, and the DBRSUs per unit fair value as of September 30, 2017 was $17.28.
share. As of September 30, 2017, there was a $102022, $838 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.
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 7,375,000 shares of common stock to our full-time employees, nearly all of whom are eligible to participate. 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, 557,000 and 430,000 shares to employees during the years ended September 30, 2017, 2016 and 2015, respectively. The compensation cost is calculated as the value of the 15% discount from market value and was $4 million for each of the fiscal years ended September 30, 2017, 2016 and 2015.
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. COLI is the primary source of funding for this plan. 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. COLI is the primary source of funding for this plan.
NOTE 21 – REGULATORY CAPITAL REQUIREMENTS
RJF, as a bank holding company and financial holding company, RJ Bank, and our broker-dealer 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, RJF is subject to the risk-based capital requirements of the Federal Reserve Board. These risk-based capital requirements are expressed as capital ratios that compare measures of regulatory capital to risk-weighted assets, which involve quantitative measures of our assets, liabilities, and certain off-balance-sheet items as calculatedremained available under regulatory accounting guidelines. RJF’s 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 RJ 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. Failure 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. As of September 30, 2017, both RJF’s and RJ Bank’s capital levels exceeded the fully-phased in capital conservation buffer requirement, and are each categorized as “well capitalized.”
To meet requirements for capital adequacy purposes or to be categorized as “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.
|
| | | | | | | | | | | | | | | | | | | | | |
| | 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 | % |
The increase in RJF’s Total capital and Tier 1 capital ratios at September 30, 2017 compared to September 30, 2016 was primarily the result of positive earnings during the year ended September 30, 2017, partially offset by the growth of RJ Bank’s assets, primarily bank loans.
To meet the requirements for capital adequacy or to be categorized as “well capitalized,” RJ Bank must maintain CET1, Tier 1 capital, Total capital, and Tier 1 leverage amounts and ratios as set forth in the table below.
|
| | | | | | | | | | | | | | | | | | | | | |
| | 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 RJ Bank’s Total and Tier 1 capital ratios at September 30, 2017 compared to September 30, 2016 was primarily due to growth in assets, primarily bank loans.
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Our intention is to maintain RJ Bank’s “well capitalized” status. In the unlikely event that RJ Bank failed to maintain its “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 higher FDIC premiums, but would not have a significant impact on our operations.
RJ Bank may pay dividends to the parent company without prior approval of its regulator as long as the dividend does not exceed the sum of RJ Bank’s current calendar year and the previous two calendar years’ retained net income, and RJ Bank maintains its targeted regulatory capital ratios.
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 being member firms of the Financial Industry Regulatory Authority (“FINRA”), are subject to the rules of FINRA, whose capital requirements 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 each elected. Regulations require that minimum net capital, as defined, be equal to the greater of $1 million, ($250 thousand for RJFS as of September 30, 2017) or two percent of aggregate debit items arising from client balances. FINRA may require a member firm to reduce its business if its net capital is less than four percent of aggregate debit items and may prohibit a member firm from expanding its business and declaring cash dividends if its net capital is less than five percent of aggregate debit items.
The following table presents the net capital position of RJ&A:
|
| | | | | | | | |
| | 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 position 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 membershipDirectors’ share repurchase authorization.
Common stock dividends
Dividends per common share declared and paid are detailed 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 presentsfor each respective period.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
| | 2022 | | 2021 | | 2020 |
Dividends per common share - declared | | $ | 1.36 | | | $ | 1.04 | | | $ | 0.99 | |
Dividends per common share - paid | | $ | 1.28 | | | $ | 1.03 | | | $ | 0.97 | |
Our dividend payout ratio is detailed in 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 OCCfollowing table for each respective period and is required to maintain sufficient capital. As of September 30, 2017 and 2016, RJ Trust met the requirements.computed by dividing dividends declared per common share by earnings per diluted common share.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
| | 2022 | | 2021 | | 2020 |
Dividend payout ratio | | 19.5 | % | | 15.7 | % | | 25.4 | % |
As of September 30, 2017, all of our other active regulated domestic and international subsidiaries were in compliance with and met 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 RJ Bank.Raymond James Bank and TriState Capital. See Note 24 for additional information on our regulatory capital requirements.
Other
NOTE 22 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In fiscal 2021, our Board of Directors approved a three-for-two stock split, effected in the normal courseform of business,a 50% stock dividend, paid on September 21, 2021. All share and per share information was retroactively adjusted in fiscal 2021 to reflect this stock split.
During fiscal 2022, we purchase and sell securitiesamended our Restated Articles of Incorporation, as either principal or agentfiled with the Secretary of State of Florida on behalfNovember 25, 2008, to increase the number of our clients. If either the client or counterparty failsauthorized shares of capital stock from 360 million shares to perform, we may be required to discharge the obligations660 million shares, consisting of the nonperforming party. In such circumstances, we may sustain a loss if the market650 million shares of common stock, par value of the security or futures contract is different from the contract$0.01 per share, and 10 million shares of preferred stock, par value of $0.10 per share. The Amended and Restated Articles of Incorporation, which were filed with the transaction.
The majoritySecretary of State of Florida on February 28, 2022, were approved by our transactions and, consequently, the concentrationBoard 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 ratesDirectors and our exposure is limited to the replacement value of those commitments.
The following table presents RJ Bank’s commitments to extend creditshareholders on December 1, 2021 and other credit-related off-balance sheet financial instruments outstanding:February 24, 2022, respectively.
|
| | | | | | | | |
| | 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, INCINC. 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.
Accumulated other comprehensive income/(loss)
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 valueAll of the securities borrowedcomponents of OCI, net of tax, were attributable to RJF. The following table presents the net change in AOCI as well as the changes, and loaned against the amountrelated tax effects, of cash posted or received on a daily basis. Additional cash is obtained as necessaryeach component of 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, 2022 | | | | | | | | | | | | |
AOCI as of beginning of year | | $ | 81 | | | $ | (90) | | | $ | (9) | | | $ | (5) | | | $ | (27) | | | $ | (41) | |
OCI: | | | | | | | | | | | | |
OCI before reclassifications and taxes | | 95 | | | (186) | | | (91) | | | (1,208) | | | 85 | | | (1,214) | |
Amounts reclassified from AOCI, before tax | | — | | | — | | | — | | | — | | | 9 | | | 9 | |
Pre-tax net OCI | | 95 | | | (186) | | | (91) | | | (1,208) | | | 94 | | | (1,205) | |
Income tax effect | | (23) | | | — | | | (23) | | | 311 | | | (24) | | | 264 | |
OCI for the year, net of tax | | 72 | | | (186) | | | (114) | | | (897) | | | 70 | | | (941) | |
AOCI as of end of year | | $ | 153 | | | $ | (276) | | | $ | (123) | | | $ | (902) | | | $ | 43 | | | $ | (982) | |
| | | | | | | | | | | | |
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 | |
Reclassifications from AOCI 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 providenet income, excluding taxes, 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 gainsyear ended September 30, 2022 were recorded in “Interest expense” on the Consolidated Statements of Financial Condition.Income and Comprehensive Income. 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.
As a part ofOur net investment hedges and cash flow hedges relate to derivatives associated with our fixed income public finance operations, we enter into forward commitments to purchase GNMA or FNMA MBS.Bank segment. See NoteNotes 2 and Note 176 for additional 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.derivatives.
Forward foreign exchange contracts148
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, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
CDN $3
NOTE 21 - REVENUES
The following tables present our sources of revenues by segment. For further information about our significant accounting policies related to revenue recognition, see Note 2. See Note 26 for additional information on our segment results.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, 2022 |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | Bank | | Other and intersegment eliminations | | Total |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees | | $ | 4,710 | | | $ | 3 | | | $ | 882 | | | $ | — | | | $ | (32) | | | $ | 5,563 | |
Brokerage revenues: | | | | | | | | | | | | |
Securities commissions: | | | | | | | | | | | | |
Mutual and other fund products | | 620 | | | 6 | | | 7 | | | — | | | (2) | | | 631 | |
Insurance and annuity products | | 438 | | | — | | | — | | | — | | | — | | | 438 | |
Equities, ETFs and fixed income products | | 382 | | | 138 | | | — | | | — | | | — | | | 520 | |
Subtotal securities commissions | | 1,440 | | | 144 | | | 7 | | | — | | | (2) | | | 1,589 | |
Principal transactions (1) | | 76 | | | 446 | | | — | | | 5 | | | — | | | 527 | |
Total brokerage revenues | | 1,516 | | | 590 | | | 7 | | | 5 | | | (2) | | | 2,116 | |
Account and service fees: | | | | | | | | | | | | |
Mutual fund and annuity service fees | | 428 | | | — | | | 1 | | | — | | | (2) | | | 427 | |
RJBDP fees | | 559 | | | 1 | | | — | | | — | | | (358) | | | 202 | |
Client account and other fees | | 220 | | | 7 | | | 21 | | | — | | | (44) | | | 204 | |
Total account and service fees | | 1,207 | | | 8 | | | 22 | | | — | | | (404) | | | 833 | |
Investment banking: | | | | | | | | | | | | |
Merger & acquisition and advisory | | — | | | 709 | | | — | | | — | | | — | | | 709 | |
Equity underwriting | | 38 | | | 210 | | | — | | | — | | | — | | | 248 | |
Debt underwriting | | — | | | 143 | | | — | | | — | | | — | | | 143 | |
Total investment banking | | 38 | | | 1,062 | | | — | | | — | | | — | | | 1,100 | |
Other: | | | | | | | | | | | | |
Affordable housing investments business revenues | | — | | | 127 | | | — | | | — | | | — | | | 127 | |
All other (1) | | 32 | | | 10 | | | 1 | | | 26 | | | (8) | | | 61 | |
Total other | | 32 | | | 137 | | | 1 | | | 26 | | | (8) | | | 188 | |
Total non-interest revenues | | 7,503 | | | 1,800 | | | 912 | | | 31 | | | (446) | | | 9,800 | |
Interest income (1) | | 249 | | | 36 | | | 2 | | | 1,209 | | | 12 | | | 1,508 | |
Total revenues | | 7,752 | | | 1,836 | | | 914 | | | 1,240 | | | (434) | | | 11,308 | |
Interest expense | | (42) | | | (27) | | | — | | | (156) | | | (80) | | | (305) | |
Net revenues | | $ | 7,710 | | | $ | 1,809 | | | $ | 914 | | | $ | 1,084 | | | $ | (514) | | | $ | 11,003 | |
(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, 2021 |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | 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: | | | | | | | | | | | | |
Affordable housing investments business 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 | |
(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, 2020 |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | 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: | | | | | | | | | | | | |
Affordable housing investments business 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.
At September 30, 2022 and September 30, 2021, net receivables related to contracts with customers were $511 million and CDN $5$416 million, respectively.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 22 – INTEREST INCOME AND INTEREST EXPENSE
The following table details the components of interest income and interest expense.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2022 | | 2021 | | 2020 |
Interest income: | | | | | | |
Cash and cash equivalents | | $ | 48 | | | $ | 12 | | | $ | 41 | |
Assets segregated for regulatory purposes and restricted cash | | 96 | | | 15 | | | 28 | |
Trading assets — debt securities | | 27 | | | 13 | | | 18 | |
Available-for-sale securities | | 136 | | | 85 | | | 83 | |
Brokerage client receivables | | 100 | | | 77 | | | 84 | |
Bank loans, net | | 1,051 | | | 593 | | | 702 | |
All other | | 50 | | | 28 | | | 44 | |
Total interest income | | 1,508 | | | 823 | | | 1,000 | |
Interest expense: | | | | | | |
Bank deposits | | 131 | | | 23 | | | 41 | |
Trading liabilities — debt securities | | 12 | | | 2 | | | 3 | |
Brokerage client payables | | 24 | | | 3 | | | 11 | |
Other borrowings | | 21 | | | 19 | | | 20 | |
Senior notes payable | | 93 | | | 96 | | | 85 | |
All other | | 24 | | | 7 | | | 18 | |
Total interest expense | | 305 | | | 150 | | | 178 | |
Net interest income | | 1,203 | | | 673 | | | 822 | |
Bank loan (provision)/benefit for credit losses | | (100) | | | 32 | | | (233) | |
Net interest income after bank loan (provision)/benefit for credit losses | | $ | 1,103 | | | $ | 705 | | | $ | 589 | |
Interest expense related to bank deposits in the preceding table excludes interest expense associated with affiliate deposits, which has been eliminated in consolidation.
NOTE 23 - SHARE-BASED AND OTHER COMPENSATION
Share-based compensation plan
We have one share-based compensation plan, the Raymond James Financial, Inc., Amended and Restated 2012 Stock Incentive Plan (“the Plan”), for our employees, Board of Directors, and independent contractor financial advisors. The Plan authorizes us to grant 78.4 million new shares, including the shares available for grant under six predecessor plans. As of September 30, 2022, 8.7 million shares were available under the Plan. Generally, we reissue our treasury shares under the Plan; however, we are also permitted to issue new shares. Our share-based compensation accounting policies are described in Note 2.
Restricted stock units
We may grant RSU awards under the Plan in connection with initial employment or under various retention programs for individuals who are responsible for contributing to our management, growth, and/or profitability. Through our Canadian subsidiary, we utilize 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 our Canadian subsidiaries. We may also grant awards to officers and certain other employees in lieu of cash for portions ranging from 10% to 50% of annual bonus amounts in excess of $250,000. Under the plan, the awards are generally restricted for a three- to five-year period, during which time the awards are generally forfeitable in the event of termination other than for death, disability, or qualifying retirement.
We grant RSUs annually to non-employee members of our Board of Directors. The RSUs granted to these Directors vest over a 1-year period from their grant date or upon retirement from our Board.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents the RSU award activity, which includes grants to employees, independent contractor financial advisors, and members of our Board of Directors, for the year ended September 30, 2022.
| | | | | | | | | | | | | | |
| | Shares/Units (in millions) | | Weighted- average grant date fair value (per share) |
Non-vested as of beginning of year | | 8.2 | | | $ | 56.59 | |
Granted (1) | | 3.4 | | | $ | 98.52 | |
Vested | | (2.4) | | | $ | 50.55 | |
Forfeited | | (0.2) | | | $ | 68.45 | |
Non-vested as of end of year | | 9.0 | | | $ | 73.73 | |
(1) Includes RSUs granted as part of acquisition-related retention initiatives. See Note 3 for additional information regarding our acquisitions.
The following table presents expense and income tax benefits related to our RSUs granted to our employees, independent contractor financial advisors, and members of our Board of Directors for the periods indicated.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2022 | | 2021 | | 2020 |
RSU share-based compensation amortization | | $ | 179 | | | $ | 126 | | | $ | 110 | |
Income tax benefits related to share-based expense | | $ | 41 | | | $ | 29 | | | $ | 25 | |
For the year ended September 30, 2022, we realized $101 million of excess tax benefits related to our RSUs, which favorably impacted income tax expense on our Consolidated Statements of Income and Comprehensive Income. See Note 18 for additional information regarding income taxes.
As of September 30, 2022, there was $319 million of total pre-tax compensation costs not yet recognized (net of estimated forfeitures) related to RSUs granted to employees, independent contractor financial advisors, and members of our Board of Directors. These costs are expected to be recognized over a weighted-average period of approximately three years. The following RSU activity occurred for the periods indicated.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions, except per unit award amounts | | 2022 | | 2021 | | 2020 |
Weighted-average grant date fair value per unit award | | $ | 98.52 | | | $ | 63.86 | | | $ | 58.20 | |
Total fair value of RSUs vested | | $ | 115 | | | $ | 87 | | | $ | 83 | |
Restricted stock awards
As a component of our total purchase consideration for TriState Capital on June 1, 2022, in accordance with the terms of the acquisition, 551 thousand RJF RSAs were issued at terms that mirrored RSAs of TriState Capital which were outstanding as of the acquisition date. The fair value of the RJF RSAs was calculated as of the June 1, 2022 acquisition date and was allocated between the pre-acquisition service period ($28 million treated as purchase consideration) and the post-acquisition requisite service period, over which we will recognize share-based compensation amortization. For the year ended September 30, 2022, we recorded shared-based compensation expense of $4 million related to these awards. As of September 30, 2022, there were $21 million of total pre-tax compensation costs not yet recognized for these RJF restricted shares. These costs are expected to be recognized over a weighted-average period of three years. See Note 3 for further discussion of our acquisition of TriState Capital.
Employee stock purchase plan
Under the 2003 Employee Stock Purchase Plan, we are authorized to issue up to 13.1 million shares of common stock to eligible 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 416 thousand, 393 thousand and 699 thousand shares to employees during the years ended September 30, 2022, 2021 and 2020, respectively. RJThe related compensation expense is calculated as the value of the 15% discount from market value and was $6 million, $5 million, and $5 million for the years ended September 30, 2022, 2021 and 2020, respectively.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Stock options
We had stock options outstanding as of September 30, 2022 which had been issued to our employees and independent contractor financial advisors. Effective in fiscal 2017, we stopped issuing stock options to our employees and effective in fiscal 2021, we stopped issuing stock options to our independent contractor financial advisors. Stock options granted to our independent contractor financial advisors, as well as the related expense was insignificant for the years ended September 30, 2022, 2021, and 2020. Cash received from stock options exercised by our employees and independent contractor financial advisors during the year ended September 30, 2022 was $15 million.
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, 2022 and 2021 was 6.6 million and 6.7 million, respectively. The market value of our common stock held by the ESOP at September 30, 2022 was $651 million, of which $7 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 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 $195 million, $175 million and $149 million for the fiscal years ended September 30, 2022, 2021 and 2020, respectively.
Non-employee deferred payment plans
We offer non-qualified deferred payment plans that provide benefits to our independent contractor financial advisors who meet certain production requirements. Company-owned life insurance is the primary source of funding for 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 commissions into the VDCP. Company-owned life insurance is the primary source of funding for this plan.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 24 – REGULATORY CAPITAL REQUIREMENTS
RJF, as a bank holding company and financial holding company, as well as Raymond James Bank, TriState Capital Bank, our broker-dealer subsidiaries, and our trust 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 Fed. 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 regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act. The FDIC’s capital rules, which are substantially similar to the Fed’s rules, apply to TriState Capital Bank. We apply the standardized approach for calculating risk-weighted assets and are also subject to foreign exchangethe market risk relatedprovisions of the Fed’s capital rules (“market risk rule”).
Under these rules, minimum requirements are established for both the quantity and quality of capital held by banking organizations. RJF, Raymond James Bank, and TriState Capital Bank are required to its net investmentmaintain minimum leverage ratios (defined as tier 1 capital divided by adjusted average assets), as well as minimum ratios of tier 1 capital, common equity tier 1 (“CET1”), and total capital to risk-weighted assets. These capital ratios incorporate quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under the regulatory capital rules and are subject to qualitative judgments by the regulators about components, risk-weightings, and other factors. We calculate these ratios in order to assess compliance with both regulatory requirements and internal capital policies. In order to maintain our ability to take certain capital actions, including dividends and common equity repurchases, and to make bonus payments, we must hold a Canadian subsidiary.capital conservation buffer above our minimum risk-based capital requirements. As of September 30, 2022, capital levels at RJF, Raymond James Bank, and TriState Capital Bank exceeded the capital conservation buffer requirement and each entity was categorized as “well-capitalized.”
To meet requirements for capital adequacy or to be categorized as “well-capitalized,” RJF must maintain minimum Tier 1 leverage, Tier 1 capital, CET1, and Total capital amounts and ratios as set forth in the 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, 2022: | | | | | | | | | | | | |
Tier 1 leverage | | $ | 8,480 | | | 10.3 | % | | $ | 3,304 | | | 4.0 | % | | $ | 4,130 | | | 5.0 | % |
Tier 1 capital | | $ | 8,480 | | | 19.2 | % | | $ | 2,651 | | | 6.0 | % | | $ | 3,534 | | | 8.0 | % |
CET1 | | $ | 8,380 | | | 19.0 | % | | $ | 1,988 | | | 4.5 | % | | $ | 2,871 | | | 6.5 | % |
Total capital | | $ | 9,031 | | | 20.4 | % | | $ | 3,534 | | | 8.0 | % | | $ | 4,418 | | | 10.0 | % |
| | | | | | | | | | | | |
RJF as of September 30, 2021: | | | | | | | | | | | | |
Tier 1 leverage | | $ | 7,428 | | | 12.6 | % | | $ | 2,363 | | | 4.0 | % | | $ | 2,954 | | | 5.0 | % |
Tier 1 capital | | $ | 7,428 | | | 25.0 | % | | $ | 1,783 | | | 6.0 | % | | $ | 2,377 | | | 8.0 | % |
CET1 | | $ | 7,428 | | | 25.0 | % | | $ | 1,337 | | | 4.5 | % | | $ | 1,932 | | | 6.5 | % |
Total capital | | $ | 7,780 | | | 26.2 | % | | $ | 2,377 | | | 8.0 | % | | $ | 2,972 | | | 10.0 | % |
As of September 30, 2022, RJF’s regulatory capital increase compared to September 30, 2021 was driven by an increase in equity primarily due to common and preferred stock issued in connection with the TriState Capital acquisition and positive earnings, partially offset by an increase in goodwill and intangible assets arising from the TriState Capital, Charles Stanley, and SumRidge Partners acquisitions (see Note 3 for further information) as well as dividends paid to our investors and share repurchases. RJF’s Tier 1 and Total capital ratios decreased compared to September 30, 2021, resulting from an increase in risk-weighted assets, partially offset by the increase in regulatory capital. The increase in risk-weighted assets was primarily driven by increases in bank loans and available-for-sale securities and unfunded lending commitments resulting from the TriState Capital acquisition and growth at Raymond James Bank, and an increase in trading assets resulting from the SumRidge Partners acquisition.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
RJF’s Tier 1 leverage ratio at September 30, 2022 decreased compared to September 30, 2021, due to higher average assets, driven by increases in bank loans, available-for-sale securities, goodwill and intangible assets, as well as trading assets. The increase in average assets was partially offset by the increase in regulatory capital.
To meet the requirements for capital adequacy or to be categorized as “well-capitalized,” Raymond James Bank and TriState Capital Bank must maintain Tier 1 leverage, Tier 1 capital, CET1, and Total capital amounts and ratios as set forth in the following tables. Our intention is to maintain Raymond James Bank’s and TriState Capital Bank’s “well-capitalized” status. In the unlikely event that Raymond James Bank or TriState Capital Bank failed to maintain their “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 significantly impact our operations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, 2022: | | | | | | | | | | | | |
Tier 1 leverage | | $ | 2,998 | | | 7.1 | % | | $ | 1,695 | | | 4.0 | % | | $ | 2,119 | | | 5.0 | % |
Tier 1 capital | | $ | 2,998 | | | 12.1 | % | | $ | 1,485 | | | 6.0 | % | | $ | 1,979 | | | 8.0 | % |
CET1 | | $ | 2,998 | | | 12.1 | % | | $ | 1,113 | | | 4.5 | % | | $ | 1,608 | | | 6.5 | % |
Total capital | | $ | 3,308 | | | 13.4 | % | | $ | 1,979 | | | 8.0 | % | | $ | 2,474 | | | 10.0 | % |
| | | | | | | | | | | | |
Raymond James Bank as of September 30, 2021: | | | | | | | | | | | | |
Tier 1 leverage | | $ | 2,626 | | | 7.4 | % | | $ | 1,411 | | | 4.0 | % | | $ | 1,763 | | | 5.0 | % |
Tier 1 capital | | $ | 2,626 | | | 13.4 | % | | $ | 1,177 | | | 6.0 | % | | $ | 1,569 | | | 8.0 | % |
CET1 | | $ | 2,626 | | | 13.4 | % | | $ | 883 | | | 4.5 | % | | $ | 1,275 | | | 6.5 | % |
Total capital | | $ | 2,873 | | | 14.6 | % | | $ | 1,569 | | | 8.0 | % | | $ | 1,962 | | | 10.0 | % |
Raymond James Bank’s regulatory capital increased compared to September 30, 2021, driven by an increase in equity due to positive earnings, offset by dividends paid to RJF. Raymond James Bank’s Tier 1 and Total capital ratios decreased compared to September 30, 2021, due to an increase in risk-weighted assets, primarily resulting from increases in bank loans, available-for-sale securities, and deferred tax assets, partially offset by the increase in regulatory capital. Raymond James Bank’s Tier 1 leverage ratio at September 30, 2022 decreased compared to September 30, 2021 due to higher average assets, driven primarily by the increases in bank loans and available-for-sale securities.
On June 1, 2022, we completed our acquisition of TriState Capital, including TriState Capital Bank. See Note 63 for additional information regarding howon this acquisition.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Actual | | Requirement for capital adequacy purposes | | To be well-capitalized under regulatory provisions |
$ in millions | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
TriState Capital Bank as of September 30, 2022: | | | | | | | | | | | | |
Tier 1 leverage | | $ | 1,093 | | | 7.3 | % | | $ | 601 | | | 4.0 | % | | $ | 752 | | | 5.0 | % |
Tier 1 capital | | $ | 1,093 | | | 14.1 | % | | $ | 463 | | | 6.0 | % | | $ | 618 | | | 8.0 | % |
CET1 | | $ | 1,093 | | | 14.1 | % | | $ | 348 | | | 4.5 | % | | $ | 502 | | | 6.5 | % |
Total capital | | $ | 1,122 | | | 14.5 | % | | $ | 618 | | | 8.0 | % | | $ | 772 | | | 10.0 | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Our banks may pay dividends to RJF without prior approval of their respective regulators subject to certain restrictions including retained net income and targeted regulatory capital ratios. Dividends paid to RJF from our banks may be limited to the extent that capital is needed to support their 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. As a member firm of the Financial Industry Regulatory Authority (“FINRA”), RJ Bank utilizes derivatives&A is subject to mitigateFINRA’s capital requirements, which are substantially the same as Rule 15c3-1. Rule 15c3-1 provides for an “alternative net capital requirement,” which RJ&A has elected. Regulations require that minimum net capital, as defined, be equal to the greater of $1.5 million or 2% of aggregate debit items arising from client balances. FINRA may impose certain restrictions, such as restricting withdrawals of equity capital, if a member firm were to fall below a certain threshold or fail to meet minimum net capital requirements. As of September 30, 2022, RJ&A had excess net capital available to remit dividends
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
to RJF, some of 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.
| | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2022 | | 2021 |
| | |
Raymond James & Associates, Inc.: | | | | |
(Alternative Method elected) | | | | |
Net capital as a percent of aggregate debit items | | 40.9 | % | | 72.1 | % |
Net capital | | $ | 1,152 | | | $ | 2,035 | |
Less: required net capital | | (56) | | | (56) | |
Excess net capital | | $ | 1,096 | | | $ | 1,979 | |
The decrease in RJ&A’s net capital and excess net capital as of September 30, 2022 as compared to September 30, 2021 reflected the impact of significant portiondividends from RJ&A to RJF during the year ended September 30, 2022.
As of this risk.September 30, 2022, all of our other active regulated domestic and international subsidiaries were in compliance with and exceeded all applicable capital requirements.
NOTE 2325 – EARNINGS PER SHARE
All share and earnings per share information has been retroactively adjusted to reflect the September 21, 2021 three-for-two stock split described in Note 20.
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 | | 2022 | | 2021 | | 2020 |
Income for basic earnings per common share: | | | | | | |
Net income available to common shareholders | | $ | 1,505 | | | $ | 1,403 | | | $ | 818 | |
Less allocation of earnings and dividends to participating securities | | (3) | | | (2) | | | (1) | |
Net income available to common shareholders after participating securities | | $ | 1,502 | | | $ | 1,401 | | | $ | 817 | |
Income for diluted earnings per common share: | | | | | | |
Net income available to common shareholders | | $ | 1,505 | | | $ | 1,403 | | | $ | 818 | |
Less allocation of earnings and dividends to participating securities | | (3) | | | (2) | | | (1) | |
Net income available to common shareholders after participating securities | | $ | 1,502 | | | $ | 1,401 | | | $ | 817 | |
Common shares: | | | | | | |
Average common shares in basic computation | | 209.9 | | | 205.7 | | | 206.4 | |
Dilutive effect of outstanding stock options and certain RSUs | | 5.4 | | | 5.5 | | | 3.9 | |
Average common and common equivalent shares used in diluted computation | | 215.3 | | | 211.2 | | | 210.3 | |
Earnings per common share: | | | | | | |
Basic | | $ | 7.16 | | | $ | 6.81 | | | $ | 3.96 | |
Diluted | | $ | 6.98 | | | $ | 6.63 | | | $ | 3.88 | |
Stock options and certain RSUs excluded from weighted-average diluted common shares because their effect would be antidilutive | | 0.1 | | | 0.1 | | | 2.3 | |
|
| | | | | | | | | | | | |
| | 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 |
|
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, as well as the RSAs granted as part of our acquisition of TriState Capital, 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, 2016,2022, 2021 and 2015.2020. 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:
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
|
| | | | | | | | | | | | |
| | 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 business segments: “Private Client Group;” “CapitalPCG; Capital Markets;” “Asset Asset Management;” RJ 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 benefitsexpenses 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 third-party mutual fund and annuity companies whose products we distribute and from banks to which we sweep a portion of our clients’ cash deposits as part of 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 and funds of a similar nature. 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 Raymond James Trust, N.A. 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 Raymond James Investment Management for certain retail accounts managed on behalf of RJ&A, trust servicesthird-party institutions, institutional accounts and proprietary mutual funds that we manage.
Our Bank segment provides various types of RJ Trust, and other fee-based asset management programs.
RJ Bank providesloans, including SBL, corporate loans, (C&I, CREresidential mortgage loans, and CRE construction), SBL, tax-exempt and residential loans. RJ BankThis segment is active in corporate loan syndications and participations. RJ Bankparticipations and lending directly to clients. This segment also provides FDIC insuredFDIC-insured deposit accounts, including to clients of our broker-dealer subsidiaries, as well as other deposit and to the general public. RJ Bankliquidity management products and services. This segment 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, certain acquisition-related expenses, primarily comprised of professional fees, 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 debtsuch debt. The Other segment also includes the reduction in workforce expenses, primarily the result of the elimination of certain positions, that occurred in our fiscal fourth quarter of 2020 in response to the economic environment at that time.
Refer to Notes 3 and the acquisition and integration costs associated with certain acquisitions (see Note 311 for additional information).information regarding our fiscal year 2022 acquisitions of Charles Stanley, TriState Capital, and SumRidge Partners.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents information concerning operations in these segments, inclusive of business:our acquisitions.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2022 | | 2021 | | 2020 |
Net revenues: | | | | | | |
Private Client Group | | $ | 7,710 | | | $ | 6,611 | | | $ | 5,552 | |
Capital Markets | | 1,809 | | | 1,885 | | | 1,291 | |
Asset Management | | 914 | | | 867 | | | 715 | |
Bank | | 1,084 | | | 672 | | | 765 | |
Other | | (50) | | | (8) | | | (82) | |
Intersegment eliminations | | (464) | | | (267) | | | (251) | |
Total net revenues | | $ | 11,003 | | | $ | 9,760 | | | $ | 7,990 | |
Pre-tax income/(loss): | | | | | | |
Private Client Group | | $ | 1,030 | | | $ | 749 | | | $ | 539 | |
Capital Markets | | 415 | | | 532 | | | 225 | |
Asset Management | | 386 | | | 389 | | | 284 | |
Bank | | 382 | | | 367 | | | 196 | |
Other | | (191) | | | (246) | | | (192) | |
Total pre-tax income | | $ | 2,022 | | | $ | 1,791 | | | $ | 1,052 | |
|
| | | | | | | | | | | | |
| | 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 | | 2022 | | 2021 | | 2020 |
Net interest income/(expense): | | | | | | |
Private Client Group | | $ | 207 | | | $ | 113 | | | $ | 132 | |
Capital Markets | | 9 | | | 6 | | | 9 | |
Asset Management | | 2 | | | — | | | 1 | |
Bank | | 1,053 | | | 642 | | | 738 | |
Other | | (68) | | | (88) | | | (58) | |
Net interest income | | $ | 1,203 | | | $ | 673 | | | $ | 822 | |
|
| | | | | | | | | | | | |
| | 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 | | 2022 | | 2021 |
Total assets: | | | | |
Private Client Group | | $ | 17,770 | | | $ | 20,270 | |
Capital Markets | | 3,951 | | | 2,457 | |
Asset Management | | 556 | | | 476 | |
Bank | | 56,737 | | | 36,154 | |
Other | | 1,937 | | | 2,534 | |
Total | | $ | 80,951 | | | $ | 61,891 | |
The following table presents goodwill, which was included in our total assets, on a segment basis.
| | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2022 | | 2021 |
Goodwill: | | | | |
Private Client Group | | $ | 550 | | | $ | 417 | |
Capital Markets | | 274 | | | 174 | |
Asset Management | | 69 | | | 69 | |
Bank | | 529 | | | — | |
Total | | $ | 1,422 | | | $ | 660 | |
|
| | | | | | | | |
| | 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 |
|
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Total assets in the PCG segment included $277 million and $276 million of goodwill at September 30, 2017 and 2016, respectively. Total assets in the Capital Markets segment included $134 million and $133 million of goodwill at September 30, 2017 and 2016, respectively.
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 | | 2022 | | 2021 | | 2020 |
Net revenues: | | | | | | |
U.S. | | $ | 10,065 | | | $ | 9,067 | | | $ | 7,446 | |
Canada | | 542 | | | 485 | | | 386 | |
Europe | | 396 | | | 208 | | | 158 | |
Total | | $ | 11,003 | | | $ | 9,760 | | | $ | 7,990 | |
Pre-tax income/(loss): | | | | | | |
U.S. | | $ | 1,907 | | | $ | 1,701 | | | $ | 1,028 | |
Canada | | 83 | | | 53 | | | 29 | |
Europe | | 32 | | | 37 | | | (5) | |
Total | | $ | 2,022 | | | $ | 1,791 | | | $ | 1,052 | |
|
| | | | | | | | | | | | |
| | 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 |
|
The following table presents our total assets by major geographic area in which they were held.
Our | | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2022 | | 2021 |
Total assets: | | | | |
U.S. | | $ | 74,428 | | | $ | 57,952 | |
Canada | | 3,631 | | | 3,724 | |
Europe | | 2,892 | | | 215 | |
Total | | $ | 80,951 | | | $ | 61,891 | |
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 | | 2022 | | 2021 |
Goodwill: | | | | |
U.S. | | $ | 1,250 | | | $ | 619 | |
Canada | | 23 | | | 25 | |
Europe | | 149 | | | 16 | |
Total | | $ | 1,422 | | | $ | 660 | |
|
| | | | | | | | |
| | 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, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Total assets in the United States included $356 million of goodwill at September 30, 2017 and 2016, respectively. Total assets in Canada included $45 million and $43 million of goodwill at September 30, 2017 and 2016, respectively. Total assets in Europe included $10 million and $9 million of goodwill at September 30, 2017 and 2016, respectively.
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, 2017,2022, 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 are2022, approximately $125 million of its investment in RJ&A and RJFS was available for distribution to the Parent without further regulatory approvals. As of September 30, 2022, approximately $5.1 billion of net assets of our U.S. broker-dealers and bank subsidiaries were restricted underfrom distributions to the parent due to regulatory or other restrictions from being transferred from certain subsidiaries 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 In addition, a large portion of our non-U.S. subsidiaries’ net assets was held to meet regulatory requirements and was not available for use by the profits of subsidiaries, other than RJ Bank, as dividends.parent.
Cash and cash equivalents of $1.29$1.91 billion and $810 million$1.16 billion as of September 30, 20172022 and 2016,2021, 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 otherwiseloaned by the Parent to RJ&A, which RJ&A had invested by one of our subsidiaries on behalf of RJF.RJF, or otherwise deployed in its normal business activities. The loan to RJ&A, which totaled $1.30 billion and $649 million as of September 30, 2022 and 2021, respectively, is included in “Intercompany receivables from subsidiaries” in the table below. The amount held in depository accounts at RJRaymond James Bank was $192$260 million as of September 30, 2017,2022, of which $230 million was available on demand without restriction. As of September 30, 2021, $229 million was held in depository accounts at Raymond James Bank, of which $152 million was available on demand and without restriction. As of September 30, 2016, $350 million was held in depository accounts at RJ Bank, all of which was available on demand and without restriction.
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.
In the following tables, “bank subsidiaries” refers to Raymond James Bank and TriState Capital Bank, including its holding company which is a subsidiary of RJF. The following table presents the Parent’s statements of financial condition.
| | | | | | | | | | | | | | |
| | September 30, |
$ in millions | | 2022 | | 2021 |
Assets: | | | | |
Cash and cash equivalents | | $ | 629 | | | $ | 527 | |
Assets segregated for regulatory purposes and restricted cash ($1 and $1 at fair value) | | 31 | | | 478 | |
Intercompany receivables from subsidiaries (primarily non-bank subsidiaries) | | 1,624 | | | 877 | |
Investments in consolidated subsidiaries: | | | | |
Bank subsidiaries | | 3,549 | | | 2,594 | |
Non-bank subsidiaries | | 5,611 | | | 5,703 | |
Goodwill and identifiable intangible assets, net | | 32 | | | 32 | |
All other | | 907 | | | 1,055 | |
Total assets | | $ | 12,383 | | | $ | 11,266 | |
Liabilities and equity: | | | | |
Accrued compensation, commissions and benefits | | $ | 715 | | | $ | 798 | |
Intercompany payables to subsidiaries: | | | | |
Bank subsidiaries | | — | | | 2 | |
Non-bank subsidiaries | | 17 | | | 33 | |
Senior notes payable | | 2,038 | | | 2,037 | |
All other | | 155 | | | 151 | |
Total liabilities | | 2,925 | | | 3,021 | |
Equity | | 9,458 | | | 8,245 | |
Total liabilities and equity | | $ | 12,383 | | | $ | 11,266 | |
RAYMOND JAMES FINANCIAL, INCINC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents the Parent’s statements of financial condition:income.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2022 | | 2021 | | 2020 |
Revenues: | | | | | | |
Dividends from non-bank subsidiaries | | $ | 2,002 | | | $ | 257 | | | $ | 634 | |
Dividends from bank subsidiaries | | 60 | | | — | | | 130 | |
Interest from subsidiaries | | 23 | | | 9 | | | 18 | |
Interest income | | 3 | | | 1 | | | 3 | |
All other | | 17 | | | 21 | | | 23 | |
Total revenues | | 2,105 | | | 288 | | | 808 | |
Interest expense | | (93) | | | (97) | | | (87) | |
Net revenues | | 2,012 | | | 191 | | | 721 | |
Non-interest expenses: | | | | | | |
Compensation, commissions and benefits (1) | | 98 | | | 81 | | | 63 | |
Non-compensations expenses: | | | | | | |
Communications and information processing | | 6 | | | 5 | | | 6 | |
Occupancy and equipment | | 1 | | | 1 | | | 1 | |
Business development | | 20 | | | 19 | | | 18 | |
Losses on extinguishment of debt | | — | | | 98 | | | — | |
Intercompany allocations and charges | | (8) | | | (14) | | | (16) | |
Other | | 64 | | | 30 | | | 23 | |
Total non-compensation expenses | | 83 | | | 139 | | | 32 | |
Total non-interest expenses | | 181 | | | 220 | | | 95 | |
Pre-tax income/(loss) before equity in undistributed net income of subsidiaries | | 1,831 | | | (29) | | | 626 | |
Income tax benefit | | (20) | | | (99) | | | (58) | |
Income before equity in undistributed net income of subsidiaries | | 1,851 | | | 70 | | | 684 | |
Equity in undistributed net income of subsidiaries (2) | | (342) | | | 1,333 | | | 134 | |
Net income | | 1,509 | | | 1,403 | | | 818 | |
Preferred stock dividends | | 4 | | | — | | | — | |
Net income available to common shareholders | | $ | 1,505 | | | $ | 1,403 | | | $ | 818 | |
(1) The year ended September 30, 2020 included the portion of the reduction in workforce expenses incurred during the fiscal fourth quarter of 2020 that related to the Parent.
(2) The year ended September 30, 2022 included significant dividends from RJ&A to RJF, which were in excess of net income for the period.
|
| | | | | | | | |
| | 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:
|
| | | | | | | | | | | | |
| | 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, INC 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 | | 2022 | | 2021 | | 2020 |
Cash flows from operating activities: | | | | | | |
Net income | | $ | 1,509 | | | $ | 1,403 | | | $ | 818 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Loss on investments | | 1 | | | 5 | | | 4 | |
Unrealized (gain)/loss on company-owned life insurance policies, net of expenses | | 159 | | | (157) | | | (50) | |
Equity in undistributed net income of subsidiaries | | 342 | | | (1,333) | | | (134) | |
Losses on extinguishment of debt | | — | | | 98 | | | — | |
Other | | 161 | | | 94 | | | 102 | |
Net change in: | | | | | | |
| | | | | | |
Intercompany receivables | | (23) | | | (14) | | | 126 | |
Other assets | | 40 | | | (35) | | | 24 | |
Intercompany payables | | (18) | | | (14) | | | (70) | |
Other payables | | 3 | | | 38 | | | 43 | |
Accrued compensation, commissions and benefits | | (82) | | | 202 | | | 73 | |
Net cash provided by operating activities | | 2,092 | | | 287 | | | 936 | |
| | | | | | |
Cash flows from investing activities: | | | | | | |
| | | | | | |
Investments in subsidiaries | | (1,092) | | | (420) | | | (106) | |
(Advances to)/repayments from subsidiaries, net | | (723) | | | 1,039 | | | (885) | |
Investment in note receivable | | (125) | | | — | | | — | |
Proceeds from sales of investments | | 7 | | | 2 | | | 9 | |
Purchase of investments in company-owned life insurance policies, net | | (63) | | | (36) | | | (55) | |
Net cash provided by/(used in) investing activities | | (1,996) | | | 585 | | | (1,037) | |
| | | | | | |
Cash flows from financing activities: | | | | | | |
Repurchases of common stock and share-based awards withheld for payment of withholding tax requirements | | (216) | | | (151) | | | (291) | |
Dividends on preferred and common stock | | (277) | | | (218) | | | (205) | |
Exercise of stock options and employee stock purchases | | 52 | | | 53 | | | 62 | |
Proceeds from senior note issuances, net of debt issuance costs paid | | — | | | 737 | | | 494 | |
Extinguishment of senior notes payable | | — | | | (844) | | | — | |
| | | | | | |
| | | | | | |
| | | | | | |
Net cash provided by/(used in) financing activities | | (441) | | | (423) | | | 60 | |
Net increase/(decrease) in cash and cash equivalents, including those segregated for regulatory purposes and restricted cash | | (345) | | | 449 | | | (41) | |
Cash and cash equivalents, including those segregated for regulatory purposes and restricted cash at beginning of year | | 1,004 | | | 555 | | | 596 | |
Cash and cash equivalents, including those segregated for regulatory purposes and restricted cash at end of year | | $ | 659 | | | $ | 1,004 | | | $ | 555 | |
| | | | | | |
Cash and cash equivalents | | $ | 629 | | | $ | 527 | | | $ | 478 | |
Cash and cash equivalents segregated for regulatory purposes and restricted cash | | 30 | | | 477 | | | 77 | |
Total cash and cash equivalents, including those segregated for regulatory purposes and restricted cash at end of year | | $ | 659 | | | $ | 1,004 | | | $ | 555 | |
| | | | | | |
Supplemental disclosures of cash flow information: | | | | | | |
Cash paid for interest | | $ | 117 | | | $ | 89 | | | $ | 72 | |
Cash paid for income taxes, net | | $ | 24 | | | $ | 35 | | | $ | 32 | |
| | | | | | |
Common stock issued as consideration for TriState Capital acquisition | | $ | 778 | | | $ | — | | | $ | — | |
Restricted stock awards issued as consideration for TriState Capital acquisition | | $ | 28 | | | $ | — | | | $ | — | |
Preferred stock issued as consideration for TriState Capital acquisition | | $ | 120 | | | $ | — | | | $ | — | |
Effective settlement of note receivable for TriState Capital acquisition | | $ | 123 | | | $ | — | | | $ | — | |
|
| | | | | | | | | | | | |
| | 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
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
SUPPLEMENTARY DATA:
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
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| | | | | | | | | | | | | |
| | 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 |
|
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| | | | | | | | | | | | | |
| | 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 |
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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.
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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 inEffective July 1, 2022, we completed our acquisition of SumRidge Partners. Management has elected to exclude SumRidge Partners from our assessment of the effectiveness of our internal control over financial reporting as of September 30, 2022, as permitted by the SEC Staff guidance (see further information below). As of September 30, 2022, management was in the process of integrating SumRidge Partners into our internal control over financial reporting.
Other than as discussed above, there were no changes during the yearthree months ended September 30, 20172022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER
RAYMOND JAMES FINANCIAL, REPORTINGINC. AND SUBSIDIARIES
Report 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.
Effective June 1, 2022 and July 1, 2022, we completed our acquisitions of TriState Capital and SumRidge Partners, respectively. Consistent with guidance issued by the SEC staff that an assessment of a recently acquired business may be omitted from management’s report on internal control over financial reporting in the year of acquisition, management excluded TriState Capital and SumRidge Partners from its assessment of the effectiveness of our internal control over financial reporting as of September 30, 2022. TriState Capital constituted 19% of consolidated total assets as of September 30, 2022 and 1% and 2% of consolidated net revenues and consolidated net income, respectively, for our fiscal year ended September 30, 2022. SumRidge Partners constituted 1% of consolidated total assets as of September 30, 2022 and less than 1% of both consolidated net revenues and consolidated net income for our fiscal year ended September 30, 2022. Management’s basis for exclusion included one or more of the following factors applicable to each respective acquisition: the size of the acquisition relative to our pre-acquisition financial statements, the complexity of the acquired business, and the timing between the acquisition and our fiscal year end.
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, 2017.2022. 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, 20172022 (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, 2017,2022, 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, 2022, 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, 2022 and 2021, 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, 2022, and the related notes (collectively, the consolidated financial statements), and our report dated November 22, 2022 expressed an unqualified opinion on those consolidated financial statements.
The Company acquired TriState Capital Holdings, Inc. and SumRidge Partners, LLC during the year ended September 30, 2022, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2022, TriState Capital Holdings, Inc. and SumRidge Partners, LLC. TriState Capital Holdings, Inc. constituted approximately 19% of consolidated total assets, approximately 1% of consolidated net revenues, and approximately 2% of consolidated net income, and SumRidge Partners, LLC constituted approximately 1% of consolidated total assets, and less than 1% of consolidated net revenues and consolidated net income included in the consolidated financial statements of the Company as of and for the year ended September 30, 2022. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of TriState Capital Holdings, Inc. and SumRidge Partners, LLC.
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, 201722, 2022
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 20182023 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, 2017.2022.
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 20182023 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, 2017.2022.
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. |
3.1.1 | | |
3.23.1.2 | | |
3.1.3 | | |
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. |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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Exhibit Number | | Description |
10.14.2.4 | * | Seventh Supplemental Indenture, dated as of March 31, 2020, for the 4.650% Senior Notes due 2030, between Raymond James Financial, Inc. 2002 Incentiveand 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. |
4.3 | | Deposit Agreement among TriState Capital Holdings, Inc., Computershare Inc., Computershare Trust Company, N.A. and the holders from time to time of the depositary receipts described therein relating to 6.75% Fixed-to-Floating Rate Series A Non-Cumulative Perpetual Preferred Stock, Option Plan, effective February 14, 2002, incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8, No. 333-98537,8-A, filed with the Securities and Exchange Commission on August 22, 2002.May 31, 2022. |
10.24.4 | | |
4.5 | | |
4.6 | | |
4.7 | | |
4.8 | | |
10.1 | | |
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 | * | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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Exhibit Number | | Description |
10.3.13 | * | |
10.3.14 | * | |
10.3.15 | * | |
10.4 | * | |
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 | | |
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(1) Certain instruments defining the rights of holders of the $97,500,000 in aggregate principal amount of 5.75% Fixed-to-Floating Rate Subordinated Notes due 2030 that the registrant assumed from TriState Capital in connection with the acquisition on June 1, 2022 are omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The registrant agrees to furnish copies of these instruments to the SEC upon request.
* 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 Registrantregistrant 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 21st22nd 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, ChairmanChair 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 Registrantregistrant and in the capacities and on the dates indicated.
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Signature | Title | Date |
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/s/ PAUL C. REILLY | ChairmanChair and Chief Executive Officer (Principal Executive Officer) and Director | November 21, 201722, 2022 |
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, 201722, 2022 |
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, 201722, 2022 |
Jennifer C. AckartJonathan W. Oorlog, Jr. | | |
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/s/ THOMAS A. JAMES | ChairmanChair Emeritus and Director | November 21, 201722, 2022 |
Thomas A. James | | |
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/s/ CHARLES G. VON ARENTSCHILDTMARLENE DEBEL | Director | November 21, 201722, 2022 |
Charles G. von ArentschildtMarlene Debel | | |
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/s/ SHELLEY G. BROADERROBERT M. DUTKOWSKY | Director | November 21, 201722, 2022 |
Shelley G. BroaderRobert M. Dutkowsky | | |
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/s/ JEFFREY N. EDWARDS | Director | November 21, 201722, 2022 |
Jeffrey N. Edwards | | |
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/s/ BENJAMIN C. ESTY | Director | November 21, 201722, 2022 |
Benjamin C. Esty | | |
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/s/ FRANCIS S. GODBOLDANNE GATES | Vice Chairman and Director | November 21, 201722, 2022 |
Francis S. GodboldAnne Gates | | |
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/s/ GORDON L. JOHNSON | Director | November 21, 201722, 2022 |
Gordon L. Johnson | | |
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/s/ RODERICK C. MCGEARY | Director | November 21, 201722, 2022 |
Roderick C. McGeary | | |
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/s/ ROBERT P. SALTZMANRAJ SESHADRI | Director | November 21, 201722, 2022 |
Robert P. SaltzmanRaj Seshadri | | |
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/s/ SUSAN N. STORY | Director | November 21, 201722, 2022 |
Susan N. Story | | |